PRIORITY SECTOR ADVANCES
Evolution : In July 1968 banks were advised to increase lending to priority sectors. Description of priority sector was formalized in
1972. Banks were advised in Nov 1974, to achieve a lending target of 33-1(3 % by March 1979 which was increased to 40% in 1980
(to be achieved by 1985). Sub-targets for lending to agriculture and weaker sections were specified in 1980. The guidelines were
revised on recommendations Of M V Nair Committee on 20.07.12 .RBI revisedthe priority sector lending guidelineswith effect fromApril
23rd 2015 onthe basisof recommendations of an InternalWorkingGroup(IWG) headedbyMs Lily Vadera. Thesalient features of the guidelines
are asunder:-
Categories / Activities under priority sector
1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others
Targets /Sub-targets for Priority sector
Domestic scheduled commercial banks and Foreign banks with 20 branches and above
Total Priority Sector:
40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher.
Sub-Targets:
1. Agriculture : 18% of ANBC or CEOBE, whichever is higher. A sub-target of 8% is prescribed for Small and Marginal Farmers,
to be achieved in a phased manner i.e., 7% by March 2016 and 8% by March 2017. (Banks should reach the level of 13.5%
direct lending to beneficiaries who earlier constituted the direct agriculture sector).
2. Micro Enterprises: 7.5% of ANBC or CEOBE, whichever is higher (7% by March 2016 and 7.5% by March 2017).
3. Weaker Sections : 10% of ANBC or CEOBE, whichever is higher.
Important : Foreign banks with 20 branches and above ' are to achieve the total priority sector target of 40%, agriculture advances
target of 18% and Weaker Sections Target within a maximum period of 5 years starting from April 1, 2013 and ending on March 31,
2018. The sub-target for Small and Marginal farmers and for Micro Enterprises would be made applicable post 2018 after a review in
2017.
Foreign banks with less than 20 branches Total priority sector target : 40% of ANBC or CEOBE, whichever is higher to be achieved in
a phased manner between 2016-2020. (Additional 2% each year to be achieved by lending to sectors other than exports. The sub
targets would be decided in due course).
Computation of priority sector targets
The computation targets/sub-targets is based on ANBC or CEOBE, whichever is higher, as on the corresponding date of the preceding
year.
Description of the eligible categories
1. Agriculture: There is no distinction between direct & indirect agriculture loans. The lending shall include (i) Farm Credit (shortterm
crop loans and- medium/long-term credit to farmers) (ii) Agriculture Infrastructure and (iii) Ancillary Activities.
(1) Farm credit
A) Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers,
provided banks maintain disaggregated data of such loans], directly engaged in Agriculture and Allied Activities, viz., dairy, fishery,
animal husbandry, poultry, bee-keeping and sericulture. This will include:
(1) Crop loans to farmers, including traditional/non-traditional plantations & and horticulture and loans for allied activities.
(ii) Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural implements and
machinery, loans for irrigation and other developmental activities undertaken in the farm, and developmental loans for allied
activities)
(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading and transporting of
their produce.
(iv) Loans up to Rs.50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not
exceeding 12 months.
(v) Loans to distressed farmers indebted to non-institutional lenders.
(vi) Loans under Kisan Credit Card Scheme.
(vii) Loans to small and marginal fanners for purchase of land for agricultural purposes.
B) Loans to corporate farmers, farmers' producer organizations/companies of individual farmers, partnership firms and co-operatives
of farmers directly engaged in Agriculture and Allied Activities, up to an aggregate limit of Rs. 2 crore per borrower. This will include
the loans as per categories A (i, ii, iii, iv) above:
(ii) Agriculture infrastructure:
i) Construction of storage facilities (warehouses, market yards, godowns and silos) including cold storage units/ chains to
store agriculture produce/products, irrespective of location.
ii) Soil conservation and watershed development. iii). Plant tissue culture and agri-biotechnology, seed production, production
of bio-pesticides, bio-fertilizer, and vermi composting.
An aggregate sanctioned limit of Rs.100 crore per borrower from the banking system, will apply. (iii) Ancillary activities
(i) Loans up to Rs. 5 crore to co-operative societies of farmers for disposing of produce.
(ii) Loans for Agriclinics & Agribusiness Centres.
(iii) Loans for Food and Agro-processing up to an aggregate sanctioned limit of Rs.100 crore per borrower from the banking
system.
(iv) Custom Service Units 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.
