Reserve Bank of India updated the Master Circular on priority sector lending on June 21, 2024, incorporating the following updated instructions/guidelines on priority sector lending(PSL)-target and classification. This is to address regional disparities in the flow of priority sector credit at the district level, it was decided to rank districts based on per capita credit flow to the priority sector and build an incentive framework for districts with comparatively lower flow of credit and a dis-incentive framework for districts with comparatively higher flow of priority sector credit. With effect from FY 2024-25, a higher weight (125%) shall be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than ₹9,000), and a lower weight (90%) will be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹42,000). The list of both categories of districts is given in Annexes IA and IB and will be valid up to FY 2026-27. The districts other than those mentioned in Annexes IA and IB will continue to have an existing weightage of 100%.”
Notable changes highlighted by RBI in the latest circular are as follows. The following loans as per the prescribed limits are eligible for priority sector classification:
Loans provided directly by banks to individuals and individual members of SHG/JLG satisfy the criteria prescribed in Master Direction on Regulatory Framework for Microfinance Loans Directions, dated March 14, 2022.
Loans not exceeding ₹2.00 lakh provided by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of houses, construction of toilets, or any viable common activity started by SHGs.
Investment by banks in securitisation notes with loans against gold jewellery originated by NBFCs as underlying, are not eligible for priority sector status.
Loans against gold jewellery acquired by banks from NBFCs are not eligible for priority sector status.
Bank loans to MFIs (NBFC-MFIs, Societies, Trusts, etc.) for on-lending (not applicable to RRBs, UCBs and LABs)
Banks other than SFBs are allowed to extend credit to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI-recognised SROs for the sector, for on-lending to individuals and also to members of SHGs / JLGs.
With effect from May 5, 2021, SFBs are allowed to extend fresh credit to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI-recognised ‘Self-Regulatory Organisation’ of the sector, and which have a ‘gross loan portfolio’ (GLP) of up to ₹500 crores as on March 31 of the previous year, for on-lending to individuals. In case the GLP of the NBFC-MFIs/other MFIs exceeds the stipulated limit at a later date, all priority sector loans created before exceeding the GLP limit will continue to be classified by the SFBs as PSL till repayment/maturity, whichever is earlier. Bank credit as above will be allowed up to an overall limit of 10 percent of an individual bank’s total priority sector lending. These limits shall be computed by averaging across four quarters of the financial year, to determine adherence to the prescribed cap.
Loans disbursed by banks under above para are eligible for categorization as priority sector advance under respective categories viz., Agriculture, MSME, Social Infrastructure and Others, provided the MFIs adhere to the conditions prescribed in Chapter II (xx) and Chapter VIII of Master Directions DNBR PD.007 and Chapter II (xx) and Chapter IX of Master Directions DNBR PD.008/03.10.119/2016-17 dated September 1, 2016, as updated from time to time.
All Scheduled Commercial Banks (excluding SFBs, RRBs, UCBs, and LABs) can co-lend with all registered Non-Banking Financial Companies (including Housing Finance Companies) for lending to the priority sector. Detailed guidelines, in this regard, have been issued vide our circular FIDD.CO.Plan.BC.No.8/04.09.01/2020-21 dated November 5, 2020. For business continuity and to ensure an uninterrupted flow of credit to the priority sector, banks may continue existing arrangements per earlier guidelines on co-origination, issued vide our circular No. FIDD.CO.Plan.BC/08/04.09.01/2018-19 dated September 21, 2018, till the Board approved co-lending policy is put in place by them.
The all-inclusive interest charged to the ultimate borrower by the originating entity should not exceed the investing bank’s MCLR + 10% or EBLR + 14%.
The following are the different Categories of the Priority Sector;
Agriculture. (The lending to the agriculture sector will include Farm Credit (Agriculture and Allied Activities), lending for Agriculture Infrastructure, and Ancillary Activities).
Others.
In States, where one of the minority communities notified is found to be in majority, the above covers only the other notified minorities. These States and Union Territories are Punjab, Meghalaya, Mizoram, Nagaland, Lakshadweep, and Jammu & Kashmir
To know the targets and sub-targets read: PRIORITY SECTOR LENDING TARGET AND SUB-TARGET NORMS EXPLAINED
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