RBI Releases Revised Priority Sector Lending Guidelines

Date : Sep 04, 2020

RBI Releases Revised Priority Sector Lending Guidelines

Reserve Bank of India has comprehensively reviewed the Priority Sector Lending (PSL) Guidelines to align it with emerging national priorities and bring sharper focus on inclusive development, after having wide ranging discussions with all stakeholders.

Revised PSL guidelines will enable better credit penetration to credit deficient areas; increase the lending to small and marginal farmers and weaker sections; boost credit to renewable energy, and health infrastructure.

Bank finance to start-ups (up to ₹50 crore); loans to farmers for installation of solar power plants for solarisation of grid connected agriculture pumps and loans for setting up Compressed Bio Gas (CBG) plants have been included as fresh categories eligible for finance under priority sector. Some of the salient features of revised PSL guidelines are:

1. To address regional disparities in the flow of priority sector credit, higher weightage have been assigned to incremental priority sector credit in ‘identified districts’ where priority sector credit flow is comparatively low.

2. The targets prescribed for “small and marginal farmers” and “weaker sections” are being increased in a phased manner.

3. Higher credit limit has been specified for Farmers Producers Organisations (FPOs)/Farmers Producers Companies (FPCs) undertaking farming with assured marketing of their produce at a pre-determined price.

4. Loan limits for renewable energy have been increased (doubled).

5. For improvement of health infrastructure, credit limit for health infrastructure (including those under ‘Ayushman Bharat’) has been doubled.

(Yogesh Dayal)
Chief General Manager

Press Release No. 2020-2021/284

Source- https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=50310

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Reserve Bank of India

RBI/FIDD/2020-21/72
Master Directions FIDD.CO.Plan.BC.5/04.09.01/2020-21

September 04, 2020

The Chairman / Managing Director/
Chief Executive Officer
[All Commercial Banks including Regional Rural Banks,
Small Finance Banks, Local Area Banks and
Primary (Urban) Co-operative Banks other than Salary Earners’ Banks]

Madam/Dear Sir,

Master Directions – Priority Sector Lending (PSL) – Targets and Classification.

The Priority Sector Lending (PSL) guidelines issued by Reserve Bank of India were last reviewed for Commercial Banks in April 2015 and for UCBs in May 2018 respectively. With an objective to harmonise various instructions issued to Commercial Banks, SFBs, RRBs, UCBs and LABs; align these guidelines with emerging national priorities and bring sharper focus on inclusive development, it was decided to comprehensively review the PSL guidelines. The revised guidelines also aim to encourage and support environment friendly lending policies to help achieve Sustainable Development Goals (SDGs). This review also took into account the recommendations made by the ‘Expert Committee on Micro, Small and Medium Enterprises (Chairman: Shri U.K. Sinha) and the ‘Internal Working Group to Review Agriculture Credit’ (Chairman: Shri M. K. Jain) apart from discussions with all stakeholders. Further, these Master Directions encompass the revised guidelines on PSL for all Commercial banks, RRBs, SFBs, UCBs and LABs and, accordingly, supersede the earlier Master Directions on PSL issued separately for Scheduled Commercial Banks, RRBs, SFBs and guidelines issued for UCBs, respectively. The list of circulars consolidated in these Master Directions is indicated in the Appendix. The Master Directions have been placed on the RBI website www.rbi.org.in.

Yours faithfully,

(Gautam Prasad Borah)
Chief General Manager-in-Charge

INDEX

Master Directions- Reserve Bank of India (Priority Sector Lending –
Targets and Classification) Directions, 2020

In exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, the Reserve Bank of India, being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.

CHAPTER – I
PRELIMINARY

1. Short Title and Commencement

1.1 These Directions shall be called the Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2020.

1.2 These Directions shall come into effect on the day they are placed on the official website of the Reserve Bank of India.

2. Applicability

The provisions of these Directions shall apply to every Commercial Bank [including Regional Rural Bank (RRB), Small Finance Bank (SFB), Local Area Bank] and Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank licensed to operate in India by the Reserve Bank of India.

