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Priority sector lending

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. Export Credit
  4. Education
  5. Housing
  6. Social Infrastructure
  7. Renewable Energy
  8. Others

Targets for scheduled commercial banks

The targets and sub-targets set under priority sector lending for all scheduled commercial banks operating in India are furnished below:

Categories Domestic scheduled commercial banks and foreign banks with 20 branches and above Foreign banks with less than 20 branches Regional Rural Banks
Small Finance Banks
Total Priority Sector 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher; out of which up to 32% can be in the form of lending to Exports and not less than 8% can be to any other priority sector 75 per cent of ANBC as computed in para 6 below or CEOBE whichever is higher; However, lending to Medium Enterprises, Social Infrastructure and Renewable Energy shall be reckoned for priority sector achievement only up to 15 per cent of ANBC. 75 per cent of ANBC as computed in para 6 below or CEOBE whichever is higher.
Agriculture

18 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

Within the 18 per cent target for agriculture, a target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers.##

Not applicable 18 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. 18 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
Micro Enterprises 7.5 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher Not applicable 7.5 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher 7.5 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher
Advances to Weaker Sections 12 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher Not applicable 15 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher 12 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher

For complete guidelines, click here.

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

  1. Total Priority Sector - 40 per cent of ANBC or CEOBE, whichever is higher, which shall stand increased to 75 per cent of ANBC or CEOBE, whichever is higher, with effect from March 31, 2024
  2. Micro Enterprises - 7.5 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher
  3. Advances to Weaker Sections -12 per cent# of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

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) 
4. Scheduled Castes and Scheduled Tribes
5. Beneficiaries of Differential Rate of Interest (DRI) scheme 
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. Minority communities as may be notified by Government of India from time to time

Overdraft availed by PMJDY account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time may be classified under Weaker Sections.

In States, where one of the minority communities notified is, in fact, in majority, item (xi) will cover only the other notified minorities. These States/ Union Territories are Punjab, Meghalaya, Mizoram, Nagaland, Lakshadweep and Jammu & Kashmir.

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 subject to a limit up to Rs 75 lakh against NWRs/eNWRs and up to Rs 50 lakh against warehouse receipts other than NWRs/eNWRs.

(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.

(viii) Loans to farmers for installation of stand-alone Solar Agriculture Pumps and for solarisation of grid connected Agriculture Pumps.

(ix) Loans to farmers for installation of solar power plants on barren/fallow land or in stilt fashion on agriculture land owned by farmer.

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.

Loans up to Rs 75 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months against NWRs/eNWRs and up to Rs 50 lakh against warehouse receipts other than NWRs/eNWRs.

Loans up to Rs 5 crore per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price.

UCBs are not permitted to lend to co-operatives of farmers.

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 purchase of the produce of members (Not applicable to UCBs)
(ii) Loans up to Rs 50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in agriculture and allied services.
(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 up to Rs 2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.
  • 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)

An enterprise shall be classified as a Micro, Small or Medium enterprise on the basis of the following criteria, namely:

  • a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
  • a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and
  • a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees

 Further, such MSMEs should be engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 or engaged in providing or rendering of any service or services. All bank loans to MSMEs conforming to the above guidelines qualify for classification under priority sector lending.

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 7.5 percent prescribed for Micro Enterprises under priority sector.
  • Other Finance to MSMEs
    • Loans up to Rs 50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that confirm to the definition of MSME 
    • 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
    • Loans to registered NBFCs (other than MFIs) for on-lending to Micro & Small Enterprises
    • 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).
    • Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time, will qualify as achievement of the target for lending to Micro Enterprises.
    • Outstanding deposits with SIDBI and MUDRA Ltd. 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, not exceeding Rs 20 lakh will be considered as eligible for priority sector classification. Loans currently classified as priority sector will continue till maturity.

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 up to Rs10 lakh in metropolitan centres and up to  Rs 6 lakh in other centres for repairs to damaged dwelling units conforming to the overall cost of the dwelling unit
  • Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to dwelling units with carpet area of not more than 60 sq.m.
  • Bank loans for affordable housing projects using at least 50% of FAR/FSI for dwelling units with carpet area of not more than 60 sq.m.
  • Bank loans to HFCs (approved by NHB for their refinance) for on-lending, up to Rs 20 lakh for individual borrowers, for purchase/construction/ reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers,

Social infrastructure

Bank loans up to a limit of  Rs 5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at household level, etc. and loans up to a limit of Rs 10 crore per borrower for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres. In case of UCBs, the above limits are applicable only in centres having a population of less than one lakh.

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 30 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 etc., will be eligible for Priority Sector classification. For individual households, the loan limit will be Rs 10 lakh per borrower.

Others

  • Loans not exceeding Rs 1.00 lakh per borrower provided directly by banks to individuals and individual members of SHG/JLG, provided the individual borrower’s household annual income in rural areas does not exceed ₹1.00 lakh and for non-rural areas it does not exceed Rs 1.60 lakh, and loans not exceeding Rs 2.00 lakh provided directly by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by the SHGs.
  • Loans to distressed persons not exceeding Rs 1,00,000/- per borrower to prepay their debt to non-institutional lenders.
  • 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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