(v) Loans to Primary Agricultural Credit Societies (PACS), Farmers' Service Societies (FSS) and Large-sized Adivasi Multi-Purpose
Societies (LAMPS) for on-lending to agriculture.
(vi) Loans to MFIs for on-lending to agriculture sector fulfilling the specified conditions.
(vii) Outstanding deposits under RIDF and other
eligible funds with NABARD on account of priority sector shortfall.
To compute 8% target, the Small and Marginal Farmers will include the following:-
• Farmers with landholding of up to 1 hectare considered as Marginal Farmers and farmers with a landholding of more than 1
hectare and upto 2 hectares considered as Small Farmers.
• Landless agricultural labourers, tenant farmers, oral lessees and share-croppers.
• Loans to SHGs or 31.Gs, i.e. groups of individual Small and Marginal farmers directly engaged in Agriculture and Allied
Activities, provided banks maintain disaggregated data of such loans.
Loans to 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% by number and whose land-holding share is also
not less than 75% of the total land-holding.
2. Micro, Small & Medium Enterprises
I. Bank loans to MSMEs in manufacturing and production.
2. Loans up to Rs. 5 crore to Micro & Small Enterprises and Rs.10 crore to Medium Enterprises providing or rendering of
services.
3. Loans to units in the Khadi and Village Industries (KVI) sector which will be eligible for classification under the sub-target of
7.5% prescribed for Micro Enterprises.
Other Finance to MSMEs
(i) Loans to entities involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of
artisans, village and cottage industries.
(ii) Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries.
(iii) Loans to MFIs for on-lending to MSME sector fulfilling the specified conditions.
(iv) Loans outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card,
and Weaver's Card etc. meeting non-farm entrepreneurial credit needs)
(v) overdraft up to Rs.5000 under PM Jan Dhan accounts (where borrowers household annual income does not exceed
Rs.100,000 for rural areas and Rs.1,60,000 for non-rural areas).
(vi) Factoring transactions on 'without recourse' basis with MSMEs.
(vii) Outstanding deposits with SIDBI or MUDRA on account of priority sector shortfall.
Important : MSME units will continue to enjoy the priority sector lending status up to 3 years after they grow out of the MSME
category concerned.
3. Export Credit.
Incremental export credit over corresponding date of the preceding year, up to 2% of ANBC or CEOBE, whichever is higher, effective
from April 1, 2015 for domestic banks, subject to a sanctioned limit of Rs.25 crore per borrower to units having turnover of up to
Rs.100 crore. For foreign banks with 20 branches and above this to become effective from April 1, 2017.
4. Education:
Loans to individuals for educational purposes including vocational courses up to Rs. 10 Iakh irrespective of the sanctioned amount
will be considered as eligible for priority sector.
5. Housing
(i) Loans for purchase/construction of a dwelling unit per family : Up to Rs. 28 Iakh (overall cost of house maximum Rs.35 lac)
in metropolitan centres (with population of 10 latch and above) and loans up to Rs. 20 lakh (overall cost of house maximum
Rs.25 lac) in other centres.
Note (1) The housing loans to banks' own employees will be excluded. (ii) The housing loans backed by long term bonds (which are
exempted from ANBC), should either be included under loans to individuals or banks may take benefit of exemption from ANBC, but
not both.
(ii) Loans for repairs to damaged dwelling units of families up to Rs. 5 lakh in metropolitan centres and up to Rs.2 lakh in other
centres.
(iii) Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum
dwellers. (Ceiling - Rs.10 lakh per dwelling unit).
(iv) The loans for housing projects exclusively for construction of houses for economically weaker sections and low income
groups, the total cost of which does not exceed Rs. 10 lakh per dwelling unit. For identifying the economically weaker
sections and low income groups, the family income limit of Rs. 2 lakh per annum, irrespective of the location, is prescribed.
(v) Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of
purchase/ construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers,
subject to an aggregate loan limit of Rs. 10 lakh per borrower. These loans are restricted to 5% of the individual bank's total
priority sector lending. The maturity of bank loans should be co-terminus with average maturity of loans by HFCs.
(vi) Outstanding deposits with NI1B on account of priority sector shortfall.
6. Social infrastructure
Loans up to a limit of Rs. 5 crore per borrower for building social infrastructure namely schools, health care facilities, drinking water
facilities and sanitation facilities in Tier H to Tier VI centres.
7. Renewable Energy
Bank loans up to a limit of Rs. 15 crore to borrowers for solar and biomass based power generators, wind mills, micro-hydel plants
and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification. For individual
households, the loan limit will be Rs. 10 lakh per borrower.
