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Business News/ Industry / Banking/  RBI introduces weightage in priority sector loans to assist neglected districts
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RBI introduces weightage in priority sector loans to assist neglected districts

In order to harmonise various instructions issued to commercial banks, small finance banks, regional rural banks, urban cooperative banks and local area banks, RBI made these changes

RBI has identified 184 districts with low PSL credit flow.Premium
RBI has identified 184 districts with low PSL credit flow.

MUMBAI : The Reserve Bank of India (RBI) on Friday revised its priority sector lending (PSL) guidelines to include a system where higher weightage will be assigned to fresh priority sector loans in districts with low flow of such credit.

The PSL guidelines were last reviewed for commercial banks in April 2015 and for urban cooperative banks in May 2018. The central bank said that in order to harmonise various instructions issued to commercial banks, small finance banks, regional rural banks, urban cooperative banks and local area banks, it made these changes.

To address regional disparities in the flow of priority sector credit at the district level, they will now be ranked on the basis of per capita credit flow to priority sector, the RBI said.

“Accordingly, from FY22 onward, a higher weight (125%) would be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than 6,000), and a lower weight (90%) would be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than 25,000)," RBI said.

While there are 205 districts with high PSL credit, RBI has identified 184 districts with low PSL credit flow. Banks will continue to report the actual outstanding amount and the adjustments based on weightage will be done by the central bank.

RBI also said that the targets prescribed for small and marginal farmers and weaker sections are being increased in a phased manner. Those with landholding of up to one hectare will be classified as marginal farmers, while those with more than one hectare and up to two hectares will be called small farmers.

That apart, loan limits for renewable energy have been doubled. The central bank said that bank loans up to 30 crore to borrowers for purposes like solar-based power generators, biomass-based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities, will be eligible for priority sector classification. For individual households, the loan limit will be 10 lakh per borrower, it said.

Moreover, credit limit for health infrastructure, including those under Ayushman Bharat, has been doubled, RBI said.

The total PSL target for urban cooperative banks will also be increased in a staggered manner from 40% of their adjusted net bank credit (ANBC) at present. This will gradually move to 75% by 31 March 2024 and was earlier announced in March as well.

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ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 04 Sep 2020, 02:20 PM IST
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