CLASS NOTES

1. Developmental Banking
&
Priority Sector Finance

2.  Despite headline growth & significant progress in recent years, India
remains an economically challenged country with an agrarian face
 As the second most populous nation on earth, with a severely pressured
land mass, burgeoning cities, creaky infrastructure, strained services and
civic facilities, the struggle to lift all citizens above the poverty line is an
enormous burden for any government
 The bulk of the population is still rural based - 66.46% in 2017 as per
World Bank estimates - and financially disadvantaged. Approx 58% of the
population depends on agriculture for their livelihood. Their needs are
paramount and must be addressed urgently for overall national growth
 Priority Sector Lending & Agricultural Finance focus on eradicating
poverty and improving the lives of the marginalised and disadvantaged
 Extending desperately needed financial support in the face of the severe
fragmentation of rural land holdings into miniscule, often unsustainable
portions, is an huge challenge in the effort to erase social despair

4. GDP in current prices from 2012 with projections to 2022 (USD billions)

6.  The “youth dividend”: the median age of the population is around
29 years.The need for gainful occupation is therefore more dire
 Over 59% fall into the 15 – 54 years age band
 Desperate search for jobs and gainful employment
 Most lack the funds to get self employment opportunities up and
running
 Extending of timely financial assistance on a priority basis
 This is where banks and the government step in by committing to
extend up to 40% of loans under priority sector lending schemes –
including agriculture on a Adjusted Net Bank Credit (ANBC) basis

7.  Reserve Bank of India
 National Bank for Agriculture and Rural
Development (NABARD)
 Commercial Banks
 Cooperative Banks
 Regional Rural Banks
 Insurance Companies
 The end beneficiaries: farmers & borrowers
eligible under priority sector category

8. Bank Credit in India (As prescribed in item No.VI of Form ‘A’ (Special Return as on
March 31st) under Section 42 (2) of the RBI Act, 1934.
I
Bills Rediscounted with RBI and other approved Financial Institutions II
Net Bank Credit (NBC) III (I – II)
Investments in Non-SLR categories under HTM category + other investments eligible
to be treated as priority sector + outstanding deposits under RIDF and other eligible
funds with NABARD, NHB, SIDBI, MUDRA Ltd. on account of priority sector shortfall +
outstanding Priority Sector Lending Certificates (PSLCs)
IV
Eligible amount for exemptions on issuance of long-term bonds for infrastructure &
affordable housing as vide circular DBOD.BP.BC.No.25/08.12.014/2014-15 dt 15.7.2014
V
Eligible advances extended in India against the incremental FCNR (B)/NRE deposits,
qualifying for exemption from CRR/SLR requirements
VI
Adjusted Net Bank Credit (ANBC)
III + IV –
V - VI

9.  Bank Credit: loans, cash payments, overdrafts provided by a bank to its
customers. Includes bills purchased and bills discounted
 Bills presented to RBI or another Financial Institution for rediscounting:
Represents before maturity reduction in the presenting bank’s credit exposure
on account of inflow from RBI or FI from rediscounting the bill(s)
 Net Bank Credit: Bank Credit less Bills Rediscounted as the bank
receives funds from the institution that rediscounted the bill(s)
 Investments in Non-SLR paper under HTM + other investments eligible to
be treated as priority sector etc: Treated as bank credit
 Eligible amount for exemptions on issuance of long-term bonds for
infrastructure & affordable housing: In view of exposure already taken to
priority sector
 Eligible advances extended in India against the incremental FCNR
(B)/NRE deposits: Exemption eligibility applicable until repayment

10. I Bank Credit in India (As prescribed in item No.VI of Form ‘A’ (Special
Return as on March 31st) under Section 42 (2) of the RBI Act, 1934.
1000
II Bills Rediscounted with RBI and other approved Financial Institutions 200
III Net Bank Credit (NBC) I - II 800
IV Investments in Non-SLR categories under HTM category + other
investments eligible to be treated as priority sector + outstanding
deposits under RIDF & other eligible funds with NABARD, NHB, SIDBI,
MUDRA Ltd. o/a of priority sector shortfall + outstanding PSLCs
300
V Eligible amount for exemptions on issuance of long-term bonds for
infrastructure & affordable housing as vide circular
DBOD.BP.BC.No.25/08.12.014/2014-15 dt 15.7.2014
150
VI Eligible advances extended in India against incremental FCNR (B)/NRE
deposits, qualifying for exemption from CRR/SLR requirements 100
Adjusted Net Bank Credit (ANBC) III + IV –
V - VI
850
40% of Adjusted Net Bank Credit (ANBC) 340