3. Definitions/ Clarifications

3.1 In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below:

1. ‘Urban Co-operative Bank’ or ‘UCB’ means a Primary Co-operative Bank as defined under Section 5(ccv) of the Banking Regulation Act, 1949 read with Section 56 of the Act.
2. “On-lending” means loans sanctioned by banks to eligible intermediaries for onward lending for creation of priority sector assets. The average maturity of priority sector assets thus created by the eligible intermediaries should be co-terminus with maturity of the bank loan.
3. Contingent liabilities/off-balance sheet items do not form part of priority sector achievement. However, foreign banks with less than 20 branches have an option to reckon the Credit Equivalent of Off-Balance Sheet Exposures (CEOBE) extended to borrowers for eligible priority sector activities for achievement of priority sector target, subject to the condition that the CEOBE (both priority sector and non-priority sector excluding interbank exposure) should be added to the Adjusted Net Bank Credit (ANBC) in the denominator for computation of PSL targets.
4. Off-balance sheet interbank exposures are excluded for computing CEOBE for the priority sector targets.
5. The term “all-inclusive interest” includes interest (effective annual interest), processing fees and service charges.

3.2 All other expressions, unless defined herein, shall have the same meaning as has been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934 or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be.

3.3 Banks must ensure that loans extended under priority sector are for approved purposes and the end use is continuously monitored. The banks should put in place proper internal controls and systems in this regard.

CHAPTER – II
CATEGORIES AND TARGETS UNDER PRIORITY SECTOR

4. The categories under priority sector are as follows:

1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others

The details of eligible activities under the above categories are specified in Chapter III.

5. Targets /Sub-targets for Priority sector

5.1 The targets and sub-targets set under priority sector lending, to be computed on the basis of the ANBC/ CEOBE as applicable as on the corresponding date of the preceding year, are as under:

5.2 The targets for lending to SMFs and for Weaker Sections shall be revised upwards from FY 2021-22 onwards as follows:

5.3 All domestic banks (other than UCBs) and foreign banks with more than 20 branches are directed to ensure that the overall lending to Non-Corporate Farmers (NCFs) does not fall below the system-wide average of the last three years’ achievement which will be separately notified every year. The applicable target for lending to the non-corporate farmers for FY 2020-21 will be 12.14% of ANBC or CEOBE whichever is higher. All efforts should be made by banks to reach the level of 13.5 percent of ANBC (erstwhile target for direct lending to agriculture sector).

6. Computation of Adjusted Net Bank Credit (ANBC)

6.1 For the purpose of priority sector lending, ANBC denotes the outstanding Bank Credit in India [As prescribed in item No.VI of Form ‘A’ under Section 42 (2) of the RBI Act, 1934] and computed as follows:

6.2 For the purpose of calculation of CEOBE, banks may be guided by the Master Circular on Exposure Norms issued by Department of Regulation, RBI vide DBR.No.Dir.BC.12/13.03.00/ 2015-16 dated July 1, 2015 and as updated from time to time. UCBs may be guided by the relevant provisions of the Master Circular dated July 1, 2015 on ‘Prudential Norms on Capital Adequacy – UCBs’ issued by Reserve Bank of India.

6.3 SFBs may be further guided by Para 6.5 (ii to vii) of the Operating Guidelines for Small Finance Banks issued by Department of Regulation (RBI/2016-17/81 DBR.NBD. No.26/16.13.218/2016-17 dated October 06, 2016), pertaining to treatment of grandfathered loans, for computation of ANBC.

6.4 While calculating Net Bank Credit as above, if banks subtract prudential write off at Corporate/Head Office level, it must be ensured that the credit to priority sector and all other sub-sectors so written off should also be subtracted category wise from priority sector and sub-target achievement. Wherever, investments or any other items which are treated as eligible for classification under priority sector target/sub-target achievement, the same should also form part of Adjusted Net Bank Credit.

6.5 All the banks have to adhere to the respective licencing guidelines and operating guidelines issued by the Department of Regulation, RBI and updated from time to time

7. Adjustments for weights in PSL Achievement

To address regional disparities in the flow of priority sector credit at the district level, it has been decided to rank districts on the basis of per capita credit flow to priority sector and build an incentive framework for districts with comparatively lower flow of credit and a dis-incentive framework for districts with comparatively higher flow of priority sector credit. Accordingly, from FY 2021-22 onwards, 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 ₹6000), 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). The list of both categories of districts is given in Annex IA & IB. This list will be valid for a period up to FY 2023-24 and will be reviewed thereafter. The districts other than those mentioned in Annex IA and IB will continue to have existing weightage of 100%.