8. Others
I. Loans not exceeding Rs. 50,000/- per borrower to individuals and their SHG/ILG (household annual income in rural areas
does not exceed Rs. 100,000 and for non-rural areas Rs.1,60,000).
2. Loans to distressed persons (other than farmers) not exceeding Rs.100,000 per borrower to prepay their debt to noninstitutional
lenders.
3. Loans to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for specific purpose of purchase and supply
of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.
Investments eligible for classification as Priority Sector lending
In all the following cases, the assets in which the investment is made, should be originated by banks as eligible priority sector
advances except `other priority sector' loans.
1. Investments in securitised assets originated by banks and financial institutions. The all inclusive interest charged to the
ultimate borrower by the originating entity should not exceed the Base Rate of the investing bank plus 8% per annum.
Investments in securitised assets originated by NBFCs, where the underlying assets are loans against gold jewellery, are not
eligible for priority sector status.
2. Transfer of Assets through Direct Assignment /Outright purchases
(i) Assignments/Outright purchases of pool of assets by banks originated by banks & FIs.
(ii) Eligible Loan assets purchased, should not be disposed of other than by way of repayment.
(iii) All inclusive interest charged to the ultimate borrower by the originating entity should not exceed Base Rate of purchasing
bank plus 8%%.
(iv) When banks undertake outright purchase, they must report the nominal amount actually disbursed to end priority sector
borrowers and not premium embedded amount paid to the sellers. Purchase/ assignment/investment transactions
undertaken by banks with NBFCs, where the underlying assets are loans against gold jewellery, are not eligible for priority
sector status.
3. Inter Bank Participation Certificates: IBPCs bought by banks, on a risk sharing basis.
4. Priority Sector Lending Certificates: The outstanding priority sector lending certificates bought by the banks.
Priority Sector Lending Certificates Through PSLC, the seller sells the fulfillment of priority sector obligation and the buyer
buys the same. There will be no transfer of risks or loan assets. Sellers/Buyers: Commercial Banks, RRBs, Local Area Banks,
Small Finance Banks & Urban Co-op Banks. The PSLCs are traded and settled through the CBS portal (e-Kuber) of RBI.
Types of PSLCs: There would be 4 kinds of PSLCs :
1. PSLC - Agriculture : Eligible Agriculture loans except SF/MF, for achievement of agriculture target and overall PSL target.
2. PSLC - SF/MF : Eligible loans to small/marginal 'farmers for achievement of SF/MF sub-target, agriculture target and overall
PSL target.
3. PSLC - Micro Enterprises : All PSL Loans to Micro Enterprises for achievement of micro-enterprise sub-target and overall PSL
target.
4. PSLC - General : The residual priority sector loans i.e. other than loans to agriculture and micro enterprises for for
achievement of overall PSL target
Amount for issue: Normally PSLCs will be Issued against the underlying assets. A bank can issue PSLCs upto 5G% of previous year's
PSL achievement without having the underlying in its books.
Expiry date : All PSLCs will expire by March 31st irrespective of the date it was first sold.
Value and Fee: The nominal value of PSLC would represent the equivalent of the PSL that would get deducted from the PSL portfolio
of the seller and added to the PSL portfolio of the buyer. The buyer would pay a fee to the seller which will be market determined.
Lot Size: The PSLCs would have a standard lot size of Rs.25 lakh and multiples thereof.
COMPUTATION OF PRIORITY SECTOR ADVANCES FOR TARGET PURPOSE
Targets : The targets to be computed based on ANBC / CEOBE, whichever higher, of precedingMarch 31/.
ComputationofAdjustedNetBank Credit (ANBC )
Bank Credit inIndia [ItemNo.VIof Form‘A’ under Section42 (2) of the RBIAct, 1934]. I
BillsRediscountedwithRBI andother approvedFinancial Institutions II
Net Bank Credit (NBC) - For thepurposeof priority sector computationonly III (I-II)
Bonds/debentures inNon-SLR categories underHTMcategory+ other investments eligibletobe treatedas
priority sector +OutstandingDepositsunderRIDF and other eligible fundswithNABARD,NHB and SIDBIon
accountof priority sector shortfall +outstandingPSLCs
IV
Eligibleamount for exemptions onissuanceof long-termbonds for infrastructure andaffordable housing V
Eligibleadvances extended inIndia against theincremental FCNR(B)/NRE deposits, qualifying for exemptionfrom
CRR/SLR requirements. VI
ANBC III+IV-V-VI
For calculation of Credit Equivalent Amount of Off-Balance Sheet Exposures, banks to follow Master Circular on Exposure Norms* For priority
sector computation. Banks should not deduct / net any amount like provisions, accrued Interest, etc. from NBC.
