Wednesday, 12 September 2012

MV Nair Committee on "Priority Sector Lending"

The Reserve Bank of India had constituted  the M.V.Nair committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending and related issues. The report was submitted in February 2012. Its main recommendations are:
  1. The target of domestic scheduled commercial banks for lending to priority sector may be retained at 40% of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is higher.
  2. The sector ‘agriculture and allied activities’ may be a composite sector within priority sector, by doing away with distinction between direct and indirect agriculture. The targets for agriculture and allied activities may be 18% of ANBC or CEOBE, whichever is higher.
  3. A sub target for small and marginal farmers within agriculture and allied activities is recommended, equivalent to 9% of ANBC or CEOBE, whichever is higher to be achieved in stages by 2015-16.
  4. The MSE sector may continue to be under priority sector. Within MSE sector, a sub target for micro enterprises is recommended equivalent to 7% of ANBC or CEOBE, whichever is higher.
  5. Banks may be encouraged to increase the number of beneficiaries under ‘small and marginal farmers’ and micro enterprises’ by 15%.
  6. Housing loans granted to Economically Weaker Sections and Low Income Group  individuals may be included in Weaker Sections Category.
  7. All loans to women under priority sector may also be counted under loans to weaker sections.
  8. The target for foreign banks may be increased to 40 per cent of ANBC or CEOBE, with sub-targets of 15% for exports and 15% for MSE sector, within which 7 per cent may be earmarked for micro enterprises.
  9. The committee recommends allowing non-tradable priority sector lending certificates (PSLCs) on pilot basis with domestic scheduled commercial banks, foreign banks and regional rural banks as market players.
  10. Bank loans to non-bank financial intermediaries for on-lending to specified segments may be allowed to be reckoned for classification under priority sector, up to a maximum of 5 per cent of ANBC or CEOBE, whichever is higher, subject to certain due diligence and documentation standards.
  11. The present system of report-based reporting has certain limitations and it may be improved through data-based reporting. There is a need to address the issues in data reporting like pre-defined parameters, reference date, periodicity, unit of reporting, etc.
To read about what the Economic Survey 2012 says about Priority Sector Lending Click here

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