Understanding Priority Sector Lending - 2

Priority Sector Lending (PSL) is a critical piece of compliance required in the Indian Banking and Finance industry. This presentation (along with the part 1, posted earlier gives a quick overview of the priority sector lending concepts. The regulation for PSL is quite clear and increasingly Banks are mandated by the regulator - RBI to ensure compliance to PSL.

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1. Priority Sector Lending (PSL) in Banking industry

2. INTRODUCTION 2 Banks are catalysts in development of various sectors in economy In a developing economy some sectors of society need special & priority attention as they are starved for capital. The Reserve Bank of India (RBI), has clearly specified the sectors that are termed the priority sectors These sectors are termed the ‘Priority Sectors’ The lending that is done to them is referred to as ‘Priority Sector Lending’ RBI has come out with its policies, whereby it makes it compulsory for Banks to take credit exposure on Priority Sector. This explains the need for PSL by Commercial Banks

3. Where it all began - Conception of PSL 3 Meeting of National Credit Council held in July 1968. Emphasis laid on Commercial Banks to increase their involvement in financing of Priority Sector . Priority Sector Broadly defined to include Agriculture & Small Scale Industries .

4. 4 Report submitted by Informal Study Group (constituted by RBI in May 1971) on statistics relating to advances to Priority sector in 1972 1. RBI, prescribed a modified return for reporting priority sector advances 2. Certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector Description of Priority Sector Formalized Where it all began - Conception of PSL

5. 5 Share in Priority Sector Lending Banks were advised to raise share of Priority Sector lending in their aggregate lending to 33.33% by March 1979. 1. It was agreed at a meeting of the Union Finance Minister with the CEOs of Public Sector Banks to increase this lending to 40% by March 1985. 2. Subsequently all commercial banks were advised to increase their lending to this sector to 40% by March 1985. Where it all began - Conception of PSL

6. Categories of Priority Sector As per revised guidelines with effect from 20 th July 2012 6 AGRICULTURE MICRO & SMALL ENTERPRISES EDUCATION HOUSING EXPORT CREDIT OTHERS

7. Targets for Priority Sector Lending for Domestic and Foreign banks in India CATEGORY DOMESTIC COMMERCIAL BANKS AND FOREIGN BANKS WITH >= 20 BRANCHES FOREIGN BRANCHES WITH < 20 BRANCHES Total priority sector target 40% of ANBC * OR Credit equivalent amount of Off-Balance Sheet exposure # (Whichever is higher) 32% of ANBC * OR Credit equivalent amount of Off-Balance Sheet exposure # (Whichever is higher) ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http ://www.sineedge.com/blog/understanding/ 7

8. CATEGORY DOMESTIC COMMERCIAL BANKS AND FOREIGN BANKS WITH >= 20 BRANCHES FOREIGN BRANCHES WITH < 20 BRANCHES Total Agriculture sector target 18% of ANBC* OR Credit equivalent amount of Off-Balance Sheet exposure (Whichever is higher) No specific target – forms part of total priority sector target Notes : Indirect lending in excess of 4.5% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, will not be reckoned for computing achievement under 18 % target . However, all agricultural loans under the categories 'direct' and 'indirect' will be reckoned in computing achievement under the overall priority sector target of 40 %. 8 Targets for Priority Sector Lending for Domestic and Foreign banks in India ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http ://www.sineedge.com/blog/understanding/

9. CATEGORY DOMESTIC COMMERCIAL BANKS AND FOREIGN BANKS WITH >= 20 BRANCHES FOREIGN BRANCHES WITH < 20 BRANCHES Micro & Small Enterprises All lending included in overall PSL target of 40% No specific target – forms part of total priority sector target 40% of advance to this category to go to following: Micro ( Mfg ) Enterprises with investment in P&M upto 10 Lacs. Micro (service) enterprises having investment in equipment up to Rs. 4 lakh 20% of advance to this category to go to following: Micro ( Mfg ) enterprises with investment in P&M above Rs.10 lakh and up to Rs.25 lakh Micro (service) enterprises with investment in equipment above Rs.4 lakh and up to Rs.10 lakh 9 Targets for Priority Sector Lending for Domestic and Foreign banks in India ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http ://www.sineedge.com/blog/understanding/

10. CATEGORY DOMESTIC COMMERCIAL BANKS AND FOREIGN BANKS WITH >= 20 BRANCHES FOREIGN BRANCHES WITH < 20 BRANCHES Export Credit Export credit is not a separate category. Export credit to eligible activities under agriculture and MSE will be reckoned for priority sector lending under respective categories. No specific target – forms part of total priority sector target Targets for Priority Sector Lending for Domestic and Foreign banks in India

11. CATEGORY DOMESTIC COMMERCIAL BANKS AND FOREIGN BANKS WITH >= 20 BRANCHES FOREIGN BRANCHES WITH < 20 BRANCHES Advances to weaker sections 10 % of ANBC* Or Credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher . No specific target – forms part of total priority sector target 11 Targets for Priority Sector Lending for Domestic and Foreign banks in India ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC here = > http ://www.sineedge.com/blog/understanding/

12. 12 Targets for Priority Sector Lending for Foreign banks in India with > = 20 branches

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