banking and insurence

8/9/2019 Banking and Insurence

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Banking and insurance.

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TERM PAPER OF BANKING AND INSURANCE

TOPIC: - PRIORITY SECTOR ADVANCES SCHEME OF LEAD

BANK AND ASSIST THE BPL CUSTOMER TO FINALIZE THE

PROPOSAL WITH DOCUMENTATION AND FORMALITIES.

SUBMITTED TO , SUBMITTED BY,

ABHISHEK DUTTA. PRIYANKA

SEC :-T1801(B30)

REG NO:-10805425


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Acknowledgement

~SUCCESS IS TO BE MEASURED NOT SO MUCH

BY THE POSITION ONE HAS REACHED IN LIFE BUT

BY THE OBSTACLES THAT HE HAS OVERCOME

WHILE TRYING TO SUCCEED

Weexpress our sincere thanks to our respected lecturer as well

as our term paper guide MR.ABHISHEK DUTTA for his

guidance and tremendous encouragement bestowed throughout ourEndeavour.

Priyanka


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CONTENTS OF TERM PAPER

1.INTRODUCTION OF THE TOPIC2.EXECUTIVE SUMMARY OF BELOW POVERTY LINE3.REVIEW OF LITERATURE OF THE TOPIC4.ARTICLE ANALYSIS5.RBI GUIDELINESy LENDING TO PRIORITY SECTORy CATEGORIES OF PRIORITY SECTORy TARGETS/SUB-TARGETSy AGRICULTURE DIRECT FINANCEy INDIRECT FINANCEy Small ENTERPRISES DIRECT FINANCEy OTHER SMALL BUSINESS / SERVICE ENTERPRISESy MICRO CREDIT6.CURRENT CHANGES IN LENDING PRIORITY SECTOR

7.SUGGESTIONS

8.CONCLUSION

9.REFERENCE


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INTRODUCTION OF BELOW POVERTY LINE

Below Poverty Line is an economic benchmark and poverty threshold used by the government of

India to indicated economic disadvantage and to identify individuals and households in need ofgovernment assistance and aid. It is determined using various parameters which vary from state

to state and within states.

INTERNATIONAL BENCHMARKS

Internationally, an income of less than $1 per day per head of purchasing power parity is defined

as extreme poverty. By this estimate, about 45 percent of Indians are extremely poor. If the daily

income per head is less than $2, then the family is described as poor and about 80 percent of

Indians are poor. Income-based poverty lines consider the bare minimum income to provide

basic food requirements; it does not account for other essentials such as health care and

education. That is why some times the poverty lines have been described as starvation lines.

MEASUREMENT

Criteria are different for rural and urban areas. In its tenth five-year plan, the degree of

deprivation is measured with the help of parameters with scores given from 0-4, with 13

parameters. Families with 17 marks or less (formerly 15 marks or less) out of a maximum 52

marks have been classified as BPL.

NINTH PLAN

In its ninth five-year plan (1997-2002), BPL for rural areas was set at annual family income less

than Rs. 20,000, less than two hectares land, and no television or refrigerator. The number of

rural BPL families was 650,000 (6.5 lakh) during the 9th Plan. The survey based on this criteria

was again carried out in 2002 and the total number of 387,000 (3.87 lakh) families were

identified. This figure was in force until September 2006.


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TENTH PLAN (2002-2007)

In its tenth five-year plan (2002-2007) survey, BPL for rural areas was based on the degree of

deprivation in respect of 13 parameters, with scores from 0-4: landholding, type of

house,clothing, food security, sanitation, consumer durables, literacy status, labour force, means

of livelihood, status of children, type of indebtedness, reasons for migrations, etc.

The Planning Commission fixed an upper limit of 3.26 lakh for rural BPL families on the basis

of simple survey. Accordingly families having less than 15 marks out of maximum 52 marks

have been classified as BPL and their number works out to 3.18 lakh. The survey was carried out

in 2002 and thereafter but could not be finalised due to a stay issued by the Supreme Court of

India. The stay was vacated in February 2006 and this survey was finalised and adopted in

September 2006. This survey formed the basis for benefits under government of India schemes.

The state governments are free to adopt any criteria/survey for state-level schemes.