Where banks subtract prudential write off at
Corporate/Head Of level while reporting Bank Credit,
the bank are to ensure to credit to priority sector and all other sub-sectors so written off should also be subtracted category wise
from priority sector and sub-target achievement. All types of loans, investments or any other items which are treated as eligible for
classification under priority sector target/sub-target achievement should also form part of Adjusted Net Bank Credit.
Data / Report on PS Lending to RBI
Banks are to report priority sector lending, to RBI on quarterly (within 15 days) and annual basis (within 1 month) on prescribed
format.
Non-achievement of priority sector targets and sub-targets
A simple average of all quarters will be arrived at and considered for computation of shortfall / excess at end of the year for overall
and sub-targets.
DOMESTIC BANKS and FOREIGN BANKS with 20 or more brandies
The amount of shortfall in lending to priority sector or agriculture or weaker section, to be deposited in RIDF, Warehouse
Infrastructure Fund, Short Term Co-operative Rural Credit Refinance Fund and Short Term RRB Fund with NABARD or other funds
with NITB/SIDBI. This amount is shown in Schedule 11 (other assets) of bank balance sheet.
FOREIGN BANKS with less than 20 branches Amount of shortfall in PS target, will be placed with SIDBI or other financial institution.
This amount is shown in Schedule 11 (other assets) of bank balance sheet.
Rate of interest on amount deposited
1- For shortfall less than 5%age points : Bank Rate minus 2%age points
2- For shortfall 5 and above, but less than 10%age points : Bank Rate minus 3 percentage points
3- Shortfall 10 percentage points and above : Bank Rate minus 4 percentage points
ROI on loans disbursed from RIDF /SEDF = Bank Rate minus 1.5%.
Misclassification : The misclassifications reported by RBI's Department of Banking Supervision would be adjusted/ reduced from the
achievement of that year, to which the amount of declassification/ misclassification pertains, for allocation to various funds in
subsequent years.
WEAKER SECTION IN PRIORITY SECTOR
1. Small and Marginal Farmers
2. Artisans, village and cottage industries where individual credit limits do not exceed Rs.1 lakh
3. Beneficiaries under National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM), Differential Rate
of Interest (DRI) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
4. Scheduled Castes and Scheduled Tribes
5. Beneficiaries of Differential Rate of Interest (DRI) scheme
6. Self Help Groups
7. Distressed farmers indebted to non-institutional lenders _
8. Distressed persons other than-farmers, with loan amount not exceeding Rs.1 lakh per borrower to prepay their debt to noninstitutional
lenders
9. Individual women beneficiaries up to Rs. 1 lakh per borrower
10. Persons with disabilities
11. Overdrafts upto Rs.5,000/- under PM Jan-Dhan Yojana a/c (provided household annual income does not exceed Rs, 100,000
for rural areas and Rs. 1,60,000 for non-rural areas)
12. Minority communities notified by Govt. of India.
Common guidelines for priority sector loans
1. Time limit for disposal of loan applications At discretion of the bank concerned (instead of the earlier time limit prescribed
by R131).
2. Rejection of Loan Proposals
Reasons to be given for rejection, in writing. Branch Managers can reject applications and cases of rejection are to be verified
subsequently by Divisional/Regional Managers. For SC/ST, rejection should be at a level higher than that of Branch Manager.
Rates of Interest
Banks have full discretion to fix interest rates which must not be less than the MCLR.
In case of agriculture advances, interest to be compounded annually as per Supreme Court judgement dated June 20, 1994.
No dues certificate
Banks have been advised by RBI (Jan 28, 2015) to dispense with obtaining 'No Due Certificate' from the individual borrowers
(including SHGs & JLGs) in rural and semi-urban areas for all types of loans including loans under Government Sponsored Schemes,
irrespective of the amount involved unless the Government Sponsored Scheme itself provides for obtaining 'No Dues Certificate'.
SUMMARY OF COLLATERAL SECURITY NORMS
Common guidelines for priority sector loans
1. Loans up to Rs 25,000 in PS there is no margin, no collateral security, no penal interest on advance, no processing fees
and no inspection charge.
