Transcript Priority_Sector_Lending11042013

PRIORITY SECTOR LENDING
S THOMAS PUNNOOSE
MEMBER OF FACULTY
RBI, CAB, PUNE
ACA-TM-37 (v2.2-20-Nov-10)
Lending to the Priority Sector
BANK
Financial
Intermediation
Operational
Efficiency
Allocational
Efficiency
ACA-TM-37 (v2.2-20-Nov-10)
Sectoral composition of GDP
percent
Year
Agriculture
Industries
Services
Total
1950-51
51.88
11.10
34.63
100.00
1960-61
47.65
13.68
36.60
100.00
1970-71
41.66
15.98
40.91
100.00
1980-81
35.69
18.05
45.26
100.00
1990-91
29.53
20.56
49.61
100.00
2000-01
22.31
20.69
57.00
100.00
2010-11
14.51
19.95
65.54
100.00
2011-12
14.01
19.22
66.77
100.00
ACA-TM-37 (v2.2-20-Nov-10)
Outstanding Credit of Scheduled Commercial Banks
(according to occupation)
percent
At end
Agriculture
Industries
Services
Total
December
1972
9.0
61.2
29.8
100.00
June 1981
16.7
49.1
34.1
100.00
March 1991
15.0
47.6
37.5
100.00
March 2001
9.6
43.9
46.5
100.00
March 2011
11.3
39.6
49.1
100.00
ACA-TM-37 (v2.2-20-Nov-10)
New Priority Sector Guidelines – Basic Philosophy
• Viable and creditworthy sectors that may not get
timely and adequate credit
• Not a Corporate Social Responsibility but a
normal business operation for banks
• Lending directly through beneficiaries instead of
routing them through intermediaries
• Create
innovative
processes
ACA-TM-37 (v2.2-20-Nov-10)
structures,
products
and
Priority Sector Classification - Wrong notions
• Priority Sector guidelines are aimed at helping
banks attain the targets
• If a sector is not classified as priority sector, it will
not get bank credit
ACA-TM-37 (v2.2-20-Nov-10)
Categories under Priority Sector
1. Agriculture
2. Micro & Small enterprises
3. Education
4. Housing
5. Export Credit
6. Others
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ACA-TM-37 (v2.2-20-Nov-10)
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Categories
Domestic Commercial Banks / Foreign
Banks with 20 and above branches
Foreign banks with less than 20
branches
Total Priority
Sector
40% of ANBC or credit equivalent amount 32% of ANBC or credit
of Off-Balance Sheet exposure, whichever equivalent amount of Offis higher
Balance
Sheet
Exposures
whichever is higher
Total Agriculture
• 18% but Indirect lending > 4.5% will not No specific target. Forms part
be reckoned for computing achievement of total priority sector
under 18% target
Micro and Small
Enterprises
• 40% of total advances to MSE to :
No specific target. Forms part
-Micro (Mfg) with P/M upto Rs.5 lakh
of total priority sector
- Micro (Ser) with equip upto Rs.2 lakh
• 20% of total advances to MSE to:
-Micro (Mfg) with P/M > Rs.5 lakh and
upto Rs.25 lakh
- Micro (Ser) with equip > Rs.2 lakh and
upto Rs.10lakh
Export Credit
Not a separate category. Export credit to No specific target. Forms part
eligible activities under agriculture and of total priority sector
MSE will be reckoned for Priority Sector
Advances to
Weaker Sections
10% of ANBC or credit equivalent amount No specific target in the total
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of Off-Balance
Sheet Exposure whichever priority sector
ACA-TM-37 (v2.2-20-Nov-10
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Targets/Sub-Targets under Priority Sector
– For foreign banks with 20 and above branches,
priority sector targets and sub-targets to be
achieved within a maximum period of five
years starting from April 1, 2013 and ending
on March 31, 2018
– They are to submit an action plan latest by
December 31, 2012 for achieving the targets,
to be approved by RBI
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Computation of ANBC
Bank Credit in India (as prescribed in item No. VI of Form ‘A’ [Special
Return as on March 31st] under Sec 42 (2) of RBI Act, 1934
I
Bills rediscounted with RBI and other approved Financial Institutions
II
Net Bank Credit
III (I – II)
Investments in Non-SLR categories under HTM Category + other
investments eligible to be treated as priority sector
Adjusted Net Bank Credit (ANBC)
IV
III + IV
Banks should not deduct / net any amount like provisions, accrued interest etc
from NBC
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Agricultural Credit Target fixed by the Government of
India for 2012-13 is Rs.5,75,000 crore
ACA-TM-37 (v2.2-20-Nov-10)
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Direct Agriculture
• Loans to individual farmers (including groups of
individual farmers) engaged in Agriculture and
Allied Activities (dairy, fishery, animal husbandry,
poultry, bee-keeping and sericulture)
• Short-term loans for raising crops
(will include traditional /
non-traditional plantations, horticulture and allied activities)
• Medium & Long-term loans to farmers for
agriculture & 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)
ACA-TM-37 (v2.2-20-Nov-10)
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Direct Agriculture: Loans to
• Farmers for pre-harvest and post-harvest activities
viz., spraying, weeding, harvesting, sorting, grading
and transporting of their own farm produce.