INCOME BASED POVERTY LINE IN INDIA

The poverty line was originally fixed in terms of income/food requirements in 1978. It was

stipulated that the calorie standard for a typical individual in rural areas was 2400 calorie and

was 2100 calorie in urban areas. Then the cost of the grains (about 650 gms) that fulfil this

normative standard was calculated. This cost was the poverty line. In 1978, it was Rs. 61.80 per

person per month for rural areas and Rs. 71.30 for urban areas. Since then the Planning

Commission calculates the poverty line every year adjusting for inflation. The poverty line in

recent years is as follows - (Rs. per month per head)

Year India rural India urban

2000-2001 328 454

2005-2006 368 560

This income is bare minimum to support the food requirements and does not provide much for

the other basic essential items like health, education etc. That is why some times the poverty

lines have been described as starvation lines.


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FIXING OF CUT-OFF MARKS AT 17

The Socio Economic Survey conducted during 2002 was based on 13 Socio economic indicators

(enlisted by Government of India ) indicating the quality of life and by Score based ranking for

all households. Each of the indicators have 0-4 marks. Thus for 13 indicators, the tentative marks

obtained by the families are from 0-52 for all the Districts. The Supreme Court of Indiain Writ

Petition No. 196/2001 filed by People's Union for Civil Liberties, the result of Below Poverty

Line census 2002 need not be finalized. Later in October, 2005 the Government of India

informed that based on the advice given by the Additional Solicitor General, it has been decided

to finalise the results of Below Poverty Line Census, 2002 without deleting the Below Poverty

Line families already existing in the Below Poverty Line list of Below Poverty Line Census 1997

and to follow the following procedure for finalisation of Below Poverty Line list.

1. Preparation of Below Poverty Line list

2. Approval in Gram Sabha

3. Appeal to Block Development Officer and Collector.

4. Display of Final List.

EXAMPLE

A Bench Mark Survey conducted in Maharashtra in 1997-1998 found 91.08 %.Madia Gond

families BPL. Madia Gond are a people classified as primitive tribe, they live in

BhamragadTaluka, of Gadchiroli District, of Maharashtra.


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DILEMMA OF THE POVERTY LINE

ARTICLE REVIEW

By: ashwanimahajan Original Author: Dr. Ashwani Mahajan

Review of literature of below poverty line

Government has consistently been providing differing figures about the extent of poverty in

India. Therefore, it has been difficult to know the exact or even approximate figure about poverty

in the country. It is obvious that in the absence of uniform statistical measure of poverty,

programmes of poverty alleviation cannot be meaningful. The government to reduce poverty

adopts various measures. Through PDS kerosene and cheaper grain and other foods are made

available to poor population.Governments proposed food security legislation is also on the same

lines, according to which all people living below the poverty line would have a right to draw

food at subsidised prices.

But ironically till date the government has not been able to identify, even approximately, people

living below the poverty line. Report of the Saxena Committee, constituted by Ministry of Rural

Development Government of India, presented recently, is most shocking. In fact, 49.1 percent

population in the country according to Saxena Committee is living below poverty line, but 23

percent of poor do not have any ration card (what to talk of BPL card).

Former Chief Economic Adviser to Prime Minister, Prof. S.D. Tendulakar submitted the Report

of the Expert Group to Review the Methodology for Estimation of Poverty in December 2009.

Submission of this report has brought the whole controversy into focus once again. Prof.

Tendulkar noted that the existing all-India rural and urban official poverty lines were originally

defined in terms of per capita total consumer expenditure at 1973-74 market prices and adjusted

over time and across states for changes in prices keeping unchanged the original 1973-74 rural

and urban underlying all-India reference poverty line baskets of goods and services. These all-

India rural and urban PLBs were derived for rural and urban areas separately, anchored in the per

capita calorie norms of 2400 (rural) and 2100 (urban) per day.


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Prof. Tendulkar, finds that in 2004-05, 37 percent of Indian population was living below poverty

line. This figure is significantly high as compared to figure given by Planning Commission;

according to which 27.5 percent were living below poverty line. Prof. Tendulkar's figure of head

count is higher largely because of larger basket of consumption, which includes expenditure on

education & health by the poor. Earlier studies on redefining poverty have also takan note of

these variables and have suggested suitable modifications in the definition of poverty line. Prof.

