Some areas or fields depending on its economic condition or economic importance are prioritized and are called priority sector i.e. industry, agriculture. and lending to these sectors refer to priority sector lending
Small business would include individuals and firms managing a business enterprise for providing any service other than professional service whose original cost price of the equipment used for the purpose of business cost doesn’t exceed Rs 20 lakh.
Loan to professional and self employed persons include loan for purchasing equipment, repairing existing equipment, acquiring business premises and purchasing tools for working capital requirements.
Advances sanctioned to state sponsored org. for SC/ST for the purchase or supply of inputs or marketing of outputs
Loans granted to individuals for educational purposes
Loans provided by banks to self help groups
Assistance give to any governmental agency for the construction of houses or slum clearance.
Loans to software industry with credit limit of 1 crore from banks.
Investment in venture capital will be included in priority sec. only if they are registered with SEBI.
Loans for food and agro based processing centre such as:
Food grain milling industry
Fruit and vegetable processing industry
Technical assistance and advice to food processing industry.
Nature Domestic banks (both public and private) Foreign banks operating in India Total priority sector advances 40%of NBC 32%of NBC Total agricultural advances 18%of NBC No target SSI advances No target 10%of NBC Advances to weaker section 10%of NBC No target Export credit Export credit doesn’t form part of priority se 12%of NBC
AS per the current interest rate policy, in the case of loans upto Rs 2 lakh, the interest rate should not exceed the prime lending rate (PLR) of the bank, while in the case of loans above Rs 2 lakh, banks are free to determine the interest rate.
MONITORING OF PRIORITY SECTOR LENDING BY RESERVE BANK
Priority sector lending by commercial banks is monitored by Reserve Bank of India through periodical Returns received from them. Performance of banks is also reviewed in the various fora set up under the Lead Bank Scheme (at State, District and Block levels).
Proposed scheme of tradable Priority Sector Lending Certificates (PSLCs) for MFI.
Rbi formed new committee headed by union bank of india cmd mv nair for re-examine the existing classification under priority sector
More participation by private sector for fulfilling requirement
Increase in NPA ‘s from priority sector lending
As on march (fig in cr) Public sector bank Private sector bank Foreign bank 2001-02 127807 (43.6) 10819 (38.7) 23843 (35.3) 2005-06 409748 (40.0) 106586 (44.8) 30439 (34.4) 2009-10 71240 (39.6) 167768(45.7) 49835 (33.4)
Year ended march(fig in cr) Priority sector Non priority sector Public sector 2006-07 21926 (48.1) 23249(51) 444(1.0) 2007-08 22374(54,1) 18664 (45.1) 341(0.8) 2008-09 22954 (59.2) 15158(39.3) 490(1.3)