The banks should continue to report the actual outstanding amount in QPSA returns as hitherto. Adjustments for weights to incremental PSL credit will be done by RBI, based on reporting of district wise credit flow to FIDD, CO through the ADEPT database. RRBs, UCBs, LABs and foreign banks (including WoS) would be exempted from adjustments of weights in PSL achievement due to their currently limited area of operation/catering to a niche segment.

CHAPTER – III
DESCRIPTION OF ELIGIBLE CATEGORIES UNDER PRIORITY SECTOR

8. Agriculture

The lending to agriculture sector will include Farm Credit (Agriculture and Allied Activities), lending for Agriculture Infrastructure and Ancillary Activities.

8.1 Farm Credit – Individual farmers

Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs) i.e. groups of individual farmers, provided banks maintain disaggregated data of such loans] and Proprietorship firms of farmers, directly engaged in Agriculture and Allied Activities, viz. dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture. This will include:

1. Crop loans including loans for traditional/non-traditional plantations, horticulture and allied activities.
2. Medium and long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery and developmental loans for allied activities).
3. Loans for pre and post-harvest activities viz. spraying, harvesting, grading and transporting of their own farm produce.
4. Loans to distressed farmers indebted to non-institutional lenders.
5. Loans under the Kisan Credit Card Scheme.
6. Loans to small and marginal farmers for purchase of land for agricultural purposes.
7. Loans against pledge/hypothecation of agricultural produce (including warehouse receipt¹) for a period not exceeding 12 months subject to a limit up to ₹50 lakh.
8. Loans to farmers for installation of stand-alone Solar Agriculture Pumps and for solarisation of grid connected Agriculture Pumps.
9. Loans to farmers for installation of solar power plants on barren/fallow land or in stilt fashion on agriculture land owned by farmer.

8.2 Farm Credit – Corporate farmers, Farmer Producer Organisations (FPOs)/(FPC) Companies of Individual Farmers, Partnership firms and Co-operatives of farmers engaged in Agriculture and Allied Activities

(a) Loans for the following activities will be subject to an aggregate limit of ₹2 crore per borrowing entity:

1. Crop loans to farmers which will include traditional/non-traditional plantations and horticulture and loans for allied activities.
2. Medium and long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery and developmental loans for allied activities).
3. Loans for pre and post-harvest activities viz. spraying, harvesting, grading and transporting of their own farm produce.

(b) Loans up to ₹50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts²) for a period not exceeding 12 months.

(c) Loans up to ₹5 crore per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price.

(d) UCBs are not permitted to lend to co-operatives of farmers.

8.3 Agriculture Infrastructure

Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system. List of activities is furnished in Annex II.

8.4 Ancillary Services

8.4.1 Following loans under ancillary services will be subject to limits prescribed as under:

1. Loans up to ₹5 crore to co-operative societies of farmers for purchase of the produce of members (Not applicable to UCBs)
2. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in agriculture and allied services.
3. Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system.

8.4.2 Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector shortfall.

8.4.3 The eligible activities under ancillary services and food and agro-processing is given in Annex II and Annex III, respectively.

8.5 Small and Marginal Farmers (SMFs)

For the purpose of computation of achievement of the sub-target, Small and Marginal Farmers will include the following:

1. Farmers with landholding of up to 1 hectare (Marginal Farmers).
2. Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers).
3. Landless agricultural labourers, tenant farmers, oral lessees and share-croppers whose share of landholding is within the limits prescribed for SMFs.
4. Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual SMFs directly engaged in Agriculture and Allied Activities, provided banks maintain disaggregated data of such loans.
5. Loans up to ₹2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.
6. Loans to FPOs/FPC of individual farmers and co-operatives of farmers directly engaged in Agriculture and Allied Activities where the land-holding share of SMFs is not less than 75 per cent, subject to loan limits prescribed in para 8.2. UCBs are not permitted to lend to co-operatives of farmers.

8.6 Lending by banks to NBFCs and MFIs for on-lending in agriculture

1. Bank credit extended to registered NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised SRO for the sector, for on-lending to individuals and also to members of SHGs / JLGs will be eligible for categorisation as priority sector advance under respective categories of agriculture subject to conditions specified in para 21 (not applicable to RRBs, UCBs, SFBs and LABs).
2. Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘Term lending’ component under agriculture will be allowed up to ₹ 10 lakh per borrower subject to conditions specified in para 22 and 24 (not applicable to RRBs, UCBs, SFBs and LABs).