2. Loan more than Rs 25,000, the margin will be from 15% to 25%. For Loans beyond Rs 25,000, bank can ask for
TPG/collateral security or both.
3. Loanapplicationdisposalnorms :AsdecidedbyBank'sBoardofDirectors
4. COLLATERAL SECURITY :
For agriculture: NIL In case of: Up to Rs.100000.
Up to Rs.3 lac in case of recovery tie-up
Other priority sector Up to Rs.25000 nil
Micro & Small Enterprises:
-normal accounts -good track record a/c -accounts guaranteed
under CGF guarantee
Not to be insisted upon: Up to Rs.10 lac
Up to Rs.25 lac
up to Rs.100 lac Up to Rs.5 lac —nil
Agro clinics & business centres
SGSY:
-Individual up to Rs.100000
-Group up to Rs. 10 lac
Not to be obtained up to this amount
SISRY Not to be obtained
Education loan up to Rs.7.50 lac Not to be obtained up to this amount.
1. Rate of interest: As per directives issued by RBI.
2. Service charges: No loan related and adhoc service charges/inspection charges on priority sector loans up to Rs 25,000.
3. Receipt, Sanction/Rejection/Disbursement Register: A register/ electronic record should be maintained by the bank, wherein
the date of receipt,
sanction/rejection/disbursement with reasons thereof, etc., should be recorded.
4. Issue of Acknowledgement of Loan Applications: Banks should provide acknowledgement for loan applications received under
priority sector loans. Bank Boards should prescribe a time limit within which the bank communicates its decision in writing to the
applicants.
PROCESSING/INSPECTION FEE, SERVICE CHARGE, PENAL INTT IN PRIORITY SECTOR ADVANCES
For loans up to Rs.25000 No charges
For loans above Rs.25000 Bank discretion
Priority Sector Lending Targets for RRBs
RBI fixed the following targets for Regional Rural Banks w.e.f. 1.1.2016 :
1. PS Lending Targets: 75% of total outstanding.
2. Agriculture: 18%% of total outstanding.
3. Small and Marginal Farmers: 8% of total outstanding*
4. Micro Enterprises: 7.5% of total outstanding**
5. Weaker Sectors: 15% of total outstanding. (* 7% by March 2016 and 8% by March 2017.) (**7% by March 2016 and `
7.5% by March 2017.)
AGRICULTURALADVANCES
1. NoMarginandNo Collateral security for agricultural advances uptoRs 100,000
2. No no dues certificatefor loans upto Rs 50,000.
3. Committeeonflowof credit toagriculturewasheadedby:ProfVyas
4. Crops divided into short duration and long duration. Short duration crop where crop season upto: 12 months. Long
Duration crop where crop season more than 12 months. 5_ The decision regarding duration of crop by SLBC_
6. ServiceArea approach discontinued except forGovernment sponsored schemes.
7. Rashtriya Krishi Birna Yojna (RKBY) is operated by : Agri Insurance company Limited.
8. Risks coveredby RKBY: damagetocrops by natural calamities likeflood,draught, pest attack etc
9. Risks not covered under RKBY :War andNuclear risk
10. Membersof Joint LiabilityGroupcanbe: 4to10
11. MaximumadvancetoJoint LiabilityGroup:Rs 50,000permember andRs5lac for thegroup.
12. The scale of finance per acre for crop loans is to be decided byDistrict Technical Committee.
13. If cropisdamaged, croploanhas tobeconvertedtomediumtermloanrepayablein3to5years.
14. Annewari refers todamagetocropduetonatural calamities likedraught, flood,hailstormetc.
There aremainly two types of crops Le. Rabi and Khalif. Rabi is generally sown inOct/Nov and harvestedinApril and Kharif is generally sown in July
and harvestedin Sept/Oct.Main Rabi crops arewheat and gramandmain Kharif crops are paddy, jwar, bajra.
