Understanding Priority Sector Lending – Classification and Targets

It is important to understand about the priority sector for all bank aspirants as you can always expect some questions in the exams and interview. Here is a small FAQ on lending in priority sector.

1. What is meant by Priority Sector?

Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.

2. What are the different categories under priority sector?

Priority Sector includes the following categories:

(i) Agriculture
(ii) Micro and Small Enterprises
(iii) Education
(iv) Housing
(v) Export Credit
(vi) Others

3. What are the Targets and Sub-targets for banks under priority sector?

(As percent of ANBC or Credit Equivalent of Off-Balance Sheet Exposure, whichever is higher)

4. What constitutes ‘Direct Finance’ for Agricultural Purposes?

(i) Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers] engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture.

(ii) Loans to corporates including farmers’ producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericultureup to an aggregate limit of 2 crore per borrower.

(iii) Loans to small and marginal farmers for purchase of land for agricultural purposes.

(iv) Loans to distressed farmers indebted to non-institutional lenders.

(v) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS) ceded to or managed/ controlled by such banks for on lending to farmers for agricultural and allied activities.

5. What constitutes ‘Indirect Finance’ to Agriculture?

(i) If the aggregate loan limit per borrower is more than 2 crore in respect of para. (4) (ii) above, the entire loan will be treated as indirect finance to agriculture.

(ii) Loans upto 5 crore to Producer Companies set up exclusively by only small and marginal farmers under Part IX-A of Companies Act, 1956 for agricultural and allied activities.

(iii) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).

6. What constitutes Micro and Small Enterprises under priority sector?

Bank loans to Micro and Small Manufacturing and Service Enterprises, provided these units satisfy the criteria for investment in plant machinery/equipment as per MSMED Act 2006.

7. What is the loan limit for education under priority sector?

Loans to individuals for educational purposes including vocational courses upto 10 lakh for studies in India and 20 lakh for studies abroad are included under priority sector.

8. What is the limit for housing loans under priority sector?

Loans to individuals up to 25 lakh in metropolitan centres with population above 10 lakh and 15 lakh in other centres for purchase/construction of a dwelling unit per family excluding loans sanctioned to bank’s own employees.

9. What is included under Weaker Sections under priority sector?

Priority sector loans to the following borrowers are considered under Weaker Sections category:-

(a) Small and marginal farmers;

(b) Artisans, village and cottage industries where individual credit limits do not exceed 50,000;

(c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY), now National Rural Livelihood Mission (NRLM);

(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 Rehabilitation of Manual Scavengers (SRMS);

(h) Loans to Self Help Groups;

(i) Loans to distressed farmers indebted to non-institutional lenders;

(j) Loans to distressed persons other than farmers not exceeding 50,000 per borrower to prepay their debt to non-institutional lenders;

(k) Loans to individual women beneficiaries upto 50,000 per borrower;

10. What is the rate of interest for loans under priority sector?

The rate of interest on various priority sector loans will be as per RBI’s directives issued from time to time, which is linked to Base Rate of banks at present. Priority sector guidelines do not lay down any preferential rate of interest for priority sector loans.

Source: RBI