11. (i) Agriculture
(ii) Micro, Small and Medium Enterprises
(iii) Export Credit
(iv) Education
(v) Housing
(vi) Social Infrastructure
(vii) Renewable Energy
(viii) Others
[Source: RBI/FIDD/2016-17/33 Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 . Updated as on August 01, 2018]

12.  Agriculture & allied activities (direct & indirect finance)
 Small-scale industrial loans
 Small business & service enterprises including professional and
self-employed persons, small road and water transport operators
etc. for purchase of goods and business assets
 Retail trade finance: to financially support small retail entities such
as retail shops, fertiliser shops,
 Micro credit of not more than Rs. 50,000 per borrower

13.  Educational loans: Rs. 10 lacs in India. Rs. 20 lacs for overseas
 Housing loans – focused on weaker sections of society. Rs. 35 lacs
in metro centres, Rs. 25 lacs elsewhere with maximum project cost
of Rs 45 lacs and Rs.30 lacs respectively
 Consumption loans
 State-sponsored corporations for SC/ST borrowers
 Other recommended priority sector finance: to the poor and
disadvantaged

14. Targets and sub-targets set under priority sector lending for all scheduled
commercial banks and foreign banks operating in India:
Categories DomesticSCBs & Foreign Banks with
20 and more branches
Foreign Banks with less than 20
branches
Total Priority Sector 40% of Adjusted Net Bank Credit or
credit equivalent amount of Off Balance
Sheet Exposure whichever is higher
40% of ANBC or credit equivalent
amount of Off Balance Sheet Exposure
whichever is higher.To be achieved in
a phased manner by 2020 @ 2%
incremental increase p.a. wef 2015-16
Agriculture 18% of ANBC or credit equivalent
amount of Off Balance Sheet Exposure
whichever is higher. Within the 18%
target, a target of 8% is prescribed for
Small & Marginal Farmers
Not applicable
Micro Enterprises 7.5% of ANBC or credit equivalent
amount of Off Balance Sheet Exposure
whichever is higher.
Not applicable
Advances toWeaker
Sections
10% of ANBC or credit equivalent
amount of Off Balance Sheet Exposure
whichever is higher.
Not applicable

15. LET US NOT FORGET THAT THE
CULTIVATION OF THE EARTH IS THE
MOST IMPORTANT LABOUR OF MAN
DANIEL WEBSTER
US Secretary of State
(1782 –1852)

16.  Land area of India: 3,287,469 sq km (1,269,299 sq mi)
 Arable land as a share of land area: 52.6(%)in 2015
 Between 1984 and 2015, arable land as a share of land area in India
decreased on average by 0.12 % each year, although before that, it
grew from 53.3 % in 1966 to 55 % in 1984
 The downtrend continues as urban sprawls encroach on traditional
farmland and as desertification, top soil erosion, falling water
tables degrade otherwise fertile tracts of land mainly in northern
and north western India.
 India has the second largest amount of arable land of any country
after the U.S. Although the total land area of the country is only
slightly more than one third of China's, India's arable land is
marginally more than China's
 Agriculture contributed 18.8% to national GDP in 2021-22

17. The cropping seasons:
Kharif: Sowing in June/July. Harvesting in Oct / Nov
Crops: Rice, Jowar, Bajara, Sugercane, Jute, Groundnut etc.
Rabi: Sowing in Oct / Nov. Harvesting in Apr / May
Crops:Wheat, Oats, Grams, Potato, Onion, Oilseeds etc.
Zaid: March to June for early maturing crops viz. cucumber,
moong, watermelon etc.

