Priority Sector – Revised Guidelines
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.Krishnaswamy, all commercial banks were advised to achieve the target of priority sector lending at 40 percent of aggregate bank advances. Sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. 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. Accordingly, revised guidelines on Priority Sector are issued in July 2012.
i) Direct Finance to Agriculture: Loans to individual farmers including SHGs/JLGs engaged in agriculture and allied activities viz., dairy, fishery, animal husbandry and sericulture are treated as direct lending to agriculture irrespective of the amount. However, loans to 31ttest31ed including farmer’s producer companies of individual farmers, partnership firms and co-operatives of farmers for the said activities up to an aggregate limit of Rs.2 crore per borrower is treated as direct lending to agriculture. The various activities that come under direct lending to agriculture are:
- Short-term loans for raising crops, i.e. for crop loans, which include traditional/non-traditional plantations, horticulture and allied activities.
- Medium & long term loans for agriculture and allied activities (purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and development loans for allied activities).
- Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by individuals, SHGs and cooperatives in rural areas.
- Loans to farmers up to Rs.25 lakh against pledge/hypothecation of agriculture produce for a period not exceeding 12 months.
- Export credit to farmers for exporting their own farm produce.
If the aggregate loan limit per borrower is more than Rs.2 crore for the above said purposes, the entire loan should be treated as indirect finance to agriculture.
ii) Indirect finance to agriculture: Lending to the following activities is treated as indirect finance to agriculture:
- Corporates / partnership firms / institutions engaged in Agriculture and Allied Activities (dairy, fishery, animal husbandry, poultry, sericulture etc.)
- Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS)
- MFIs for on-lending to farmers for agricultural and allied activities
- NGOs for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural and allied activities.
- RRBs for on-lending to agriculture and allied activities.
- Dealers/sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs up to Rs.100 lakh per borrower.
- Setting up of Agri clinics and Agribusiness Centres.
- Custom Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis.
- Construction and running of storage facilities.
2. Micro and Small Enterprises: Bank loans to Micro and Small Enterprises (MSE) engaged in providing or rendering of services will be eligible for classification to MSE sector under priority sector up to an aggregate limit of Rs.10 crore per borrower/unit, provided they satisfy the investment criteria for equipment as defined under MSMED Act, 2006.
3. Medium Enterprises: Units which are engaged in manufacture/production/preservation of goods and whose investment in plant and machinery should be as per the guidelines are treated as Medium Enterprises.
i) Manufacturing Enterprises are those engaged in manufacturing or production of goods. These are defined in terms of investment in Plant & Machinery. Loans extended to Medium Manufacturing Enterprises shall be classified as Priority Sector advances.
ii) Service Enterprises are the enterprises engaged in providing or rendering of services. These are defined in terms of investment in Equipment. Loans extended to Medium Service Enterprises up to Rs.10 crore shall be classified as Priority Sector advances. The modified definitions of MSM Enterprises are as under: