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:
- 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.
- 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.
- 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.
- 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.
- Banks may be encouraged to increase the number of beneficiaries under ‘small and marginal farmers’ and micro enterprises’ by 15%.
- Housing loans granted to Economically Weaker Sections and Low Income Group individuals may be included in Weaker Sections Category.
- All loans to women under priority sector may also be counted under loans to weaker sections.
- 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.
- 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.
- 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.
- 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