9. Micro, Small and Medium Enterprises (MSMEs)

The definition of MSMEs will be as per Government of India (GoI), Gazette Notification S.O. 2119 (E) dated June 26, 2020 read with circular RBI/2020-2021/10 FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 read with FIDD.MSME & NFS. BC. No.4/06.02.31/2020-21 dated July 2, 2020, August 21, 2020 respectively on ‘Credit flow to Micro, Small and Medium Enterprises Sector’ and updated from time to time. Further, such MSMEs should be engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 or engaged in providing or rendering of any service or services. All bank loans to MSMEs conforming to the above guidelines qualify for classification under priority sector lending.

9.1 Factoring Transactions (not applicable to RRBs and UCBs)

1. ‘With Recourse’ Factoring transactions by banks which carry out the business of factoring departmentally wherever the ‘assignor’ is a Micro, Small or Medium Enterprise would be eligible for classification under MSME category on the reporting dates.
2. In terms of paragraph 9 of Circular DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015 on ‘Provision of Factoring Services by Banks- Review’, inter-alia, the borrower’s bank shall obtain from the borrower, periodical certificates regarding factored receivables to avoid double financing/ counting. Further, the ‘factors’ must intimate the limits sanctioned to the borrower and details of debts factored to the banks concerned, taking responsibility to avoid double financing.
3. Factoring transactions pertaining to MSMEs taking place through the Trade Receivables Discounting System (TReDS) shall also be eligible for classification under priority sector.

9.2 Khadi and Village Industries Sector (KVI)

All loans to units in the KVI sector will be eligible for classification under the sub-target of 7.5 percent prescribed for Micro Enterprises under priority sector.

9.3 Other Finance to MSMEs

1. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that confirm to the definition of MSME as per Para 9.
2. Loans to entities involved in assisting the decentralized sector in the supply of inputs and marketing of output of artisans, village and cottage industries. In respect of UCBs, the term “entities” shall not include institutions to which UCBs are not permitted to lend under the RBI guidelines / the legal framework governing their functioning.
3. Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries (Not applicable for UCBs).
4. Loans sanctioned by banks to NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised SRO for the sector for on-lending to MSME sector as per the conditions specified in paragraph 21 of these Master Directions (not applicable to RRBs, SFBs and UCBs)
5. Loans to registered NBFCs (other than MFIs) for on-lending to Micro & Small Enterprises as per conditions specified in para 22 of these Master Directions (not applicable to RRBs, SFBs and UCBs)
6. Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card and Weaver’s Card etc. in existence and catering to the non-farm entrepreneurial credit needs of individuals).
7. Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time, will qualify as achievement of the target for lending to Micro Enterprises.
8. Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

10. Export Credit (not applicable to RRBs and LABs)

Export credit under agriculture and MSME sectors are allowed to be classified as PSL in the respective categories viz. agriculture and MSME. Export Credit (other than in agriculture and MSME) will be allowed to be classified as priority sector as per the following table:

10.1 Export credit includes pre-shipment and post-shipment export credit (excluding off-balance sheet items) as defined in Master Circular on Rupee / Foreign Currency Export Credit and Customer Service to Exporters issued by Department of Regulation, RBI vide DBR No.DIR.BC.14/04.02.002/2015-16 dated July 1, 2015 and updated from time to time.

11. Education

Loans to individuals for educational purposes, including vocational courses, not exceeding ₹ 20 lakh will be considered as eligible for priority sector classification. Loans currently classified as priority sector will continue till maturity.

12. Housing

12.1 Bank loans to Housing sector as per limits prescribed below are eligible for priority sector classification:

1. Loans to individuals up to ₹35 lakh in metropolitan centres (with population of ten lakh and above) and up to ₹25 lakh in other centres for purchase/construction of a dwelling unit per family provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed ₹45 lakh and ₹30 lakh respectively. Existing individual housing loans of UCBs presently classified under PSL will continue as PSL till maturity or repayment.
2. Housing loans to banks’ own employees will not be eligible for classification under the priority sector.
3. Since Housing loans which are backed by long term bonds are exempted from ANBC, banks should not classify such loans under priority sector. Investments made by UCBs in bonds issued by NHB / HUDCO on or after April 1, 2007 shall not be eligible for classification under priority sector.

