Priority Sector Lending (PSL) in Banking industry

INTRODUCTION

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• Banks are catalysts in development of various sectors in economy

• In a developing economy some sectors of society need special & priority attention as they are starved for capital.

• The Reserve Bank of India (RBI), has clearly specified the sectors that are termed the priority sectors

• These sectors are termed the ‘Priority Sectors’ • The lending that is done to them is referred to as ‘Priority

Sector Lending’• RBI has come out with its policies, whereby it makes it

compulsory for Banks to take credit exposure on Priority Sector.

• This explains the need for PSL by Commercial Banks

Where it all began - Conception of PSL

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Meeting of National Credit Council held in July 1968.

Emphasis laid on Commercial Banks to increase their involvement in financing of Priority Sector.

Priority Sector Broadly defined to include Agriculture & Small Scale Industries.

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Report submitted by Informal Study Group (constituted by RBI in May 1971) on statistics relating to advances to Priority sector in 1972

1. RBI, prescribed a modified return for reporting priority sector advances 2. Certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector

Description of Priority Sector Formalized

Where it all began - Conception of PSL

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Share in Priority Sector Lending

Banks were advised to raise share of Priority Sector lending in their aggregate lending to 33.33% by

March 1979.

1. It was agreed at a meeting of the Union Finance Minister with the CEOs of Public Sector Banks to increase this lending to 40% by March 1985.2. Subsequently all commercial banks were advised to increase their lending to this sector to 40% by March 1985.

Where it all began - Conception of PSL

Categories of Priority Sector

As per revised guidelines with effect from 20th July 2012

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AGRICULTURE

MICRO & SMALL ENTERPRISES

EDUCATION

HOUSING

EXPORT CREDIT

OTHERS

Targets for Priority Sector Lending for Domestic and Foreign banks in India

CATEGORYDOMESTIC COMMERCIAL

BANKS AND FOREIGN BANKS WITH >= 20

BRANCHES

FOREIGN BRANCHES WITH < 20 BRANCHES

Total priority sector target

40% of ANBC* OR

Credit equivalent amount of Off-Balance Sheet

exposure # (Whichever is higher)

32% of ANBC* OR

Credit equivalent amount of Off-Balance Sheet

exposure #

(Whichever is higher)

• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http://www.sineedge.com/blog/understanding/

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CATEGORYDOMESTIC COMMERCIAL

BANKS AND FOREIGN BANKS WITH >= 20

BRANCHES

FOREIGN BRANCHES WITH < 20 BRANCHES

Total Agriculture sector target

18% of ANBC* OR

Credit equivalent amount of Off-Balance Sheet exposure

(Whichever is higher)

No specific target – forms part of total priority sector target

Notes : 1. Indirect lending in excess of 4.5% of ANBC or credit equivalent amount of Off-Balance Sheet

Exposure, whichever is higher, will not be reckoned for computing achievement under 18 % target .

2. However, all agricultural loans under the categories 'direct' and 'indirect' will be reckoned in computing achievement under the overall priority sector target of 40 %.

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Targets for Priority Sector Lending for Domestic and Foreign banks in India

• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http://www.sineedge.com/blog/understanding/

CATEGORY DOMESTIC COMMERCIAL BANKS AND FOREIGN BANKS WITH >= 20 BRANCHES

FOREIGN BRANCHES WITH <

20 BRANCHES

Micro & Small

Enterprises

All lending included in overall PSL target of 40%

No specific target – forms part of total

priority sector target

40% of advance to this category to go to following:• Micro (Mfg) Enterprises with investment in

P&M upto 10 Lacs.• Micro (service) enterprises having investment

in equipment up to Rs. 4 lakh

20% of advance to this category to go to following:• Micro (Mfg) enterprises with investment in

P&M above Rs.10 lakh and up to Rs.25 lakh• Micro (service) enterprises with investment in

equipment above Rs.4 lakh and up to Rs.10 lakh

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Targets for Priority Sector Lending for Domestic and Foreign banks in India

• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http://www.sineedge.com/blog/understanding/

CATEGORYDOMESTIC COMMERCIAL

BANKS AND FOREIGN BANKS WITH >= 20

BRANCHES

FOREIGN BRANCHES WITH < 20 BRANCHES

Export Credit

Export credit is not a separate category.

Export credit to eligible activities under agriculture and MSE will be reckoned for priority sector lending under respective categories.

No specific target – forms part of total

priority sector target

Targets for Priority Sector Lending for Domestic and Foreign banks in India

CATEGORYDOMESTIC COMMERCIAL

BANKS AND FOREIGN BANKS WITH >= 20

BRANCHES

FOREIGN BRANCHES WITH < 20 BRANCHES

Advances to weaker sections

10 % of ANBC*

Or

Credit equivalent amount of Off-Balance

Sheet Exposure,

whichever is higher.

No specific target – forms part of total

priority sector target

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Targets for Priority Sector Lending for Domestic and Foreign banks in India

• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http://www.sineedge.com/blog/understanding/

For foreign banks with > = 20 branches, Priority Sector Targets and sub-targets have to be

achieved within a maximum period of five years starting from April 1, 2013 and ending on March 31, 2018 as per the action plans submitted by

them as approved by RBI. Any subsequent reference to these banks in the circular, will be

in accordance to the approved plans.

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Targets for Priority Sector Lending for Foreign banks in India with > = 20 branches

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