Various types of cultures and revolutions :
1. Sericulture: Silk production. 2. Apiculture: Honey Bee keeping
3. Aquaculture: Shrimp farming, fishes 4. Pisciculture: Breeding of fishes in pond
5. Floriculture: Flower production 6. Apriculture: Mushroom production
7. Silviculture: Forestry 8. Horticulture: Fruits production
9.White revolution: milk production 10_ Green revolution: increase in foodgrain production
11. Blue revolution: fish production 12_ Yellow revolution: increase in oilseeds and pulses
13. Olericulture : Vegetable Cultivation 14. Tissue culture: Improvement of plant varieties
15. Vermiculture - Rearing of earth worm 16. Mulberry Associated with - Sericulture 17. Rainbow
revolution- connected with flowers
Interest Subvention for Agricultural Loans
1. Available for short term production loans in agriculture up to : Rs 3 lakh
2. Available only to public sector banks
3. Subvention provided by Central Govt
4. Rate of subvention: 2% p.a.
5. Interest charged by banks: 7% per annum.
6. Submission of claims: Half-yearly as at September 30, and March 31,
7. Additional subvention for prompt repayment: 3% if repayment within one year.
8. Effective rate to farmer: 4%
Kisan Credit Card
1. Scheme prepared by Nabard and changes also by Nabard.
2. Revised on recommendations of Committee headed by Shri T.M.Bhasin.
3. Kisan Credit Card Scheme can be used for (a) meeting the short term credit requirements for cultivation of crops (b) Post
harvest expenses (c) Produce Marketing loan (d) Consumption requirements of farmer household (e) Working capital for
maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery etc. (f) Investment credit
requirement for agriculture and allied activities like pump sets, sprayers, dairy animals etc
4. Fixation of limits: The short credit limit for farmers other than marginal farmers for first year will be calculated as under -
Scale of finance for the crop (as decided by District Level Technical Committee) x Extent of area cultivated + 10% of limit
towards post-harvest / household / consumption requirements + 20% of limit towards repairs and maintenance expenses
of farm assets + crop insurance, PAIS & asset insurance_ For subsequent years, limit will be increased each year by 10%
towards cost escalation increase in scale of finance for every successive year and estimated Term loan component for the
tenure of Kisan Credit Card, i.e., five years
5. Validity Period of KCC: Banks may determine the validity period of KCC and its periodic review.
6. If there is a credit balance in the account it will earn interest at Saving Fund rate as per rules applicable in SF account.
7. Personal Accident Insurance for KCC holders: KCC holders are covered against death or permanent disability due to
accident for Rs 50,000. For partial disability due to accident the cover is available for Rs 25,000. The cover is available only
to KCC holders up to 70 years of age at the time of entry to the Scheme. The insurance premium is competitive but not
more than Rs 15 per annum to be shared by the bank and the borrower in the ratio of 2:1.
Farmers' Club Programme (FCP)
1. Features of the Club:
Size of the Club:No restriction on the upper limit but theminimumsize should be 10members Membership: Both farmers as
well as non farmers can become themembers of the club.
Office bearers: Each Club will have two office bearers, viz, Chief Co-ordinator and Associate Coordinator.
Operational area: Preferably one village or a group of 2-3 villages on contiguous basis.
Registration: Not required.
Bank Linkage: All the Clubs should have savings bank accounts with the bank in the joint name of the office bearers.
2. NABARD assistance: Rs.10000/- per club per annum for a period of three years as per following details: Formation and
maintenance expenses:Rs.2000; Awareness / orientation meet at base level:Rs.5000; Meet with experts programme (2
programmes in a year) : Rs.3000
3. Assistance exceeding Rs.10,000/- may be met by the bank with maximum of Rs 50001- per annum during the first three
years and
Rs.10000/- per year during 4th & 5th year of formation of the club.
AGRI CLINIC & AGRI BUSINESS CENTRE
1. Eligibility: (i) The applicant should be Agricultural Graduates/Graduates in subjects allied to agriculture. (ii)Diploma in agriculture
and allied subjects from State Agricultural Universities. (iii)Science graduates with post graduation in agriculture and allied
subjects (iv) Individuals or in group of not exceeding 5 persons; of which one could be a Management Graduate with
qualification or experience in business development and management.
2.MaximumProject cost: (a) Project by individual:Rs 20lakh; (b) Projectby aGroup: Rs 100 lakh.
Margin: (a)UptoRs5Lakh:Nil;(b)AboveRs 5lakh:25%.
4. Security: (i)Upto Rs. 5 Lakh: No collateral security (ii) Above Rs.5 Lakh: Hypothecation of assets created out of bank loan
and Collateral security or Third Party Guarantee.
5. NABARDRefinance: 100per cent ofbank loan.
6. AutomaticRefinance Scheme ofNABARD:Maximumloan- Rs.30lakh, and the ceiling for refinancewouldbeRs.20 lakh. Projectswith
outlayover Rs 30 lakhrequireNABARDapproval.