Tendulkar's report is significant as it gives official sanction to the same. Prof. Tendulkar has

recommended in his report that Planning Commission and also National Sample survey

organisation (NSSO) make suitable changes in their approach in defining poverty line.

According to UN, 220 million people in India suffer from hunger. Prevalence of hunger is found

in all age groups ranging from infants to old. Food production has been going down, food

imports are rising and food insecurity is on rise. Whereas per capita availability of foodgrains

was 190 kilogram per person per annum in 1979-80,it declined to only 186 kilogram in 2004-05.

Since 2004-05, fast rising prices of food products have made the things worst for poor.

According to Food and Agriculture Organisation (FAO), of United Nations about 100 million

people have already moved to the category of hungry people around the world in the three years

from 2004-05 to2007-08.

It is welcome that professor Tendulkar's Expert Group has recommended that definition of

poverty line be changed and a new methodology be adopted incorporating changes in price index

and also widening of consumption bundle including expenditure on health and education.

However, the poverty so reached would not be perfect one, but definitely, we would be moving

from a mere starvation line to a better defined poverty line. Government might be feeling uneasy

on two counts. First, that so far its policies have been based on ill-defined poverty line and

second it will be forced to spend more money on welfare activities. However, in the long run

Tendulkar's report will set a bench mark in determining the methodology for the assessment of

poverty line.


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MASTER CIRCULAR ON PRIORITY SECTOR LENDING-CREDIT FACILITIES TO

SCHEDULED CASTES (SCS) AND SCHEDULED TRIBES (STS) RBI/2004-

2005/132 RPCD.NO.SP.BC. 20 /09.09.01/2004-05, DT. 18/08/2004

MASTER CIRCULAR - PRIORITY SECTOR LENDING-CREDIT FACILITIES TO

SCHEDULED CASTES (SCS) & SCHEDULED TRIBES (STS)

1.Flow of Credit to SCs/STs

As special emphasis is given to the welfare of the scheduled castes and scheduled tribes, banks

should take the following measures to step up their advances to SCs/STs:

Planning Process

a. At the block level, a certain weightage is to be given to scheduled castes/ scheduled tribes in

the planning process. Accordingly, the credit planning should be weighted in favour of scheduled

castes/scheduled tribes and special bankable schemes suited to members of these communities

should be drawn up to ensure their participation in such schemes and larger flow of credit to

them for self-employment. It will be necessary for the banks to consider loan proposals of these

communities with utmost sympathy and understanding.

b. The District Level Consultative Committees formed under the Lead Bank Scheme should

continue to be the principal mechanism of co-ordination between banks and development

agencies.

c. The district credit plans formulated by the lead banks should be elaborated to indicate clearly

the linkage of credit with employment and development schemes.

d. Banks will have to establish closer liaison with the District Industries Centres, which have

been set up in different districts for promoting self-employment.


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e. Banks should periodically review their lending procedures and policies to see that loans are

sanctioned in time, are adequate and production-oriented and that they generate incremental

income to make them self-liquidating.

f. Credit planning should be weighted in favour of Scheduled Castes/ Scheduled Tribes and

special bankable schemes suited to members of these communities should be drawn up to ensure

a larger flow of credit to them for self-employment. Loan proposals of these communities should

be considered sympathetically and expeditiously.

g. While adopting villages for intensive lending, villages with sizeable population of these

communities may be specially chosen; the alternative of adopting specific localities (bastis) in

the concerned villages which have a concentration of these communities could also be

considered.

h. Special efforts should be made to evolve suitable bankable schemes for weaker sections

including members of these communities.

ROLE OF BANKS

i. Bank staff may help the poor borrowers in filling up the forms and completing other

formalities so that they are able to get credit facility within a stipulated period from the date of

receipt of applications.

j. In order to encourage SC/ST borrowers to take advantage of credit facilities, greater awareness

among them about various schemes formulated by banks will have to be created. As a majority

of the eligible borrowers would be illiterate persons, publicity through brochures, other literature,

etc. will be of limited utility. The more desirable method would be for the field staff of banks to

contact such borrowers and explain to them the salient features of the schemes as also the

advantages that will accrue. Banks should advise their branches to organize meetings morefrequently exclusively for SC/ST beneficiaries to understand their credit needs and to incorporate

the same in the credit plan.


