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Economy Jul 20, 2012

Foreign banks must follow priority sector lending norms: RBI

Mumbai: Foreign lenders with large presence in India, like Citi Bank and StanChart, will have to follow the same priority sector lending norms as the Indian banks, RBI said today.

While issuing the revised guidelines on priority sector lending targets, the Reserve Bank said foreign banks with branch network of 20 and above will have to abide by the priority sector lending target, which has been retained at 40 percent of their total advances.

"Foreign banks having 20 or more branches in the country will be brought on par with domestic banks for priority sector targets in a phased manner over a maximum period of 5 years starting April 1, 2013," it said.

The RBI logo. Reuters

For smaller lenders, the target remains at 32 percent.

RBI also said education and home loans up to the specified limits, and advances to individuals for up to Rs 50,000 to clear debts of money lenders, will be treated as priority lending.

Standard and Charterd Bank, Citi Bank, HSBC and Royal Bank of Scotland have more than 20 branches in India.

These banks will be required to submit an action plan for achieving the targets over a specific time frame to be approved by the central bank, RBI said.

In the home loan segment, RBI said advances of up to Rs 25 lakh in cities with population of over 10 lakh, and Rs 15 lakh in other towns, will be treated as priority lending.

Earlier, all loans up to Rs 25 lakh for purchase and construction of dwelling units constituted priority lending.

The focus of the revised guidelines, based on recommendations of the MV Nair-led panel, is also on direct lending by banks and not through intermediaries like Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs), the RBI said.

To meet credit needs of large sections of the population who had no access to institutional finance, RBI had created the framework of priority sector lending with mandated targets.

The priority sectors get timely and adequate credit.

Typically, these include small value loans to farmers for agriculture and allied activities, micro and small enterprises, housing for poor, education and other low income groups and weaker sections.

RBI said the targets under both direct and indirect agriculture have been retained at 13.5 percent and 4.5 percent, respectively, while refocusing the direct agricultural lending to individuals, Self Help Groups (SHGs) and Joint Liability Groups (JLGs) directly by banks.

Priority sector lending will also include loans to food and agro processing units; to individuals for educational purposes including for vocational courses up to Rs 10 lakh in India and Rs 20 lakh abroad; and to distressed farmers indebted to non institutional lenders.

Also, loans to micro and small service enterprises up to Rs 1 crore and all loans to micro and small manufacturing enterprises will be considered priority sector lending.

Overdrafts up to Rs 50,000 in no-frills account, loans to individuals other than farmers up to Rs 50,000 to prepay their debt to non-institutional lenders and advances to state sponsored organisations for scheduled castes and scheduled tribes too are priority sector lending.

The Nari Committee was set up in August 2011 to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending and related issues. The panel submitted its report in February 2012.

Loans for housing projects exclusively for economically weaker sections and low income groups, provided the cost does not exceed Rs 5 lakh per dwelling unit, will also be priority sector lending.

RBI further said bank loans to Primary Agricultural Credit Societies, Farmers' Service Societies and large Adivasi Multi-Purpose Co-operative Societies, ceded to or managed by such banks for on-lending to farmers for agricultural and allied activities, are included under direct agriculture.

The Committee had also stated that the robust reporting system with granularity and system generation of priority sector data is of utmost importance for proper monitoring and appropriate policy making.

RBI said it will issue separate guidelines for that.

PTI


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