RBI may not relax priority lending

The Reserve Bank of India is unlikely to relax priority sector guidelines despite bankers pitching for easing of the norms

Written by ENS Economic Bureau | Mumbai | Published: August 29, 2012 1:17:37 am

The Reserve Bank of India is unlikely to relax priority sector guidelines despite bankers pitching for easing of the norms.

Though RBI officials met bankers on Tuesday to discuss issues faced by them and to seek feedback on the guidelines,bank chiefs are not optimistic about any major relaxation. “I don’t think they are going to change anything. The meeting was just for feedback and data exchange,” said the head of a large public sector bank.

On July 31,RBI Governor D Subbarao had said that the central bank is open to reviewing the norms and will discuss priority sector issues at the operational and leadership level with banks.

“Direct lending percentage was the key thing discussed today. They took our suggestions and feedback,” the head of another public sector bank told reporters after the meeting.

Bankers suggested that export be considered as a priority sector and the target of 13.5 per cent of total credit through direct lending be revisited. The main issue is about definitions of what qualifies as priority sector lending.

Earlier in July,the RBI had issued revised guidelines on priority sector lending by adopting some of the suggestions of a working group it had set up to study the same. The working group under the chairmanship of former Union Bank of India chairman MV Nair had recommended a host of measures to change the existing norms but the RBI adopted only some of them.

The guidelines were made stringent by mandating foreign banks with 20 branches or more to meet the target of 40 per cent as against 32 per cent in priority sector lending in a phased manner. Further,the central bank said that banks will have to extend 13.5 per cent of total credit through direct lending.

The RBI had also tightened the tag of priority sector lending for home loans. Instead of all home loans of up to Rs 25 lakh,the RBI now includes only those loans in cities with population of over 10 lakh. For other towns,home loans of only up to Rs 15 lakh will be included.

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