• Farmers
upto
Rs.25
lakh
against
pledge
/
hypothecation of agricultural produce, for a period
not exceeding 12 months
• Small & Marginal Farmers for purchase of land for
agricultural purposes
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Direct Agriculture: Loans to
• Distressed farmers indebted to non-institutional
lenders
• Bank loans to PACS, Farmers’ Service Societies
and Large-sized Adivasi Multi Purpose Societies
ceded to or managed / controlled by such banks for
on-lending to farmers for agriculture/allied activities
• Loans to farmers under KCC Scheme
• Export credit to farmers
ACA-TM-37 (v2.2-20-Nov-10)
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Direct Agriculture
• Loans to corporates, including farmers’ producer
companies of individual farmers partnership firms
and cooperatives of farmers directly engaged in
Agriculture and Allied Activities (dairy, fishery,
animal
husbandry,
poultry,
bee-keeping
and
sericulture) upto an aggregate limit of Rs.2 crore
• Short-term loans for raising crops
(will include traditional /
non-traditional plantations, horticulture and allied activities)
• Medium & Long-term loans for agriculture &
allied activities (purchase of agricultural implements and machinery, loans
for irrigation and
other developmental activities undertaken in the farm and
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Indirect Agriculture: Loans for
• Pre-harvest
and
post-harvest
activities
viz.,
spraying, weeding, harvesting, sorting and grading
• Upto Rs.25 lakh against pledge / hypothecation of
agricultural produce, for a period not exceeding 12
months
• Export credit to corporates, partnership firms and
institutions for exporting their own farm produce
ACA-TM-37 (v2.2-20-Nov-10)
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Indirect Agriculture: Loans to
• Loans upto Rs5 crore to Producer Companies set
up exclusively by only small and marginal farmers,
for agricultural and allied activities
• Bank loans to PACS, Farmers’ Service Societies
and Large-sized Adivasi Multi Purpose Societies
other than those covered under direct agriculture
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Other Indirect Agriculture Loans
• Loans upto Rs.1 crore per borrower to dealers /
sellers of fertilizers, pesticides, seeds, cattle feed
poultry feed, agricultural implements & other inputs
• Loans for setting up of Agriclinics and Agribusiness
Centres
• Loans upto Rs.5 crore to cooperative societies of
farmers for disposing of the produce of members
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Other Indirect Agriculture: Loans to
• Custom Service units managed by individuals /
institutions / organizations who maintain a fleet of
tractors/bulldozer/well-boring equipment/threshers etc
and undertake farm work for farmers on contract basis
• Loans for construction & running of storage facilities
(warehouse, market yards, godowns & silos) including
cold storage units designed to store agriculture
produce/products irrespective of their location
ACA-TM-37 (v2.2-20-Nov-10)
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Other Indirect Agriculture: Loans to
• MFIs for on-lending to farmers for agriculture and allied
activities as per the following conditions:
- Not less than 85% of total assets of the MFI (other than
cash, balances with banks and FI, government securities
and money market instruments) are in the nature of
qualifying assets.
