India Banks New Norms For Priority Sectors

New norms for priority sector Draft moots adjusted net bank credit Special Correspondent CHENNAI: The Reserve Bank of India (RBI) on Wednesday came out with the muchawaited revised draft guidelines for lending by banks to the priority sector. The draft proposes that the priority sector lending target and sub-targets be linked to Adjusted Net Bank Credit or ANBC (that is, Net Bank Credit plus investments made by banks in non-SLR bonds in the held-to-maturity category or credit equivalent of off-balance-sheet exposures, whichever is higher (as distinct from the concept of Net Bank Credit applied so far). The draft guidelines say that the priority sector will broadly comprise agriculture, small scale industries, small business/service enterprises, micro credit, educational loans and housing loans and revises definition of small and micro sectors in terms of the

new law governing SMEs. The total (minimum) exposure to priority sector lending shall remain at 40 per cent (of ANBC). To encourage banks to lend directly to the priority sector, the banks’ deposits placed with NABARD/SIDBI against shortfall in their obligations would not be eligible for classification as indirect finance to agriculture/small scale industry (respectively in the case of Indian and foreign banks).

Foreign banks In the case of foreign banks, 50 per cent of the corpus of the proposed Small Enterprises Development Fund will be from shortfall in lending (against total obligation of 32 per cent) on a pro rata basis and 50 per cent from shortfall in the case of lending to SSI and export sectors. The draft includes some sub-sectoral targets for lending.