The Reserve Bank of India’s revised guidelines on Priority Sector Lending (PSL) released last week looks marginally tougher than the old norms, according to analysts. Most public sector banks in 2011-12 were behind the stipulated target of 40 per cent of adjusted net bank credit. 

There was a high growth trend in agricultural lending between 2004-2008 largely due to a government push for higher financial inclusion. However, in the last two years the growth has moderated, said a report by Citi.

A committee headed by MV Nair in August 2011 re-examined the existing classification and submitted its report in February 2012, which was then placed in public domain by the apex bank for comments.

The overall target under priority sector is retained at 40 per cent adjusted net bank credit as suggested by the Nair panel. In the revised guidelines, the banks are expected to directly lend to individuals, Self Help Groups (SHGs) and Joint Liability Groups (JLGs) and not through intermediaries like Non Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs).

The bankers are still studying the impact of the new guidelines. "At present, we are in the process of studying the impact of the new guidelines and in two day’s time we would be coming out with a new strategy. We have also hired new agricultural officers across India for faster disbursal of loans,’’ said a senior banker from Corporation Bank. The Central Bank of India has so far hired over 500 personnel as agricultural officers.

While the foreign banks having 20 or more branches in the country will be brought on par with domestic banks for priority sector targets, there are other areas where PSU will find the going little tough.

The areas are home loans, micro and small enterprises (MSE) lending in the services sector and loans purchased by banks through the securitisation or assignment route – which have been made moderately tougher, said a report by Barclays. Nevertheless, these changes will not have a significant impact on the banking industry, the report adds.

In the home loan arena, only loans smaller than Rs 15 lakh will qualify for PSL lending in cities for which the population is less than 1 million. “The average loan sanctioned across all cities is about Rs 15 lakh, the new norms should not prove onerous,’’ believe the analysts.

In the area of service sector MSE lending, only loans smaller than Rs 1 crore will qualify towards PSL requirements compared to the earlier norms which had no limit on the size of the loan as long as the enterprise was an MSE. Barclays believes that the larger players in the transport operator and trade segments will continue to take advantage of priority sector classification, as they avail credit through multiple borrowing entities.

The investments by banks in securitised assets, outright purchases of loans and assignments to be eligible for classification under priority sector provided the underlying assets qualify for priority sector treatment and the interest rate charged to the ultimate borrower by the originating entity does not exceed Base Rate of such bank plus 8 per cent per annum. “In this case, it should limit securitisation activity in the 'used' vehicle/equipment space but not in the new vehicle/equipment space,’’ said the report. Effectively, such a move would help in growth in sales for the auto loans.

(Edited by Prem Udayabhanu)

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