- In addition, aggregate amount of loan, extended for
income generating activity is not less than 75% of the total
loans given by MFIs
ACA-TM-37 (v2.2-20-Nov-10)
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Other Indirect Agriculture: Loans to
• MFIs for on-lending to farmers for agriculture and allied
activities as per the following conditions (contd…..):
- Further, banks have to ensure that MFIs comply with caps
on margin and interest rates as also other pricing guidelines
to be eligible to classify these loans as priority sector
- Banks should obtain from MFI at the end of each quarter a
CA’s certificate
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Qualifying Assets – means a loan disbursed by MFI
satisfying the following conditions:
• Loan is to be extended to a borrower whose household annual income is
not > Rs.60,000 (rural) and Rs.1,20,000 (non-rural areas)
• Loan does not exceed Rs.35,000 in the 1st cycle and Rs.50,000 in
subsequent cycles
• Total indebtedness of the borrower does not exceed Rs.50,000
• Tenure of the loan is not less than 24 months when loan exceeds
Rs.15,000 with right to borrower of prepayment without penalty\
• The loan is without collateral
• Loan is repayable by weekly, fortnightly or monthly installments at the
choice of the borrower
ACA-TM-37 (v2.2-20-Nov-10)
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Caps on Margin / Interest rates / pricing
• Margin cap at 12% for all MFIs. The interest cost is to be calculated on
average fortnightly balances of outstanding borrowings and interest
income is to be calculated on average fortnightly balances of
outstanding loan portfolio of qualifying assets
• Interest cap on individual loans at 26% per annum for all MFIs to be
calculated on a reducing balance basis
• Only 3 components to be included in pricing of loans viz., processing fee
not > 1% of gross loan amount, interest charge & insurance premium
• Processing fee not to be included in margin cap or interest cap of 26%
• There should be no penalty for delayed payment
• No Security Deposit / Margin are to be taken
ACA-TM-37 (v2.2-20-Nov-10)
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CA’s Certificate should state that:
• 85% of the total assets of the MFI are in the nature of “qualifying assets”
• The aggregate amount of loan, extended for income generation activity
is not less than 75% of the total loans given by the MFI
• Pricing guidelines are followed
ACA-TM-37 (v2.2-20-Nov-10)
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Other Indirect Agriculture: Loans to
• NGOs which are SHG Promoting institutions for onlending to members of SHGs under SHG-Bank Linkage
Programme for agricultural and allied activities. The all
inclusive interest rate charged by the NGO / SHG
promoting entity should not exceed the Base Rate of
the lending bank plus 8% per annum
• Loans sanctioned to RRBs for on-lending to agriculture
and allied activities
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ACA-TM-37 (v2.2-20-Nov-10)
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Micro & Small Enterprises
MSEs include
• Manufacturing Enterprises:
– Micro enterprises – Investment in plant & machinery
does not exceed Rs 25 lakh irrespective of the location
– Small enterprises – Investment more than Rs.25 lakh
but does not exceed Rs 5 crore
•
Service Enterprises:
– Micro enterprises - Investment in equipment not
exceeding Rs 10 lakh
– Small (service) enterprises - Investment in equipment is
more than Rs.10lakh but does not exceed Rs 2 crore.
ACA-TM-37 (v2.2-20-Nov-10)
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Micro & Small Enterprises
• Bank loans to micro and small enterprises (both
manufacturing and service) are eligible to be
classified under PS.
• The small and micro (service) enterprises include
– small road & water transport operators
– small business
– professional & self-employed persons
– Retail trade
– Consultancy services
ACA-TM-37 (v2.2-20-Nov-10)
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MSE – Direct Finance
• Manufacturing
Enterprises:
MSEs engaged in the
manufacture/production of goods to any industry specified in
the 1st Schedule to Industries (Development & Regulation) Act,
1951
- Loans for food and agro processing
• Service Enterprises:
- Bank loans upto Rs.2 crore per unit to MSE engaged in
providing or rendering of services
• Export
credit
to
MSE
units:
for
exporting
of
goods/services
• Khadi
and
Village
Industries
Sectors:
all loans
sanctioned to units in the KVI sector irrespective of size of
operations, location and amount of original investment in P&M
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MSE – Indirect Finance
• Loans
to
persons
involved
in
assisting
the
decentralized sector in the supply of inputs to and
marketing of outputs of artisans, village and cottage
industries
• Loans
to
cooperatives
decentralized
sector
viz.,
of
producers
artisans,
in
the
village
and
cottage industries
• Loans sanctioned by banks to MFIs for on-lending to
MSE sector as per conditions specified earlier
ACA-TM-37 (v2.2-20-Nov-10)
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Education loans
• Loans
granted
to
individuals
for
educational purposes including vocational
courses upto Rs. 10 lakh for studies in
India and Rs. 20 lakh for studies abroad.
ACA-TM-37 (v2.2-20-Nov-10)
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Housing loans
• Loans
to
individuals
upto
Rs.25
lakh
in
metropolitan centres with population > ten lakh &
Rs.15
lakh
in
other
centres
for
purchase/construction of a dwelling unit per family
(excluding loans granted by banks to their own employees).
• Loans given for repairs to the damaged dwelling
units of families up to Rs. 2 lakh in rural and semiurban areas and up to Rs. 5 lakh in urban and
metropolitan areas
ACA-TM-37 (v2.2-20-Nov-10)
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Housing loans
• Bank
loans
to
any
governmental
agency
for
construction of dwelling units / slum clearance and
rehabilitation of slum dwellers, subject to a ceiling of
Rs.10 lakh per dwelling unit.