12.2 Loans up to ₹10 lakh in metropolitan centres and up to ₹6 lakh in other centres for repairs to damaged dwelling units conforming to the overall cost of the dwelling unit as prescribed in para 12.1.

12.3 Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to dwelling units with carpet area of not more than 60 sq.m.

12.4 Bank loans for affordable housing projects using at least 50% of FAR/FSI for dwelling units with carpet area of not more than 60 sq.m.

12.5 Bank loans to HFCs (approved by NHB for their refinance) for on-lending, up to ₹20 lakh for individual borrowers, for purchase/construction/ reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to conditions specified in para 23 and 24.

12.6 Outstanding deposits with NHB on account of priority sector shortfall.

13. Social Infrastructure

Bank loans to social infrastructure sector as per limits prescribed below are eligible for priority sector classification

13.1. Bank loans up to a limit of ₹5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at household level, etc. and loans up to a limit of ₹10 crore per borrower for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres. In case of UCBs, the above limits are applicable only in centres having a population of less than one lakh.

13.2. # Bank loans to MFIs extended for on-lending to individuals and also to members of SHGs/JLGs for water and sanitation facilities subject to the criteria laid down in paragraph 21 of these Master Directions.

# not applicable to RRBs, UCBs and SFBs.

14. Renewable Energy

Bank loans up to a limit of ₹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, viz., street lighting systems and remote village electrification etc., will be eligible for Priority Sector classification. For individual households, the loan limit will be ₹10 lakh per borrower.

15. Others

The following loans as per the prescribed limits are eligible for priority sector classification:

15.1. Loans not exceeding ₹1.00 lakh per borrower provided directly by banks to individuals and individual members of SHG/JLG, provided the individual borrower’s household annual income in rural areas does not exceed ₹1.00 lakh and for non-rural areas it does not exceed ₹1.60 lakh, and loans not exceeding ₹2.00 lakh provided directly by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by the SHGs.

15.2. Loans to distressed persons [other than distressed farmers indebted to non-institutional lenders] not exceeding ₹1.00 lakh per borrower to prepay their debt to non-institutional lenders.

15.3. Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.

15.4. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in activities other than Agriculture or MSME.

16. Weaker Sections

16.1 Priority sector loans to the following borrowers will be considered as lending under Weaker Sections category:

16.2 Overdraft availed by PMJDY account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time may be classified under Weaker Sections.

16.3 In States, where one of the minority communities notified is, in fact, in majority, item (xi) will cover only the other notified minorities. These States/ Union Territories are Punjab, Meghalaya, Mizoram, Nagaland, Lakshadweep and Jammu & Kashmir.

CHAPTER IV
MISCELLANEOUS

17. Investments by banks in securitised assets (not applicable to RRBs and UCBs)

Investments by banks in ‘securitised assets’, representing loans to various categories of priority sector, except ‘others’ category, are eligible for classification under respective categories of priority sector depending on the underlying assets provided:

1. The assets are originated by banks and financial institutions and are eligible to be classified as priority sector advances prior to securitisation and fulfil the Reserve Bank of India guidelines on securitisation issued vide circular DBOD.No.BP.BC-103/21.04.177/2011-12 dated May 7, 2012 and updated from time to time.
2. The all-inclusive interest charged to the ultimate borrower by the originating entity should not exceed the External Benchmark Lending Rate (EBLR)/ MCLR of the investing bank plus appropriate spread which will be communicated separately.
3. The investments in securitised assets originated by MFIs, which comply with the guidelines in Paragraph 21 of these Master Directions are exempted from this interest cap as there are separate caps on margin and interest rate for MFIs.
4. Purchase/ assignment/investment transactions undertaken by banks with NBFCs, where the underlying assets are loans against gold jewellery, are not eligible for priority sector status.