7. Depending on the type of venture, the loan can be repaid within 5-10 years (with moratorium upto 2 years), in easy
installment.
8. Credit linked capital subsidybyGovt of India: (a) 36%of thecapital cost of the project. Itwouldbe 44%for SC, ST,Women and other
disadvantaged sections andthose fromNorth-EasternandHilly States. Lock inperiodfor subsidy is 3 years
IBAMODEL EDUCATION LOAN SCHEME It was prepared on Kamath Committee recommendations & approved by RBI in April 2001:
Eligibility : Student secured • admission to professional/ technical courses through Entrance Test/ Selection process or
Secured admission to foreign university/ Institutions after 10+2. Expenses considered for loan : Fee and all other expense required to
complete the course. Amount of loan for PS classification: Out of sanctioned loans, the amount up to Rs. 10 lakh will be classified as
priority sector.
Margin: Upto Rs.4 Lacs : Nil (India/abroad). Above Rs. 4 lacs : India : 5% Abroad : 15% (Margin can be on year-to-year basis as and
when disbursements are made on a pro-rata basis). Collateral Security: Parents would be co-borrowers (in case of married, the
spouse or parents in law). For loans above Rs.4 lac and up to Rs.7.50 lac, 31.4 party guarantee may be obtained. For loans above
Rs.7.50 lakh, collateral security can be obtained.
Rate of interest : Base rate or above. The accrued interest during moratorium period, to be added to the principal and repayment to
be fixed in Equated Monthly Instalments. 1% interest concession is to be provided if the interest is serviced during the moratorium
period.
Moratorium : Course,period + 1 year. (extension of completion of course up to 2 years can be allowed if student could not complete
the course)
Repayment — up to 15 year, after commencement of repayment.
Other conditions: 1. Existence of an education loan to brother/sister does not affect eligibility of another student from same family
to obtain education loan. If student is minor, the loan documents signed by parents to be got rectified on his attaining the majority.
2. Service Area not applicable. Bank branch to be near place of parent residence or educational institution.
Credit Guarantee Fund Scheme for Education Loans (CGFSEL)
The guarantee is provided by National Credit Guarantee Trust Company for loan up to Rs 7.5 lakh, given under IBA Education Loan
Scheme, without any collateral security and third party guarantee, on which the Interest Rate charged by Member Lending
Institution (MLI) can be max up to 2% p.a. over the Base Rate. MLI applies for guarantee cover for loans disbursed in a quarter prior
to expiry of the following quarter.
Annual Guarantee Fee: 0.50% p.a. of the outstanding amount to be paid upfront within 30 days i.e. before April 30.
Guarantee cover : 75% of the amount in default. Invocation of guarantee : MLI may invoke the guarantee within one year from date
of NPA, if NPA is after lock-in period or within one year of lock-in period, if NPA is within lock-in period
Payment : NCGTC shall pay 75% of the guaranteed amount on preferring of eligible claim by the lending institution, within 30 days.
For delay period, interest would paid at bank rate. The balance 25% will be paid after conclusion of recovery proceedings.
Credit Facilities to Minority Communities
Govt. of India revised the Prime Minister's New 15-Point Program for theWelfare of Minorities.
Minority Communities : The communities notified as minority include (a) Sikhs (b) Muslims (c) Christians (d) Zoroastrians (e)
Buddhists and (f) Jains
Minority concentration districts : 121 minority concentration districts having at least 25% minority population, excluding those
States/UTs where minorities are in majority (3 & K, Punjab, Meghalaya, Mizoram, Nagaland & Lakshdweep).
National Minorities Development and Finance Corporation (NMDFC)
NMDFC was established in Sept 1994 for the backward sections amongst the minorities. It works as an apex body and channenses its
funds to the beneficiaries through the State Minority Finance Corporation of the respective State/Union Territory Governments. It Is
operating, the Margin Money Scheme. Bank finance under the scheme will be up to 60% of the project cost. The remaining amount
of the project cost is shared by NMDFC, the State channelising agency and the beneficiary in the ratio of 25%, 10%, and 5%,
respectively. Banks may implement the Margin Money scheme evolved by NMDFC. Where recoveries have been made by the banks,
it would be in order if the amounts are appropriated first towards bank dues.
Role of banks
• Banks to set up a Special Cell (head Nodal Officer - AGM/DGM) for flow of credit to minority communities.
• The Lead Bank in minority concentration districts, to have an officer to look after the problems regarding the credit flow to
minority communities.
