RBI panel for raising priority sector lending target for foreign banks to 40%

Given the inability of many banks to achieve the direct lending target in the agriculture segment, a Reserve Bank of India committee has recommended doing away with the ‘direct and indirect' lending distinction. Instead, it has suggested a composite target for agriculture and allied activities.

However, the committee, headed by Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, kept the priority sector lending target at 40 per cent of adjusted net bank credit (ANBC) unchanged.

The committee has suggested revising the priority sector lending target for foreign banks to 40 per cent from 32 per cent at present. This will bring them on a par with all domestic banks. In revising the target for foreign banks, the principle of reciprocity under the World Trade Organisation regime has been adopted, Mr Nair said.

The RBI released the committee's report on Wednesday and has sought stakeholders' feedback by March 31.

According to the report, the target for lending to agriculture and allied activities will be 18 per cent of ANBC. Currently, this target is broken up into 13.5 per cent direct lending and 4.5 per cent indirect lending.

Agriculture and allied activities will cover the entire value chain from farm gate to food plate.

The distinction between direct and indirect lending was creating confusion with regard to classification and reporting, said Mr Nair. The aim is to ensure that formal credit reaches more sections of society, he said.

“…concepts of ‘Direct' and ‘Indirect' lending to agriculture may be integrated in order to have an all encompassing approach towards agriculture sector,'' the report said.

Within agriculture and allied activities, the committee has recommended a sub target of 9 per cent of ANBC for marginal and small farmers, to be achieved by 2015-16.

Within the micro and small enterprises (MSE) sector, a sub-target of 7 per cent of ANBC for micro enterprises is to be achieved by 2013-14.

Housing, education loans

The quantum of education loans to be counted as priority sector has been increased to Rs 15 lakh for studies in India, from Rs 10 lakh and to Rs 25 lakh for studies abroad, from Rs 20 lakh.

Currently, housing loans up to Rs 25 lakh, per property per family, are included under priority sector.

This has now been revised to consider one property per individual, instead of per family.