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Priority sector credits

Priority Sector means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.

Categories of Priority Sector

The categories of priority sector are as follows

  1. Agriculture
  2. Micro, Small and Medium Enterprises
  3. Education
  4. Housing
  5. Social Infrastructure
  6. Renewable Energy
  7. Others

RBI guidelines for priority sector lending by Regional Rural Banks

RRBs will have a target of 75 per cent of their outstanding advances for priority sector lending and sub-sector targets as indicated in table below.

CategoriesTargets
Total Priority Sector75 per cent of total outstanding *
Agriculture18 per cent of total outstanding
Small and Marginal Farmers8 percent of total outstanding
Micro Enterprises7.5 per cent of total outstanding
Weaker Sections15 per cent of total outstanding

* The overall Priority Sector target should be achieved across all prescribed categories viz. – Agriculture, MSME, Education, Housing, Social Infrastructure, Renewable Energy and Others. However, lending to Medium Enterprises, Social Infrastructure and Renewable Energy shall be reckoned for priority sector achievement only up to 15 per cent of total outstanding.

The computation of priority sector targets/sub-targets achievement will be based on the total outstanding as on the corresponding date of the preceding year.

For complete guidelines, click here.

RBI guidelines for priority sector lending by Primary (Urban) Co-operative Banks (UCBs)

  1. 40%  of the total net bank credit as on 31st March should go to priority sector advances
  2. 10% of the priority sector advances or 10% of the total net bank credit, whichever is higher should go to weaker section.
  3. 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher should go to Micro enterprises.

For complete guidelines, click here.

Weaker sections under Priority sector

Priority sector loans to the following borrowers will be considered under Weaker Sections category

Sl.No
Category
1.Small and Marginal Farmers
2.Artisans, village and cottage industries where individual credit limits do not exceed Rs 1 lakh
3.Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS) (only for RRBs)
4.Scheduled Castes and Scheduled Tribes
5.Beneficiaries of Differential Rate of Interest (DRI) scheme (only for RRBs)
6.Self Help Groups
7.Distressed farmers indebted to non-institutional lenders
8.Distressed persons other than farmers, with loan amount not exceeding Rs 1 lakh per borrower to prepay their debt to non-institutional lenders
9.Individual women beneficiaries up to Rs 1 lakh per borrower
10.Persons with disabilities
11.

UCBs : Overdrafts upto Rs 5,000/- under Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts, provided the borrowers’ household annual income does not exceed Rs 100,000/- for rural areas and Rs 1,60,000/- for non-rural areas

RRBs : Overdraft limit to PMJDY account holder upto Rs 10,000/- with age limit of 18-65 years

12.Minority communities as may be notified by Government of India from time to time

Description of the eligible categories under priority sector

Agriculture

Lending to agriculture sector includes the following

  • Farm Credit (which will include short-term crop loans and medium/long-term credit to farmers)
  • Agriculture Infrastructure and
  • Ancillary Activities

A list of eligible activities under the three sub-categories is indicated below.

Farm credit

A. Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data of such loans], directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture. This will include:

(i) Crop loans to farmers, which will include traditional/non-traditional plantations and horticulture, and, loans for allied activities.

(ii) Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and developmental loans for allied activities.)

(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce.

(iv) Loans to farmers up to Rs 50 lakh against pledge/ hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months.

(v) Loans to distressed farmers indebted to non-institutional lenders.

(vi) Loans to farmers under the Kisan Credit Card Scheme.

(vii) Loans to small and marginal farmers for purchase of land for agricultural purposes.

B. Loans to corporate farmers, farmers' producer organizations/companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture up to an aggregate limit of Rs 2 crore per borrower. This will include:

(i) Crop loans to farmers which will include traditional/non-traditional plantations and horticulture, and, loans for allied activities.

(ii) Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and developmental loans for allied activities.)

(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce.

(iv) Loans up to Rs 50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months.

1.2. Agriculture infrastructure

i) Loans for construction of storage facilities (warehouses, market yards, godowns and silos) including cold storage units/ cold storage chains designed to store agriculture produce/products, irrespective of their location.

ii) Soil conservation and watershed development.

iii) Plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and vermi composting.

For the above loans, an aggregate sanctioned limit of Rs 100 crore per borrower from the banking system, will apply.

1.3. Ancillary activities

(i) Loans up to Rs 5 crore to co-operative societies of farmers for disposing of the produce of members.

(ii) Loans for setting up of Agriclinics and Agribusiness Centres.

(iii) Loans for Food and Agro-processing up to an aggregate sanctioned limit of Rs 100 crore per borrower from the banking system.

(iv) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture.

(v) Loans sanctioned by banks to MFIs for on-lending to agriculture sector

(vi) Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector shortfall.

