LENDING TO PRIORITY SECTOR
The main features of guidelines issued by Reserve Bank of India to banks on lending to Priority Sector are as follows: The priority sector broadly comprises the following:
- Small Scale Industries
- Other activities / borrowers (such as small business, retail trade, small transport operators, professional and self employed persons, housing, education loans, micro credit, etc.)
Targets for Priority Sector Lending
Scheduled Commercial Banks excluding Foreign Banks
- Total priority sector advances to constitute 40 per cent of net bank credit and that a substantial portion to be directed to the weaker sections.
- Sub targets within the overall main lending target of 40 per cent of net bank credit:
- 18 per cent of net bank credit to agricultural sector,
- 10 per cent of net bank credit to the ‘weaker sections’ and
- 1 per cent of previous year’s total advances to be given under the Differential Rate of Interest (DRI) scheme.
- Shortfall in Lending to Priority Sector to be contributed to the Rural Infrastructure Development Fund (RIDF) established with NABARD as per details decided every year in the Union Budget.
- Minimum lending to priority sector shall be 32 percent of their net credit.
- Since the foreign banks have no rural branch network, the composition of priority sector advances in their case will include export credit provided by them.
- Sub targets within the overall main lending target of 32 per cent of net bank credit:
- Not less than 10 per cent of the net bank credit to small scale industries sector
- Not less than 12 per cent of the net bank credit to constitute export credit
Any shortfall in target/sub target to be made good by depositing for a period of three years, an amount equivalent to the shortfall with the Small Industries Development Bank of India (SIDBI) at rates of interest ranging from Bank Rate to Bank Rate minus 3 percentage points.