Priority sector lending gets "new economy" touch

Talking to The Indian Express, officials in PSU banks stated that the move by the apex bank is aimed at giving fillip to bank investments in software industry. Banks can also subscribe to venture capital of big corporates and even treat it as priority sector lending.

Elaborating on the other amendments brought about in priority sector lending, banking sources said amendments have also been brought about in direct finance to housing which is treated as priority sector. Earlier, loans upto Rs 5 lakh for construction of houses by individuals in both urban and rural areas used to be treated as priority sector lending. The apex bank has now increased the amount for urban areas from Rs 5 lakh to Rs 10 lakh.

Further, in priority sector lending the investment limit for SSI investment in plants and machinery by banks has also been brought down from Rs 3 crore to Rs 1 crore. Earlier, the limit had been revised from Rs 25 lakh to Rs 50 lakh and then to Rs 3 crore. According to the recent guidelines, the limit has been brought down to Rs 1 crore.

Giving details of the new elements in priority sector lending, sources said that loans against gold/silver jewellery for the purchase of agricultural inputs would also now be treated as proirity sector lending. The apex bank has also hiked the investment limit in retail trade (another element of priority sector lending) from Rs 2 lakh to Rs 5 lakh.

According to the bank circular, the cap on consumption loans, which can be treated as priority sector lending, has also been hiked from Rs 1,000 to Rs 2,000.

Earlier, agriculture loan in cash credit used to be treated as priority sector lending (agriculture loans have a cap of 18 per cent within 40 per cent of priority sector lending). Now, with recent amendments the advances on Union Green Card (UGC) would also be treated as priority sector lending. According to the circular, "UGC is to be issued to farmers in order to meet any urgent agricultural credit requirement for agricultural operations as also working capital requirement for allied activities like dairy, poultry etc of cultivators upto Rs 1,00,000.

However, the cap of 18 per cent on agriculture, 10 per cent to weaker sections, 40 per cent to SSI, 12 per cent to export (all within the 40 per cent priority sector advances) remain in place, sources added.