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k. Bank should keep Application Register/ Deposit Register, Complaint Register in desired order

and maintain relevant documents and pass book in local language too, besides in Hindi and

English.

l. Circulars issued by RBI/NABARD should be circulated among the staff concerned for notingthe instructions for proper follow up .

m. Banks should not insist on deposits while considering loan applications under Government

sponsored poverty alleviation schemes/self-employment programmes from borrowers belonging

to SCs /STs.It should also be ensured that applicable subsidy is not held back while releasing the

loan component till the full repayment of bank dues. Non - release of subsidy upfront amounts to

under-financing and hampers asset creation/ income generation.

ROLE OF SC/ST DEVELOPMENT CORPORATIONS

The Ministry of Welfare, Government of India has advised all State Governments that the

Scheduled Caste Development Corporations can consider bankable schemes / proposals for bank

finance. As regards Collateral Security and / or third party guarantee for loans, guidelines issued

to banks on priority sector lending will apply.

SWARNJAYANTI GRAM SWAROZGAR YOJANA (SGSY)

Under Swarnjayanti Gram Swarozgar Yojana (SGSY) Scheme, which is a major poverty

alleviation scheme in rural / semi urban areas, not less than 50 percent of the families assisted

should belong to SCs/STs.

PRIME MINISTER'S ROZGAR YOJANA

The Prime Minister's Rozgar Yojana (PMRY) has been designed to provide credit to educated

unemployed youth for setting up of the self-employment ventures in industries, services and

business sectors. A reservation of 22.5 percent has been provided for SCs/STs in the scheme.


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SWARNA JAYANTI SAHARI ROZGAR YOJANA

Under Swarna Jayanti Shahari Rozgar Yojana (SJSRY), which is a poverty alleviation scheme in

urban areas, advances should be extended to SCs/STs to the extent of their strength in the local

population.

Differential Rate of Interest Scheme

Under the DRI scheme, banks provide finance up to Rs.6,500/- at a concessional rate of interest

of 4% p.a to the weaker sections of the community for engaging in productive and gainful

activities. In order to ensure that persons belonging to SCs/STs also derive adequate benefit

under the Differential Rate of Interest (DRI) scheme, banks have been advised to grant to eligible

borrowers belonging to SCs/STs such advances to the extent of not less than 2/5th (40 percent)

of total DRI advances.

Scheme for Liberation and Rehabilitation of Scavengers

The National Scheme for Liberation and Rehabilitation of Scavengers is for liberating the

scavengers and their dependents from the existing hereditary and obnoxious occupation of

manually removing night soil and filth and to provide them with alternate dignified occupation.

The scheme covers primarily all scavengers belonging to the scheduled caste community.

Scavengers belonging to other communities are also eligible for assistance.

MONITORING AND REVIEW.

1. A special cell should be set up at the Head Office for monitoring the flow of credit to SC/ST

beneficiaries. Apart from ensuring the implementation of the RBI guidelines, the cell would also

be responsible for collection of relevant information/data from the branches, consolidation

thereof and submission of the requisite returns to RBI and Government.


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2. Convenor banks (of SLBC) should invite the representative of National Commission for

SCs/STs to attend SLBC meetings. Besides, the Convener banks may also invite representatives

from National Scheduled Castes and Scheduled Tribes Financial Development Corporation (

NSFDC ) and State Scheduled Castes and Scheduled Tribes Financial and Development

Corporation ( SCDC ) to attend SLBC meetings

3. A periodical review should be made by the Head Office of banks of the credit extended to

SCs/STs on the basis of returns and other data received from the branches.

4. The Board of Directors should review on quarterly basis, the measures taken to enhance the

flow of credit to SC/ST borrowers. The Review Notes, besides indicating the actual performance

of the bank during the relevant quarter, should also contain information about how the bank

proposes to expand the coverage of this sector in the context of potential for business and its

network of branches with particular reference to such schemes as DRI, SGSY, etc. The review

should also consider the progress made in lending to these communities directly or through the

State-level Scheduled Caste/Scheduled Tribe Corporations for various purposes based, amongst

others, on field visits of the senior officers from the Head Office/Controlling Offices. A copy

each of such review notes should be sent to Reserve Bank.

