Saturday, April 25, 2015

New PSL Norms

RBI changed Priority Sector Lending (PSL) norms

In previous article on Priority Sector Lending, we have discussed about the new proposals which could be adopted by RBI. Today, on April 24, 2015, RBI has revised the PSL norms. We have categorized the norms sector-wise for better understanding.

1.  Agriculture and Allied Activities

  • The new norm requires banks to ensure that 8 % of their lending shall go to small and marginal farmers.
  • Earlier, there were sub-limits for direct lending and indirect lending to agriculture. These two segments now have been mergedmaking it easier for banks to achieve the sub-target of 18 % for agricultural activities. Large loans to food industry are also now covered under agriculture sector.

2.  Micro and Small Enterprises

  • Banks now have to lend 7.5 % of their loans to the micro enterprises, as proposed.

3.  Education
  • Loans up to Rs. 10 lakh, including vocational courses, irrespective of the sanctioned amount, will be considered as part of PSL.

4.  Housing
  • Home loans up to Rs. 28 lakh in metros and Rs. 20 lakh in other centers will form part of the directed lending as long as the cost of the property is not more than Rs. 35 lakh and Rs. 25 lakh, respectively.

5.  Weaker Sections
  • No such major change in Weaker Sections

6.  Micro Credit
  • No such major change in Micro Credit Sections

7.  Renewable Energy (new sector added in PSL)
  • Any bank that lends up to Rs. 10 lakh to a household for solar power and biomass-based generators can classify the loan as priority sector.

8.  Social Infrastructure (new sector added in PSL)
  • Banks can also lend up to Rs. 5 crore per borrower for building social infrastructure such as schools, healthcare facilities, drinking water facilities and sanitation facilities in tier-II to tier-VI centers.

Foreign Banks - changed norms

Foreign banks, which previously enjoyed relaxed PSL norms, will face new challenges. The sub-targets for small and marginal farmers and micro enterprises would be made applicable post-2018, after a review in 2017 for foreign banks with more than 20 branches.

Foreign Banks with less than 20 branches will move to the total target of 40 % of loans, or 'Credit Equivalent Amount of Off-Balance Sheet Exposure', whichever is higher, on a par with other banks by 2019-20. It means that if any foreign bank issues a guarantee for Rs. 1 crore, it will have to disburse loans worth Rs. 40 lakh in the priority sector.

* To read previous article on Priority Sector Lending (PSL) - Click Me

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