18. Transfer of Assets through Direct Assignment /Outright purchase (not applicable to RRBs and UCBs)

Assignment/outright purchase of pool of assets by banks representing loans under various categories of priority sector, except the ‘others’ category, will be eligible for classification under respective categories of priority sector provided:

1. The assets are originated by banks and financial institutions which are eligible to be classified as priority sector advances prior to the purchase and fulfil the Reserve Bank of India guidelines on outright purchase/assignment issued vide circular DBOD.No.BP.BC-103/21.04.177/2011-12 dated May 7, 2012 and updated from time to time.
2. The all-inclusive interest charged to the ultimate borrower by the originating entity should not exceed the External Benchmark Lending Rate (EBLR)/ MCLR of the purchasing bank plus appropriate spread as communicated separately.
3. The Assignments/Outright purchases of eligible priority sector loans from MFIs, which comply with the guidelines in Paragraph 21 of these Master Directions are exempted from this interest rate cap as there are separate caps on margin and interest rate for MFIs.
4. When the bank undertakes outright purchase of loan assets (eligible to be classified under priority sector) from banks/ financial institutions, they must report the outstanding amount actually disbursed to priority sector borrowers and not the premium embedded amount paid to the seller.
5. Purchase/ assignment/ investment transactions undertaken by banks with NBFCs, where the underlying assets are loans against gold jewellery, are not eligible for priority sector status.

19. Inter Bank Participation Certificates (IBPCs) (not applicable to UCBs)

1. IBPCs bought by banks, on a risk sharing basis, are eligible for classification under respective categories of priority sector, provided the underlying assets are eligible to be categorized under the respective categories of priority sector and the banks fulfil the Reserve Bank of India guidelines on IBPCs issued vide circular DBOD.No.BP.BC.57/62-88 dated December 31, 1988 and updated from time to time.
2. IBPCs bought by banks on risk sharing basis relating to ‘Export Credit’ as per Para 10, may be classified from purchasing bank’s perspective for priority sector categorization. However, in such a scenario, the issuing bank shall certify that the underlying asset is ‘Export Credit’, in addition to the due diligence required to be undertaken by the issuing and the purchasing bank as per guidelines in this regard.
3. RRBs are allowed to issue Inter Bank Participation Certificates (IBPCs) to Scheduled Commercial Banks in respect of their priority sector advances in excess of 75 per cent of their outstanding advances. RRBs have to adhere to guidelines on IBPC vide circular RBI/2009-10/113 RPCD.CO.RRB.BC.No.13/03.05.33/2009-10 dated August 4, 2009 and updated from time to time.

20. Priority Sector Lending Certificates (PSLCs)

The outstanding PSLCs bought by banks will be eligible for classification under respective categories of priority sector provided the underlying assets originated by banks are eligible to be classified as priority sector advances and fulfil the Reserve Bank of India guidelines on Priority Sector Lending Certificates issued vide Circular FIDD.CO.Plan.BC.23/04.09.001/2015-16 dated April 7, 2016. SFBs may further be guided by the terms and conditions specified in Para 1.9 of DBR circular No. DBR.NBD.26/16.13.218/2016-17 dated October 6, 2016 on credit risk transfer and portfolio sales/purchases.

21. Bank loans to MFIs (NBFC-MFIs, Societies, Trusts, etc.) for on-lending (not applicable to RRBs, UCBs, SFBs and LABs)

Bank credit extended to registered NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised SRO for the sector, for on-lending to individuals and also to members of SHGs / JLGs will be eligible for categorisation as priority sector advance under respective categories viz., Agriculture, MSME, Social Infrastructure and Others, provided the MFIs adhere to the conditions prescribed in Chapter II (xx) and Chapter VIII of Master Directions DNBR PD.007 and Chapter II (xx) and Chapter IX of Master Directions DNBR PD.008/03.10.119/2016-17 dated September 1, 2016 and as updated from time to time.

22. Bank loans to NBFCs for on-lending (not applicable to RRBs, UCBs, SFBs and LABs)

Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible for classification as priority sector under respective categories subject to the following conditions:

1. Agriculture: On-lending by NBFCs for ‘Term lending’ component under Agriculture will be allowed up to ₹ 10 lakh per borrower.
2. Micro & Small enterprises: On-lending by NBFC will be allowed up to ₹ 20 lakh per borrower.

The above dispensation shall be valid upto March 31, 2021 and will be reviewed thereafter. However, loans disbursed under the on-lending model will continue to be classified under Priority Sector till the date of repayment/maturity.

23. Bank loans to HFCs for on-lending (not applicable to RRBs, SFBs and LABs)

Bank credit to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of purchase/construction/ reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to an aggregate loan limit of ₹20 lakh per borrower. Banks should maintain necessary borrower-wise details of the underlying portfolio.