REPORTING REQUIREMENTS

It has been considered necessary to have data of banks advances for SCs and STs under priority

sectors and Differential Rates of Interest (DRI) Scheme separately. Accordingly banks may

submit to RBI on half-yearly basis as on the last reporting Friday of March and September a

statement showing the credit extended to SCs and STs under priority sectors (Annexure I).Further, banks may submit to RBI on yearly basis as on the last reprting Friday of March a

statement showing the credit extended to SCs and STs under DRI Scheme (Annexure II ).The

statements should reach RBI within two months from the end of the relevant half-year/ year.


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DRAFT GUIDELINES ON LENDING TO PRIORITY SECTOR

LENDING TO PRIORITY SECTOR

At a meeting of the National Credit Council held in July 1968, it was emphasised that

commercial banks should increase their involvement in the financing of priority sectors, viz.,

agriculture and small scale industries. The description of the priority sectors was later formalised

in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to

advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of

this report, the Reserve Bank prescribed a modified return for reporting priority sector advances

and certain guidelines were issued in this connection indicating the scope of the items to be

included under the various categories of priority sector. Although initially there was no specifictarget fixed in respect of priority sector lending, in November 1974 the banks were advised to

raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by

March 1979.

At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector

banks held in March 1980, it was agreed that banks should aim at raising the proportion of their

advances to priority sectors to 40 per cent by March 1985. 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, all commercial banks were

advised to achieve the target of priority sector lending at 40 per cent of aggregate bank advances

by 1985. Sub-targets were also specified for lending to agriculture and the weaker sections

within the priority sector. Since then, there have been several changes in the scope of priority

sector lending and the targets and sub-targets applicable to various bank groups.


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PERCENTAGE OF POPULATION BELOW POVERTY LINE

ACCORDINGLY THE BROAD CATEGORIES OF PRIORITY SECTOR

FOR ALL SCHEDULED COMMERCIAL BANKS WILL BE AS UNDER:

I. CATEGORIES OF PRIORITY SECTOR

(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short,

medium and long term loans given for agriculture and allied activities directly to individual

farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers

without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20

lakh, for taking up agriculture/allied activities.Indirect finance to agriculture shall include loans

given for agriculture and allied activities as specified in Section I, appended.

(ii) Small Enterprises (Direct and Indirect Finance): Direct finance to small enterprises shall

include all loans given to small (manufacturing) enterprises engaged in manufacture/ production,

processing or preservation of goods, and small (service) enterprises engaged in providing or

rendering of services, and whose investment in plant and machinery and equipment (original cost

excluding land and building and such items as mentioned therein) respectively, does not exceed

the amounts specified in Section I, appended.Indirect finance to small enterprises shall include

finance to any person providing inputs to or marketing the output of artisans, village and cottage

industries, handlooms and to cooperatives of producers in this sector.


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(iii) Other Small Business / Service Enterprises: Other Small Business / Service Enterprises

shall include small business, retail trade, professional & self-employed persons, small road &

water transport operators and all other service enterprises, as per the definition given in Section I

appended.

(iv) Micro Credit: Provision of credit and other financial services and products of very small

amounts not exceeding Rs. 50,000 per borrower to the poor, either directly or indirectly through

a SHG/JLG mechanism or any intermediary (including NBFC/NGO/MFI), or to an NBFC/NGO

engaged in provision of credit to the poor up to Rs. 50,000 per borrower will constitute micro

credit. The poor for this purpose, shall include persons below the poverty line in the respective

areas.

(v) Education loans: Education loans include loans and advances granted to only individuals for

educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad,

and do not include those granted to institutions;

(vi) Housing loans: Loans up to Rs. 15 lakh per family, for construction of houses by

individuals, (excluding loans granted by banks to their own employees) and loans given for

repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-urban areas and

up to Rs. 2 lakh in urban areas.

(2) Investments by banks in securitised assets, representing loans to agriculture (direct or

indirect), small enterprises (direct or indirect) and housing, shall be eligible for classification

under respective categories of priority sector (direct or indirect) depending on the underlying

assets, provided the securitised assets are originated by banks and financial institutions and fulfil

the Reserve Bank of India guidelines on securitisation.