• Loans sanctioned by banks for housing projects
exclusively for the purpose of construction of houses
only to economically weaker sections and LIGs the
total cost of which is not > Rs. 10 lakh per dwelling
unit.
(family income limit Rs.1.20 lakh per annum irrespective of location)
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Housing loans
• Bank loans to HFCs, approved by NHB for their
refinance,
for
onlending
for
the
purchase/construction/reconstruction
dwelling
units
or
for
slum
purpose
of
of
individual
clearance
and
rehabilitation of slum dwellers, subject to a ceiling of
Rs.10 lakh per dwelling unit. The all inclusive
interest rate charged to the ultimate borrower should
not exceed the lowest lending rate of the lending
bank for HLs + 2% per annum
ACA-TM-37 (v2.2-20-Nov-10)
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Housing loans
• Eligibility under priority sector loans to HFCs is
restricted to 5% of the bank’s total PS lending, on an
ongoing basis. The maturity of bank loans should be
co-terminus with average maturity of loans extended
by HFCs. Banks should maintain necessary borrowerwise details of the underlying portfolio.
ACA-TM-37 (v2.2-20-Nov-10)
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Export Credit
• Extended
by
foreign banks with
less
than 20
branches will be reckoned for priority sector target
achievement
• As regards domestic banks and foreign banks (with
20 and above branches), export credit is not a
separate category under priority sector
• Export credit towards categories of priority sector
i.e. agriculture and MSE sector will however be
accounted
ACA-TM-37 (v2.2-20-Nov-10)
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Others:
• Loans
not
exceeding
Rs.50,000/-
per
borrower
provided directly by banks to individuals and their
SHG / JLG (provided borrower’s household annual income does not exceed
Rs.60,000/- in rural areas and Rs.1,20,000/- in non-rural areas)
• Loans to distressed persons (other than farmersalready included) not > Rs.50,000/- per borrower to
prepay their debt to non-institutional lenders
• Loans outstanding under loans for general purposes
under GCC
ACA-TM-37 (v2.2-20-Nov-10)
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Others:
• Overdrafts upto Rs.50,000 (per account) granted
against ‘no-frills’ accounts
(provided borrower’s household annual
income is not > Rs.60,000/- in rural areas & Rs.1,20,000/- in non-rural areas)
• Loans sanctioned to State Sponsored Organizations
for SCs / STs for the specific purpose of purchase
and supply of inputs to and/or the marketing of the
outputs of the beneficiaries of these organizations
• Loans sanctioned by banks directly to individuals for
setting
up of off-grid solar and
other off-grid
renewable energy solutions for households
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Weaker Sections Category
• Small
(landholding more than 1 hectare but less than 2 hectares)
Marginal farmers
and
(landholding upto 1 hectare)
• Artisans, village and cottage industries where credit
limits do not exceed Rs.50,000.
• Beneficiaries of SGSY
• Scheduled Castes and Scheduled Tribes
• Beneficiaries of DRI Scheme
• Beneficiaries of SJSRY
• Beneficiaries under the SRMS
ACA-TM-37 (v2.2-20-Nov-10)
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Weaker Sections Category
• Loans to SHGs
• Loans to distressed farmers indebted to non-institutional
lenders
• Loans to distressed persons (other than farmers) not
exceeding Rs.50,000 per borrower to prepay their debt to
non-institutional lenders
• Loans to individual women beneficiaries upto Rs.50,000
per borrower
• Loans sanctioned to persons from minority community
ACA-TM-37 (v2.2-20-Nov-10)
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Significance of MIS
• A robust MIS is a prerequisite for
- effective monitoring of performance
- understanding the gaps
- formulating the right policy responses
• Processing of data into useful information for MIS
and decision support systems in individual banks as
well as at the aggregate level is important
ACA-TM-37 (v2.2-20-Nov-10)
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Branches
Existing Framework of MIS
Block
Coordinator
District
Coordinator
State
Controlling
Offices
LDMs
HO
IBA
RPCD-CO
ACA-TM-37 (v2.2-20-Nov-10)
SLBC
RPCD-RO
RPCD-RO
SLBC
NABARD
49
Returns presently furnished by banks
No
Returns submitted to
Submitted by
No. of returns
1.
RBI- RPCD
SCB
RRBs
Cooperative Banks
42
9
15
2.
RBI-DSIM
SCB
7
Basic Statistical Returns
3.