24. Cap on On-lending

Bank credit to NBFCs (including HFCs) for on-lending as applicable in para 22 and 23 above, will be allowed up to an overall limit of five percent of individual bank’s total priority sector lending. Banks shall compute the eligible portfolio under on-lending mechanism by averaging across four quarters, to determine adherence to the prescribed cap.

25. Co-origination of loans by Banks and NBFCs for lending to priority sector (not applicable to RRBs, UCBs, SFBs and LABs)

All commercial banks may engage with NBFCs-ND-SI (hereinafter referred to as NBFC) to co-originate loans for the creation of priority sector assets. The arrangement should entail joint contribution of credit at the facility level, by both lenders. It should also involve sharing of risks and rewards between the bank and the NBFC for ensuring appropriate alignment of respective business objectives, as per the mutually decided agreement between the bank and the NBFC. Detailed guidelines, in this regard, have been issued vide our circular No. FIDD.CO.Plan.BC/08/04.09.01/2018-19 dated September 21, 2018.

26. Monitoring of Priority Sector Lending targets

To ensure continuous flow of credit to priority sector, the compliance of banks will be monitored on ‘quarterly’ basis. The data on priority sector advances is required to be furnished by banks to FIDD, Central Office at quarterly and annual intervals as per the reporting format (quarterly and annual). In respect of RRBs, the data on priority sector advances, in the above format, must be furnished to NABARD at quarterly and annual intervals. In respect of UCBs, the data on priority sector advances in the reporting formats ‘Statement I’ and ‘Statement II (Part A to D)’ shall be furnished at quarterly and annual intervals, to the Regional Office of DoS, RBI.

27. Non-achievement of Priority Sector targets

1. Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the Reserve Bank from time to time.
2. With effect from March 31, 2021, all UCBs (excluding those under all-inclusive directions) will be required to contribute to Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD / NHB / SIDBI / MUDRA Ltd., against their priority sector lending (PSL) shortfall vis-à-vis the prescribed target.
3. While computing priority sector target achievement, shortfall / excess lending for each quarter will be monitored separately. A simple average of all quarters will be arrived at and considered for computation of overall shortfall / excess at the end of the year. The same method will be followed for calculating the achievement of priority sector sub-targets. (Illustration given in Annex IV).
4. The interest rates on banks’ contribution to RIDF or any other funds, tenure of deposits, etc. shall be fixed by Reserve Bank of India from time to time.
5. The mis-classifications reported by the Reserve Bank’s Department of Supervision (DoS) (NABARD in respect of RRBs) would be adjusted/ reduced from the achievement of that year, to which the amount of misclassification pertains, for allocation to various funds in subsequent years.
6. Non-achievement of priority sector targets and sub-targets will be taken into account while granting regulatory clearances/approvals for various purposes.

28. Common guidelines for priority sector loans

Banks should comply with the following common guidelines for all categories of advances under the priority sector.

1. Rate of interest: The rates of interest on bank loans will be as per directives issued by Department of Regulation (DoR), RBI from time to time.
2. Service charges: No loan related and ad hoc service charges/inspection charges should be levied on priority sector loans up to ₹25,000. In the case of eligible priority sector loans to SHGs/ JLGs, this limit will be applicable per member and not to the group as a whole.
3. Receipt, Sanction/Rejection/Disbursement Register: A register/ electronic record should be maintained by the bank wherein the date of receipt, sanction/rejection/disbursement with reasons thereof, etc. should be recorded. The register/electronic record should be made available to all inspecting agencies.
4. Issue of acknowledgement of loan applications: Banks should provide acknowledgement for loan applications received under priority sector loans. Bank Boards should prescribe a time limit within which the bank communicates its decision in writing to the applicants.

ANNEX – I A

List of Districts with comparatively high PSL credit

ANNEX – I B

List of Districts with comparatively low PSL credit

ANNEX – II

An indicative list of eligible activities under Agriculture infrastructure and Ancillary activities is given below:

ANNEX – III

Indicative list of Permissible Activities under Food Processing Sector as shared by Ministry of Food Processing Industries (MoFPI)