For the purpose of computation of 8 percent target, Small and Marginal Farmers will include the following:-

  • Farmers with landholding of up to 1 hectare are considered as Marginal Farmers. Farmers with a landholding of more than 1 hectare and upto 2 hectares are considered as Small Farmers.
  • Landless agricultural labourers, tenant farmers, oral lessees and share-croppers.
  • Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual Small and Marginal farmers directly engaged in Agriculture and Allied Activities, provided banks maintain disaggregated data of such loans.
  • Loans to farmers' producer companies of individual farmers, and co-operatives of farmers directly engaged in Agriculture and Allied Activities, where the membership of Small and Marginal Farmers is not less than 75 per cent by number and whose land-holding share is also not less than 75 per cent of the total land-holding.

Micro, Small and Medium Enterprises (MSMEs)

The limits for investment in plant and machinery/equipment for manufacturing / service enterprise, as notified by Ministry of Micro, Small and Medium Enterprises, vide S.O.1642(E) dated September 9, 2006 are as under:-

Manufacturing Sector
EnterprisesInvestment in plant and machinery
Micro EnterprisesDoes not exceed twenty five lakh rupees
Small EnterprisesMore than twenty five lakh rupees but does not exceed five crore rupees
Medium EnterprisesMore than five crore rupees but does not exceed ten crore rupees
Service Sector
EnterprisesInvestment in equipment
Micro EnterprisesDoes not exceed ten lakh rupees
Small EnterprisesMore than ten lakh rupees but does not exceed two crore rupees
Medium EnterprisesMore than two crore rupees but does not exceed five crore rupees

Bank loans to Micro, Small and Medium Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006, irrespective of loan limits, are eligible for classification under priority sector, w.e.f. March 1, 2018. Bank loans to Micro, Small and Medium Enterprises, for both manufacturing and service sectors are eligible to be classified under the priority sector as per the following norms:

  • Manufacturing Enterprises - The Micro, Small and Medium Enterprises engaged in the manufacture or production of goods to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951 and as notified by the Government from time to time. The Manufacturing Enterprises are defined in terms of investment in plant and machinery.
  • Service Enterprises - 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.
  • Khadi and Village Industries Sector (KVI) - All loans to units in the KVI sector will be eligible for classification under the sub-target of 7 percent /7.5 percent prescribed for Micro Enterprises under priority sector.
  • Other Finance to MSMEs
    • Loans to entities involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.
    • Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries.
    • Loans sanctioned by banks to MFIs for on-lending to MSME sector
    • Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card, and Weaver’s Card etc. in existence and catering to the non-farm entrepreneurial credit needs of individuals).
    • Outstanding deposits with SIDBI on account of priority sector shortfall.
  • To ensure that MSMEs do not remain small and medium units merely to remain eligible for priority sector status, the MSME units will continue to enjoy the priority sector lending status up to three years after they grow out of the MSME category concerned.

Education

Loans to individuals for educational purposes including vocational courses upto Rs 10 lakh irrespective of the sanctioned amount will be considered as eligible for priority sector.

Housing

  • Loans to individuals up to Rs 35 lakh in metropolitan centres (with population of ten lakh and above) and loans up to Rs 25 lakh in other centres for purchase/construction of a dwelling unit per family provided the overall cost of the dwelling unit in the metropolitan centre and at other centres should not exceed Rs 45 lakh and Rs 30 lakh respectively.
  • The housing loans to banks’ own employees will be excluded.
  • Loans for repairs to damaged dwelling units of families up to Rs 2 lakhs.
  • The loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses for Economically Weaker Sections (EWS) and Low Income Groups (LIG), the total cost of which does not exceed Rs 10 lakhs per dwelling unit. For the purpose of identifying the economically weaker sections and low income groups, the family income limit is revised to Rs 3 lakhs per annum for EWS and Rs 6 lakh per annum for LIG, in alignment with the income criteria specified under the Pradhan Mantri Awas Yojana.

Social infrastructure

Bank loans up to a limit of Rs 5 crore per borrower for building social infrastructure 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 centres are eligible for classification under priority sector.

Bank credit to Micro Finance Institutions (MFI) extended for on-lending to individuals/ members of SHGs/ JLGs for water and sanitation facilities is also eligible for classification as priority sector loans under ‘Social Infrastructure’ subject to certain criteria.

Renewable Energy

Bank loans up to a limit of Rs 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification. For individual households, the loan limit will be Rs 10 lakh per borrower.

Others

  • Loans not exceeding Rs 50,000/- per borrower provided directly by banks to individuals and their SHG/JLG, provided the individual borrower’s household annual income in rural areas does not exceed Rs 10,00,000/- and for non-rural areas it does not exceed Rs 16,00,000/-.
  • Loans to distressed persons not exceeding Rs 10,00,000/- per borrower to prepay their debt to non-institutional lenders.
  • Overdrafts extended by banks upto Rs 5,000/- under Pradhan Mantri Jan-DhanYojana (PMJDY) accounts provided the borrowers household annual income does not exceed Rs 100,000/- for rural areas and Rs 1,60,000/- for non-rural areas.
  • Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.

Source : RBI



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