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AGRICULTURE

DIRECT FINANCE

Finance to individual farmers [including Self Help Groups (SHGs) or Joint Liability

Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on

such finance] for Agriculture and Allied Activitie.Short-term loans for raising crops, i.e. for crop

loans. This will include traditional/non-traditional plantations and horticulture.Advances up to

Rs. 10 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts)

for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans

for raising the produce or not.Short-term loans under tie-up arrangements with sugar mills, agro-

processing units and agri-exporters.

Working capital and term loans for financing production and investment requirements for

agriculture and allied activities. Loans to small and marginal farmers for purchase of land

for agricultural purposes. Loans to distressed farmers indebted to non-institutional lenders,

against appropriate collateral or group security.Loans granted for pre-harvest and post-harvest

activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting

undertaken by households or groups/cooperatives of households.

INDIRECT FINANCE

Finance for Agriculture and Allied Activities

Loans to entities covered under 1.2 above in excess of Rs. 20 lakh in aggregate per borrower for

agriculture and allied activities. In such cases, the entire amount outstanding shall be treated as

indirect finance for agriculture. Loans to food and agro-based processing units with investments

in plant and machinery up to Rs. 10 crore, undertaken by other than households.Loans to Non-Banking Financial Companies (NBFCs) for on lending to individual farmers.

(i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc.

(ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for

the allied activities such as cattle feed, poultry feed, etc.


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Finance for setting up of Agriclinics and Agribusiness Centres.Finance for hire-purchase

schemes for distribution of agricultural machinery and implements. Loans to farmers through

Primary Agricultural Credit Societies (PACS), Farmers Service Societies (FSS) and Large-sized

Adivasi Multi Purpose Societies (LAMPS).Loans to cooperative societies of farmers for

disposing of the produce of members.Financing the farmers indirectly through the co-operative

system (otherwise than by subscription to bonds and debenture issues) provided a certificate

from the State Co-operative Bank/State Cooperative Agriculture and Rural Development Bank

(SCARDB), as the case may be, is produced, certifying the end use of such loans.

Small ENTERPRISES

DIRECT FINANCE

Direct Finance in the small enterprises sector will include credit to:

Small (manufacturing) Enterprises

Enterprises engaged in the manufacture, processing or preservation of goods and whose

investment in plant and machinery [original cost excluding land and building and the items

specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E) dated

October 5, 2006] does not exceed Rs. 5 crore.

Micro (manufacturing) Enterprises

Enterprises engaged in the manufacture, processing or preservation of goods and whose

investment in plant and machinery [original cost excluding land and building and such items as

in 2.1.1] does not exceed Rs. 25 lakh, irrespective of the location of the unit.

Small (service) Enterprises

Enterprises engaged in providing/rendering of industry related services and whose investment in

equipment (original cost excluding land and building and furniture, fittings and other items notdirectly related to the service rendered or as may be notified under the MSMED Act, 2006) does

not exceed Rs. 2 crore.


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Micro (service) Enterprises

Enterprises engaged in providing/rendering of industry related services and whose investment in

equipment (original cost excluding land and building and furniture, fittings and such items as in

2.1.3) does not exceed Rs. 10 lakh.

Khadi and Village Industries Sector (KVI)

All advances granted to units in the KVI sector, irrespective of their size of operations, location

and amount of original investment in plant and machinery. Such advances will be eligible for

consideration under the sub-target (60 per cent) of the small enterprises segment within the

priority sector.

INDIRECT FINANCE

Indirect finance to the small (manufacturing as well as service) enterprises sector

will include credit to:

persons involved in assisting the decentralised sector in the supply of inputs to and marketing

of outputs of artisans, village and cottage industries. Advances to cooperatives of producers in

the decentralised sector viz. artisans village and cottage industries.Subscription to bonds issued

by NABARD with the objective of financing exclusively non-farm sector (not eligible for

classification under priority sector lending with effect from April 1, 2007).Loans granted by

banks to NBFCs for on lending to small (manufacturing as well as service) enterprises sector.

OTHER SMALL BUSINESS / SERVICE ENTERPRISES

Loans granted to other small business and service enterprises such as, small road and water

transport operators, small business, professional & self-employed persons, and other enterprises,

engaged in providing/rendering of services and whose investment in equipment (original cost

and excluding land and building) does not exceed Rs. 2 crore.