1. Cleaning, Air Cooling (Field Heat Removal), Sorting, Grading/Sizing, Packaging, Warehousing, Distribution of Fruits & Vegetables etc.
2. Transportation including in refrigerated van/Cold Chain infrastructure system Packaging and storage including techniques like Silo, Hermetic storage; pest management.
3. Storage at low temperature/Cold Storage/Modified/Controlled Atmosphere packaging, Refrigeration/Chilling etc.
4. Primary and/or Minimal Processing of F&V: – Blanching (Vegetables), Peeling, Cutting, Storage, Distribution at Low temperature, vacuum packaging etc.
5. Sun Drying and Mechanical Drying: – Solar Drying, Hot air drying, Dehydration, hybrid drying, fluidized bed drying, refractive window drying, drum drying, radio frequency drying, Lyophilisation (Freeze Drying), Vacuum Drying, Spray Drying, De-hydro-freezing etc.
6. Preservation through various methods; both traditional and modern.
7. Frozen Products: Individually Quick Frozen (10F) of Fruit, Vegetables, Meat, Fish, Sea Foods etc.
8. Milk and Milk products processing, including their transportation, packaging and storage.
9. Canning of Fruit, Vegetables including Mushrooms, Meat, Fish, crustaceans, molluscs, other Sea Foods etc.
10. Milling Grains, Legumes & Pulses, Preparation of their by-products such as Bran Oil, Cattle Feed/Poultry feed etc.
11. Processing of F&V into different products such as juices, concentrates, sauces, jam, jellies, marmalades, Chips, Flakes, Powders etc.
12. Processing of Grains & Pulses, Fish, Meat, Poultry, Sea Foods, Egg etc. into their different products including extruded, popped, puffed and flaked products and their packaging and storage including fumigation, Smoking etc.
13. Oil seed Extraction- Rendering, Pressing, Hydrogenation, Refining with Extraction, Filling/packaging etc.
14. Spices, Seasoning and Condiments – Grinding, Crushing, Milling, Sieving, Mixing, Blending, Roasting, Packaging, Storage, Distribution.
15. Production of fermented Products and Alcoholic- Wines, Vinegar, Milk products, Prebiotics, Probiotics etc.
16. Production of beverages – Juices, RTS, Nectar, Squash, Cordial, Syrups/Sherbets, Soups, Carbonated Beverages etc.
17. Production of Cocoa, Coffee, Chicory and Tea Products; including Cocoa Butter, Cocoa Powder, Chocolates, wafers etc.
18. Production of Bakery and Confectionary Products – Biscuits, Bread, Cakes, Cookies, Toffee etc.
19. Production of Jaggery, Sugar, Khandasari etc from Sugarcane, Beet, Palm etc.
20. Production of apiary products (honey processing; both natural and artificial honey).
21. Production of Starch and Starch Products – Sago, Tapioca, Corn, Noodles, Macroni, Vermicelli etc,
22. Slaughtering of animals/ruminants/birds etc. and their processing.
23. Nuts Processing; coconut-based product processing such as water, nuts etc.
24. Processing of other products such as Instant Mixes, Ready to Eat (RTE) retort-based products, ready to cook and Beverages etc.
25. Nutraceutical products/functional foods/fortified food/enriched food preparation.
26. Production of Organic food products.
27. Processing of algal and fungal products (eg Spirulina, Mushrooms etc), including packaging and enhancement of shelf life.
28. Processing plantation crops, packaging, storage and enhancement of shelf life.
29. Production of food grade packaging material such as laminates, tetra packs, bottles, tin containers etc.

ANNEX – IV

Priority Sector achievement – Calculation of shortfall / excess

Illustration:

Tables No.1 and 2 below illustrate the method followed for computation of shortfall / excess in priority sector target achievement at the end of the financial year under the revised PSL guidelines.

In the example given in Table – 1, the bank has overall shortfall of ₹2063 crore at the end of the financial year. In Table – 2, the bank has overall excess of ₹2293 crore at the end of the financial year.

The Adjustments due to weightage on incremental credit in identified districts as per para 7, will be as per the data submitted by banks in the Automated Data Extraction Project (ADEPT).

The same method will be followed for calculating the achievement of quarterly and yearly priority sector sub-targets.

Note: The computation of priority sector targets/sub-targets achievement will be based on the ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposures, whichever is higher, as at the corresponding date of the preceding year.

APPENDIX

LIST OF CIRCULARS CONSOLIDATED

¹ Includes negotiable warehouse receipt (NWR) and electronic negotiable warehouse receipt (e-NWR)

² Includes negotiable warehouse receipt (NWR) and electronic negotiable warehouse receipt (e-NWR)