Fact Box: Priority sector lending (PSL)
Priority sector lending (PSL) by public sector banks to minorities to minorities surpassed 15% mark.
Priority sector lending by public sector banks to minorities has increased from 10.6% in 2007-08 to 15.01% in 2012-13 with a total lending of Rs 1,71,960.71 crore to minorities. Priority sector lending to minorities is one of the schemes covered under prime minister’s new 15 point programme for the welfare of minorities.
What is Priority Sector Lending?
Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture or small scale industries. Basically this is meant for all round development of the economy apart from only focusing on the financial sector.
Are there minimum limits?
The limits are prescribed according to the ownership pattern of banks. While for local banks, both the public and private sectors have to lend 40 % of their net bank credit, or NBC, to the priority sector as defined by RBI, foreign banks have to lend 32% of their NBC to the priority sector.
Are there specific targets within the priority sector?
Domestic banks have to lend 18 % of NBC to agriculture and 10 % of the NBC has to be to the weaker section. However, foreign banks have to lend 10 % of NBC to the small-scale industries and 12 % of their NBC as export credit. However, for the balance, there are a vast number of sectors that banks can lend as priority sector. The Reserve Bank has a detailed note of what constitutes a priority sector, which also includes housing loans, education loans and loans to MFIs, among others.
What if a bank does not achieve priority sector lending targets?
Domestic banks having a shortfall in lending to priority sector/ agriculture are allocated amounts for contribution to the Rural Infrastructure Development Fund ( RIDF ) established in NABARD. In case of foreign banks operating in India, which fail to achieve the priority sector lending target or sub-targets, an amount equivalent to the shortfall is required to be deposited with SIDBI for one year.
Categories: Business, Economy & Banking