NABARD
RBI
IBA
SLBC
LDM
RRB
Cooperative Banks
Multiple Returns to
monitor the
performance of SCBs
and supervisory returns
for RRBs and
Cooperative Banks
4.
IBA
SCB
4
5.
SLBC
LDM
SCB – Controlling Offices
Differs from State to
State
6.
Government Departments
RBI
SLBC
NABARD
Varies from time to
time
ACA-TM-37 (v2.2-20-Nov-10)
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Efforts made so far
• NABARD WG constituted to review SAMIS
- development of standardized information system
- BSR coding system as the base for fixing codes
• Ray WG constituted by RBI – 2007
– data-based reporting in place of return-based
reporting system
– formulated an extended coding system
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Priority Sector Monitoring Information System
• Data to be captured at the base level entity
• Transmitted to a National Level Central Database
common across banks
• The Central Data Repository System will process the
data centrally and make it available across all the
stakeholders
• Once functional PSMIS would make available detailed
bank-wise, sub-sector wise, state-wise, district-wise,
block-wise and branch-wise information
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Proposed Final Framework under CDRS
Transactional Data
Validation
HO
Processing and
Generation of Reports
RBI-DSIM
Branches
RBI-RPCD
ACA-TM-37 (v2.2-20-Nov-10)
CDRS
NABARD
SLBC
LDM
53
Timeframe to implement the new approach
• 1st Phase: creation of CDRA and preparing the
banking system for moving towards PSMIS
• 2nd Phase: setting up of CDRS, release of PSMIS
codes, issue of revised guidelines
• 3rd Phase: to put in place a secured way of capturing
the data from the base system of banks
• 4th Phase: CDRA to complete implementation of
CDRS
ACA-TM-37 (v2.2-20-Nov-10)
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An interim solution
Transactional Data
Branches
Processing and
report based
submission
Processing and
Compilation
HO
RPCD-CO
SLBC
NABARD
LDM
ACA-TM-37 (v2.2-20-Nov-10)
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Priority-Sector Data Reporting System
• A robust reporting system with granularity and
system generation of priority sector data is of utmost
importance for proper monitoring and appropriate
policy making.
• Guidelines will be issued in due course
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ACA-TM-37 (v2.2-20-Nov-10)
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Non-achievement of priority sector targets
• Domestic scheduled commercial banks & foreign
banks with branches 20 and above having shortfall in
lending to priority sector / agriculture / weaker
sections shall be allocated amounts for contribution
to the RIDF (NABARD) or funds with NHB / SIDBI etc
• Foreign banks with less than 20 branches which fail
to achieve the priority sector targets are required to
contribute funds with SIDBI or with FI as may be
stipulated by RBI
ACA-TM-37 (v2.2-20-Nov-10)
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Common guidelines for priority sector loans
• Service Charges: No loan related and adhoc service
charges / inspection charges to be levied on PS loans
upto Rs.25,000
• Receipt, Sanction / Rejection / Disbursement
Register: a register / electronic record to be
maintained and made available to all inspecting
agencies
• Issue of acknowledgement of Loan Applications
ACA-TM-37 (v2.2-20-Nov-10)
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Investment by banks in securitized assets
• representing loans to PS (except ‘others’ category) are
eligible for classification under respective categories of
PS depending on the underlying assets provided:
– the securitized assets are originated by banks / Fis and are
eligible to be classified as PS advances prior to securitization
– the all inclusive interest charged to the ultimate borrower
by the originating entity should not exceed Base Rate + 8%
• originated by NBFCs where underlying assets are loans
against gold jewellery are not eligible for PS status
ACA-TM-37 (v2.2-20-Nov-10)
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Transfer of assets through direct assignment /
outright purchases
• of pool of assets by banks representing loans under
various categories of PS (except ‘others’ category) are
eligible for classification under respective categories of
PS provided:
– the securitized assets are originated by banks / Fis and are
eligible to be classified as PS advances prior to purchase
– the eligible loan assets so purchased should not be disposed
of other than by way of repayment
– the all inclusive interest charged to the ultimate borrower by
the originating entity should not exceed Base Rate + 8%
ACA-TM-37 (v2.2-20-Nov-10)
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Inter Bank Participation Certificates
• IBPCs bought by banks on a risk sharing basis shall be
eligible for classification under respective categories of
priority sector, provided the underlying assets are
eligible
to
be
categorized
under
the
respective
categories of PS and the banks fulfill the RBIs
guidelines on IBPCs
ACA-TM-37 (v2.2-20-Nov-10)
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THANK YOU
Email: [email protected]
ACA-TM-37 (v2.2-20-Nov-10)