Updated: September 5, 2020 11:10:56 am
The RBI has also provided loans to farmers for the installation of solar power plants for the solarization of agricultural pumps connected to the grid. (Representational / File photo)
The Reserve Bank of India (RBI) on Friday brought startup financing to the priority sector loan (PSL) category of the banking sector, proposed more credit flow to districts with lower PSL and doubled limits of loans for renewable energy and health infrastructure. “To align it with emerging national priorities and focus more on inclusive development.”
In an attempt to address regional disparities in the flow of priority sector credit, the RBI, in its revised PSL guidelines, decided to classify districts on the basis of per capita credit flow to the priority sector and create an incentive framework for districts with lower credit flow and a disincentive framework for districts with higher credit flows. sector credit priority flow.
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Consequently, from FY2021-22 onwards, a higher weight (125%) will be assigned to incremental priority sector credit in the identified districts where the per capita PSL is less than Rs 6,000 and a lower weight (90% ) would be allocated for incremental priority sector credit in the identified districts where the per capita PSL is more than Rs 25,000.
Up to 184 districts with low per capita PSL credit flow will benefit from the RBI measure. An increased flow of credit to the rural sector is expected to boost rural spending at a time when GDP growth has contracted 23.9% in the June quarter.
Go to the flow of credit
The RBI measure, which comes at a time when credit growth has remained sluggish at 6.7% and first-quarter GDP contracted 23.9%, aims to allow for better credit penetration in deficient areas, increasing loans to small and marginal farmers and weaker sectors and boosting credit for renewable energy and health infrastructure.
The RBI has also made loans to farmers for the installation of solar power plants for the solarization of agricultural pumps connected to the grid, and loans for the installation of compressed biogas (CBG) plants as new categories eligible for financing in the sector. priority.
In a boost to the start-up sector, the central bank said loans of up to Rs 50 crore can be used by startups, as defined by the Ministry of Commerce and Industry, engaged in activities other than Rs. agriculture or microenterprise. , small and medium enterprises (MSMEs).
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Commercial banks, including foreign ones, are required to allocate 40 percent of adjusted net bank credit to priority sector loans. Regional rural banks and small financial banks will have to allocate 75 percent of adjusted net bank credit to PSL.
The central bank said the changes “will allow better penetration of credit in deficient areas, increase loans to small and marginal farmers and weaker sections, and boost credit to renewable energy and health infrastructure.”
Doubling the loan limits for renewable energy, the RBI has said that bank loans up to a limit of Rs 30 crore to borrowers for purposes such as solar and biomass-based power generators, windmills, micro-hydel plants and unconventional energy. Utilization-based public services, such as street lighting systems and electrification of remote villages, will be eligible for priority sector ranking. For individual households, the loan limit will be Rs 10 lakh per borrower, the RBI said in a notification to commercial banks.
The RBI has doubled the credit limit for improving health infrastructure, including those for Ayushman Bharat. Bank loans up to a limit of Rs 5 million per borrower for the installation of schools, drinking water facilities and sanitation facilities, including the construction and renovation of domestic toilets and domestic water improvements; and up to a limit of Rs 10 crore per borrower for the construction of healthcare facilities, including under ‘Ayushman Bharat’ in Level II to Level VI centers.
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The RBI said it has increased the prescribed targets for small and marginal farmers, and the weaker sections. “The applicable target for non-corporate farmer loans for fiscal year 2020-21 will be 12.14 percent of adjusted net bank credit or the credit equivalent of off-balance-sheet exposures (CEOBE), whichever is greater. . Banks should make every effort to reach the 13.5 percent level of ANBC (old target for direct loans to the agricultural sector), ”he said.
While the PSL interest rate varies from sector to sector, it is considered cheaper and more accessible compared to normal loans. The interest rate on bank loans will be governed by directives issued periodically by the RBI’s Banking Regulation Department. The Priority Sector Guidelines do not establish a preferential rate for priority sector loans.
The RBI said that a higher credit limit has been specified for farmer producer organizations (FPO) and farmer producer companies (FPC) that conduct agricultural activities with the assured marketing of their products at a predetermined price. Loans for these activities will be subject to an aggregate limit of Rs 2 crore per borrowing entity.
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The RBI said it has extensively revised the PSL guidelines to align them with emerging national priorities and focus more on inclusive development, after having extensive discussions with all stakeholders.
“The revised PSL guidelines will allow for better credit penetration in deficient areas, increase lending to small and marginal farmers and weaker sections, and boost credit to renewable energy and health infrastructure,” the RBI said.
According to the RBI, to address regional disparities in priority sector credit flow, a higher weight has been assigned to incremental priority sector credit in “identified districts” where priority sector credit flow is comparatively low.
It has defined farmers with a land ownership of up to one hectare as marginal farmers and farmers with a property of more than one hectare and up to 2 hectares as small farmers.
Last week, the RBI said that on a year-on-year (year-over-year) basis, non-food bank credit growth of 6.7 percent in July 2020 was lower than the growth of 11.4 percent in July 2019. .
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