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(i) Advances granted to retail traders dealing in essential commodities (fair price shops),

consumer co-operative stores, and;

(ii) Advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh.

MICRO CREDIT

Loans of very small amount not exceeding Rs. 50,000 per borrower provided by banks to

the poor, either directly or through a group mechanism or through any intermediary (as approved

by Department of Banking Operations and Development of Reserve Bank of India for the

Banking Correspondent model), or to an NBFC/NGO for providing credit to the poor up to Rs.

50,000 per borrower.

Loans to poor indebted to informal sector

Loans to distressed poor to prepay their debt to lenders in the informal sector would be eligible

for classification under priority sector.

Poor for this purpose may include those families who are below the poverty line in the

respective areas. Such loans to poor may also be classified under weaker sections within thepriority sector.

State Sponsored Organizations for Scheduled Castes/Scheduled Tribes

Advances sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled

Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the

outputs of the beneficiaries of these organisations.

Education

Educational loans granted to individuals for educational purposes up to Rs. 10

lakh for studies in India and Rs. 20 lakh for studies abroad. Loans granted to institutions will not

be eligible to be classified as priority sector advances.


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Housing

Loans up to Rs. 15 lakh, irrespective of location, for construction of houses by

individuals, excluding loans granted by banks to their own employees. Loans given for

repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-urban areas and

up to Rs. 2 lakh in urban and metropolitan areas.

Assistance up to Rs. 1.25 lakh per housing unit given to any governmental agency/ non-

governmental agency (other than Housing Finance Companies) for construction/ reconstruction

of houses or for slum clearance and rehabilitation of slum dwellers. Assistance up to Rs. 5 lakh

per housing unit given to Housing Finance Companies for construction/ reconstruction of houses

or for slum clearance and rehabilitation of slum dwellers.

Weaker Sections

The weaker sections under priority sector shall include the following:

(a) Small and marginal farmers with land holding of 5 acres and less, and landless

labourers, tenant farmers and share croppers;

(b) Artisans, village and cottage industries where individual credit limits do not exceed

Rs. 50,000;

(c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY);

(d) Scheduled Castes and Scheduled Tribes;

(e) Beneficiaries of Differential Rate of Interest (DRI) scheme;

(f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY);

(g) Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavangers .

(h) Advances to Self Help Groups;

(i) Loans to distressed poor to prepay their debt to informal sector, against appropriate

collateral or group security.


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Export Credit

This category will form part of priority sector for foreign banks only.

Common guidelines for priority sector advances

Banks should follow the following common guidelines prescribed by the Reserve Bank

for all categories of advances under the priority sector.

(a) Processing of Applications

(b) Completion of Application Forms

In case of Government sponsored schemes such as SGSY, the concerned project

authorities like DRDAs, DICs, etc. should arrange for completion of application forms received

from borrowers. In other areas, the bank staff should help the borrowers for this purpose.

Issue of Acknowledgement of Loan Applications

Banks should give acknowledgement for loan applications received from weaker

sections. Towards this purpose, it may be ensured that all loan application forms have perforated

portion for acknowledgement to be completed and issued by the receiving branch. Each branch

may affix on the main application form as well as the corresponding portion for

acknowledgement, a running serial number. While using the existing stock of application forms

which do not have a perforated portion for acknowledgement is separately given, care should be

taken to ensure that the serial number given on the acknowledgement is also recorded on the

main application. The loan applications should have a check list of documents required for

guidance of the prospective borrowers.

Disposal of Applications

(i) All loan applications up to a credit limit of Rs. 25,000 should be disposed of within a

fortnight and those for over Rs. 25,000, within 4 weeks.


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(ii) All loan applications for SSI up to a credit limit of Rs. 25,000 should be disposed of within 2

weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete in

all respects and are accompanied by a 'check list'.

Rejection ofProposals

Branch Managers may reject applications (except in respect of SC/ST) provided the cases

of rejection are verified subsequently by the Divisional/Regional Managers. In the case of

proposals from SC/ST, rejection should be at a level higher than that of Branch Manager.

Register ofRejected Applications

A register should be maintained at the branch, wherein the date of receipt,

sanction/rejection/disbursement with reasons therefor, etc., should be recorded. The register

should be made available to all inspecting agencies.