18.  Marginal Farmer: landholding of up to 1 hectare
 Small Farmer: landholding of more than 1 hectare and up to 2
hectares
 Landless agricultural labourers, tenant farmers, oral lessees and
share-croppers, whose share of landholding is within the limits
prescribed for small and marginal farmers
 Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e.
groups of individual Small and Marginal farmers directly engaged
in Agriculture and Allied Activities, provided banks maintain
disaggregated data of such loans
 Farmers' producer companies of individual farmers, and co-
operatives of farmers directly engaged in Agriculture and Allied
Activities, where the membership of Small and Marginal Farmers
is not less than 75 per cent by number and whose land-holding
share is also not less than 75 per cent of the total land-holding

19.  Farm Credit to: Individual farmers, groups of individual farmers viz. Self
Help Groups (SHGs) or Joint Liability Groups (JLGs) and proprietorship
firms of farmers, directly engaged in Agriculture andAllied Activities,
viz., dairy, fishery, animal husbandry, poultry, bee-keeping and
sericulture.
 Purpose of loans:
 Crop Loans (purchase of seeds, fertiliser, pesticides, preparation of land)
 Term Loans (medium & long tenor) for agri. equipment, irrigation facilities etc.
 Pre- & post-harvesting work viz. spraying, weeding, harvesting, sorting,
transporting
 Pledge/hypothecation of agricultural produce (including warehouse receipts)
for a period not exceeding 12 months
 To distressed farmers indebted to non-institutional lenders (eg money
lenders)
 To farmers under the Kisan Credit Card Scheme
 To small and marginal farmers for purchase of land for agricultural purposes

20.  Construction of storage facilities (warehouses, market yards, godowns
and silos) including cold storage units/cold storage chains designed to
store agriculture produce/products, irrespective of their location.
 Soil conservation and watershed development activities
 Plant tissue culture and agri-biotechnology, seed production, production
of bio-pesticides, bio-fertilizer, and vermi-composting
 For the above loans, an aggregate sanctioned limit of ₹1 billion per
borrower from the banking system, will apply

21.  Up to ₹50 million to co-operative societies of farmers for disposing of the
produce of members
 Setting up of Agriclinics and Agribusiness Centres
 Loans for Food and Agro-processing units up to an aggregate sanctioned
limit of ₹1 billion per borrower from the banking system
 To Custom Service Units managed by individuals, institutions or
organizations who maintain a fleet of tractors, bulldozers, well-boring
equipment, threshers, combines, etc., and undertake farm work for farmers
on contract basis
 To Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies
(FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on-
lending to agriculture
 To MFIs for on-lending to agriculture sector as per the conditions specified in
the RBI’s Master Directions

26. Limits for investment in plant and machinery/ equipment by MSMEs
(Source: RBI Master Direction FIDD.CO.Plan.1/04.09/01/2016-17 dt. July 7, 2016 updated on 04.12.18)

27. Manufacturing sector: 38 broad categories. Here’s a sampling:
 Metallurgical: Ferrous and Non-ferrous goods
 Fuels: Coal, oils, gases
 Boilers & Steam generating plants
 Prime Movers other than electrical generators
 Electrical and telecom equipment
 Transportation: from aircraft parts to bicycles
 Industrial / Agricultural / Earthmoving machinery
 Commercial / Office / Household equipment
 Medical & Surgical appliances
 Industrial, scientific, mathematical, surveying & drawing equipment
 Fertilisers / Chemicals / Dyestuffs / Drugs & Pharmaceuticals
 Textiles / Paper / Fermentation / Food processing
and so on………
[Reference: The Industries (Development & Regulation} Act, 1951 and subsequent government amendments]

28. No. Category
(i) Small and Marginal Farmers
(ii) Artisans, village and cottage industries where individual credit limits do not exceed ₹0.1
million (Rs. 1.00 lac)
(iii) Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood
Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme
for Rehabilitation of Manual Scavengers (SRMS)
(iv) Scheduled Castes and ScheduledTribes
(v) Beneficiaries of Differential Rate of Interest (DRI) scheme
(vi) Self Help Groups
(vii) Distressed farmers indebted to non-institutional lenders
(viii) Distressed persons other than farmers, with loan amount not exceeding ₹0.1 million per
borrower to prepay their debt to non-institutional lenders
(ix) Individual women beneficiaries up to ₹0.1 million per borrower
(x) Persons with disabilities
(xi) Overdraft limit to PMJDY account holder up to ₹ 10,000/- with age limit of 18-65 years.
(xii) Minority communities as may be notified by Government of India from time to time.