The need for commercial banks to improve Priority Sector advances was emphasized since 1968 with special focus on Agriculture and Small Scale industries. Initially there was no specific target fixed in respect of priority sector lending but in the year 1974 banks were advised to raise the share of these sectors to 1/3rd of their aggregate advances by March 1979. Subsequently, on the basis of the recommendations of the Working Group on the Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programme by Banks under the chairmanship of Dr. K. S. Krishna swamy, all commercial banks were advised to achieve the target of priority sector lending at 40% of aggregate bank advances with specified sub-targets for lending to agriculture and weaker sections. The Internal Working Group of the RBI headed by Shri C. S. Murthy and the Shri Y.H.Malegam committee constituted to study issues and concerns in the Micro Finance institutions (MFI) sector, inter alia, had recommended review of the guidelines on priority sector lending. Subsequently, RBI has setup a Committee headed by Shri M V Nair to re-examine the existing classification and suggest revised guidelines with regard to Priority Sector lending classification and related issues. Subsequently, an Internal Working Group was set up by RBI in July 2014 to revisit the existing priority sector lending guideline and accordingly, revised guidelines are issued on 23.04.2015 which is as under:
1. Agriculture: The present distinction between direct and indirect agriculture is dispensed with. The lending to agriculture has been defined which includes Farm sector, Agriculture infrastructure and Ancillary activities. List of eligible activities under each category are furnished here under:
i) Farm Credit: Loans to individual farmers, including SHGs/JLGs directly engaged in agriculture and allied activities such as dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture. The credit facilities to the above segments covers crop loans as well as term loans. Loans to farmers up to `50 lakh against pledge/hypothecation of agriculture produce for a period not exceeding 12 months. It also covers loans to corporate farmers, farmers’ producer organizations, partnership firms and co-operatives of farmers.