Repayment Schedule

Repayment programme should be fixed taking into account the sustenance requirements,

surplus generating capacity, the break-even point, the life of the asset, etc., and not in an 'ad hoc'

manner. In respect of composite loans, repayment schedule may be fixed for term loan

component only.

As the repaying capacity of the people affected by natural calamities gets severely impaired due

to the damage to the economic pursuits and loss of economic assets, the benefits such as

restructuring of existing loans, etc. as envisaged under our circular RPCD.CO.PLFS.NO. BC

16/05.04.02/2006-07 dated August 9, 2006 may be extended to the affected borrowers.

Rates of InterestThe rates of interest on various categories of priority sector advances will be as

per RBI directives issued from time to time.

(a) In respect of direct agricultural advances, banks should not compound the interest in

the case of current dues, i.e. crop loans and instalments not fallen due in respect of term loans, as

the agriculturists do not have any regular source of income other than sale proceeds of their

crops.


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(b) When crop loans or instalments under term loans become overdue, banks can add

interest to the principal.

(c) Where the default is due to genuine reasons banks should extend the period of loan or

reschedule the instalments under term loan. Once such a relief has been extended, the overduesbecome current dues and banks should not compound interest.

(d) Banks should charge interest on agricultural advances in respect of long duration

crops, at annual rests instead of quarterly or longer rests, and could compound the interest, if the

loan/instalment becomes overdue.

Penal Interest

The issue of charging penal interests that should be levied for reasons such as default in

repayment, non-submission of financial statements, etc. has been left to the Board of each bank.

Banks have been advised to formulate policy for charging such penal interest with the approval

of their Boards, to be governed by well accepted principles of transparency, fairness, incentive to

service the debt and due regard to difficulties of customers. No penal interest should be charged

by banks for loans under priority sector up to Rs 25,000 as hitherto. However, banks will be free

to levy penal interest for loans exceeding Rs 25,000, in terms of the above guidelines.

SERVICE CHARGES / INSPECTION CHARGES

No service charges/inspection charges should be levied on priority sector loans up to Rs.

25,000/-.

For loans above Rs. 25,000/- banks will be free to prescribe service charges with the prior

approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000 dated

September 7, 1999.

Photographs of Borrowers

While there is no objection to taking photographs of the borrowers for purposes of

identification, banks themselves should make arrangements for the photographs and also bear the

cost of photographs of borrowers falling in the category of Weaker Sections.


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It should also be ensured that the procedure does not involve any delay in loan disbursement.

Discretionary Powers

All Branch Managers of banks should be vested with discretionary powers to sanction

proposals from weaker sections without reference to any higher authority. If there are difficulties

in extending such discretionary powers to all the Branch Managers, such powers should exist at

least at the district level and arrangements be ensured that credit proposals on weaker sections

are cleared promptly.

CAPACITY BUILDING

Banks may ensure appropriate training of personnel to specifically cater to the needs of

priority sector.

Machinery to look into Complaints

There should be machinery at the regional offices to entertain complaints from the

borrowers if the branches do not follow these guidelines, and to verify periodically that these

guidelines are scrupulously implemented by the branches.

Amendments

These guidelines are subject to any instructions that may be issued by the RBI from time

to time.


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RECOMMENDATION:-

y Government should be raise the loan upto 15 lacs to 20 lacs.y Fixing cutoff mark should be redefined till now it is 17.y Documentation should be easy for Below poverty line people, they can easily understand.y RBI should be regular follow up and supervision the all lending system of banks.

CONCLUSION:-

y Here the conclusion of the BPL customer to finalize the proposal with documentation andformalities.

y RBI play the very good role for the below poverty line customers.y They done a very good job to improve the Indian poor people.y Now the rate of poor people is less in India because the poor people are aware of

everything like the rule and regulation of the bank and how to get the lone for education

and agriculture.

y The government also giving 100% for the betterment of the below poverty line customer.

REFERENCE

y http://www.rbi.org.in/scripts/PublicationDraftReports.aspx?ID=493y www.wikipidia.comy http://www.pide.org.pk/pdf/PDR/2001/Volume4/723-750.pdfy http://www.eximkey.com

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