With a view to ensure an all-round development of the economy of the country, the Reserve Bank of India propagated the Priority Sector concept and provided guidelines to the Finance Sector to deliver credit.
The policy of Priority Sector Lending was headed by the Chairman, Mr. CS Murthy which involved the segments constituting the Priority Sector, targets and sub targets. The overall objective of Priority Sector Lending Program is to ensure that adequate institutional credit flows into some of the vulnerable sectors of the economy, which may not be attractive for the banks from the point of view of profitability.
The sectors categorized as Priority Sectors as per the RBI Circular, 2016 are as follows:
Agriculture and Allied Activities
The activities covered under Agriculture are classified under three sub-categories:
– Farm credit which includes short-term crop loans and medium/long-term credit to farmers
– Agriculture Infrastructure
– Ancillary Activities
Micro Small and Medium Enterprise
Direct Finance to small Enterprises includes all loans given to Micro and Small Enterprises engaged in manufacture or production, processing etc. The sub-sector includes small road and transport operators, small business professional, self employed and all other service professional.
Bank loans up to Rs. 5 crore per unit to Micro and Small Enterprises and Rs.10 crore to Medium Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006 are eligible for classification under priority sector.
Loans and advances granted to individuals for educational purpose are included under Priority Sector Lending if they meet the following criteria:
– Loan taken up to Rs. 10 lakhs for studies in India
– Loan taken up to Rs. 20 lakhs for studies abroad
Loans to individuals for purchase/construction of a dwelling unit per family are eligible to be considered as priority sector under the following criteria:
– Loans up to Rs. 28 lakh in metropolitan centers (with population of ten lakhs and above)
– Loans up to Rs. 20 lakhs in other centre
– Loans given for repairs to the damaged dwelling units of families’ up to Rs. 5 lakh in metropolitan cities,
– Loans given for repairs to the damaged dwelling units of families’ up to Rs. 2 lakh in rural and semi urban areas
Housing loans to banks’ own employees are not eligible for classification under priority sector.
Micro Credit constitutes of credit and other financial services and products of very small amounts not exceeding Rs.50 000 per borrower either given directly or indirectly through SHG/JLG Mechanism. These loans are aimed at enabling the poor or the needy to improve their standard of living.
Bank sanctions to a limit of ? 5 crore per borrower for building social infrastructure for activities namely schools, health care facilities, drinking water facilities and sanitation facilities (including loans for construction/ refurbishment of toilets and improvement in water facilities in the household) in Tier II to Tier VI centers are eligible for classification under priority sector.
Banks provide loans upto Rs. 15 crore to borrowers for projects like solar-based power generators, windmills, and non-conventional energy based public utilities for e.g. street lighting system.
Each Bank is mandated to lend 40% of the total loan book in eight sectors with a quota defined for each category and sub category. Interest rate on loans extended under this scheme are in line with the directives issued by the RBI from time to time i.e. in the present scenario linked to the Base rate of banks.
RBI keeps an eagle eye over the Banks to ensure that the defined targets are met each financial year. If they do not meet the defined targets, the Banks are penalized by the RBI.