Retain priority sector ceiling,hike foreign banks target: RBI panel

Proposes hike in education loan limit by R5 lakh under priority sector

Written by ENS Economic Bureau | Mumbai | Published:February 22, 2012 1:52 am

The committee on priority sector lending set up by the Reserve Bank of India has recommended that foreign banks should be asked to lend 40 per cent of the total advances to the priority sector as against the existing 32 per cent target,bringing them at par with the domestic banks.

The panel,headed by Union Bank of India Chairman and Managing Director M V Nair,has also recommended retaining the existing 40 per cent ceiling for the segment while creating a sub-head of micro enterprises within the micro and small enterprise (MSE) sector and a hike in education loan ceiling by Rs 5 lakh for students.

The target for foreign banks would include sub-targets of 15 per cent for exports and 15 per cent for MSE sector,within which 7 per cent may be earmarked for micro enterprises. “Limit under priority sector for loans for studies in India may be increased to Rs 15 lakh and Rs 25 lakh in the case of studies abroad,from existing limit of Rs 10 lakh and Rs 20 lakh,respectively,” the panel said in its report submitted to the RBI.

The report said “target of domestic scheduled commercial banks for lending to priority sector is retained at 40 per cent of adjusted net bank credit or credit equivalent of off-balance sheet exposure,whichever is higher”. The old classification of distinction between direct and indirect agriculture credit has been done away with by converting the segment into a composite one called agriculture and allied activities,the RBI panel said.

Banks may be encouraged to ensure that the number of outstanding beneficiary accounts under ‘small and marginal farmers’ and micro enterprises’ each register a minimum annual growth rate of 15 per cent. “The loans to housing and education may continue to be under priority sector. Loans for construction/purchase of one dwelling unit per individual up to Rs 25 lakh; loans up to Rs 2 lakh in rural and semi urban areas and up to Rs 5 lakh in other centres for repair of damaged dwelling units may be granted under priority sector,” it said.

In order to encourage construction of dwelling units for economically weaker sections and low income groups,housing loans granted to these individuals may be included in weaker sections category. All loans to women under priority sector may also be counted under loans to weaker sections.

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