Monitoring
• Data on credit assistance provided to members of minority communities should be furnished to RBI and Govt. of India on
half yearly basis (last Friday of Mar and Sept) to reach within one month.
• The Lead Banks to furnish relevant extracts of the agenda notes and minutes of the meetings to Ministry of Finance and
Ministry of Welfare on a quarterly basis.
Finance to Micro, Small & Medium Enterprises (MSMEs)
Govt. of India enacted MSMED Act, 2006 on June 16, 2006 (notified on Oct 2, 2006). Consistent with the notification of the MSMED
Act 2006, the definition of micro, small and medium enterprises engaged in manufacturing or production and providing or rendering
of services (earlier known as SSI, Tiny or SSSBE) has been modified as under:
Investment Criteria for MSME
Enterprises engaged in Micro Small Medium
Manufacturing, production,
preservationor processing (Investment
in Plant & Machinery)
Upto Rs.25 lac > 25 lac up to Rs.5 cr > 5 cr up to Rs.10 cr
.
Rendering services (investment in
equipment excluding Land & building,
fixture and furniture etc.)
Upto Rs.10 lac - > 10 lac upto Rs.2 cr > 2 cr upto Rs.5 cr
Eligibilityof enterprises for PS classification:
Manufacturing Enterprises: Bank loantoMicro, Small andMediumEnterprises irrespective of amountof loan. Service Enterprises: Bank loans up to
Rs 5 croreper unit toMicro and Small Enterprises and Rs 10 crore toMediumEnterprises engagedinprovidingor rendering of services.
Khadi and VillageIndustries Sector (KVI):All loans to units inthe KVI sectorwill be eligiblefor classificationasMicro enterprise under thesub-target of
7percent /7.5 percent prescribedforMicroEnterprises underpriority sector.
Other Finance toMSMEs
1. Loans to entities involvedin assisting the decentralizedsector in the supplyof inputs to andmarketingof outputs of artisans, village andcottage
industries.
2. Loans to co-operatives of producers inthe decentralized sector viz. artisans, village andcottage industries.
3. Loans sanctionedby banks toMFIs foron-lending toMSME sector
4. Credit outstandingunderGeneral Credit Cards (includingArtisan Credit Card, LaghuUdyami Card, Swarojgar Credit Card, andWeaver’s Card etc.
catering to thenon-farmentrepreneurial credit needs of individuals).
5. Outstandingdepositswith SIDBI onaccount of priority sector shortfall.
SubcategorizationofMicro enterprises: The earlier sub-categorizationwithinthe definitionofmicro enterprises (i.e. investment up to Rs 10 lac in
plant andmachinery and up to Rs 4 lakhin equipment) has beendispensedwith. ContinuationofMSME status: TheMSME unitswill continue to
enjoy the priority sector lending status up to three years after they growout of theMSME category concerned.
Important : For investment purpose, purchase value (and not book value) to be taken. Cost of land & building and items specified by
Ministry of MSME Development, are to be excluded from original cost. Documents that can be relied upon are (a) invoice (2) copy of
audited balance sheet (c) CA certificate.
The services enterprises broadly include (a) small road & water transport operators (b) small business and (c) professional & self
employed persons (d) retail trade.
Additional Activities included in MSE (Govt. of India -June 12, 2009) where such enterprises satisfy the definition of Micro and Small
(Service) Enterprises in respect of investment in equipment are (a) Consultancy Services including Management Services; (b)
Composite Broker Services in Risk and Insurance Management; (c) Third Party Administration (TPA) Services for Medical Insurance
Claims of Policy Holders; (d) Seed Grading Services; (e) Training-cum-Incubator Centre; (f) Educational Institutions; (g) Training
InStitutes; (h) Retail Trade; (I) Practice of Law, I.e. legal services; (j) Trading In medical instruments (brand new); (k) Placement and
Management Consultancy Services; and (I) Advertising agency and Training centres.
Ownership of units — 2 or more undertakings The MSMED Act, 2006 does not provide for clubbing of investments of different
enterprises set up by the same person / company for the purpose of classification as micro, small and medium enterprises (Gov.
clarification by RBI Dec 06, 2010)
Loans to MSMEs
The amount of loan to MSMEs in the form of term loans, working capital and non-fund based lbans is need based.
But for servicing enterprises, the amount is restricted to Rs.5 cr for micro and small enterprises and Rs.10 cr for medium enterprises.
Further, composite loan under single window is restricted to Rs. I cr.
Registration
For all micro or small enterprises and for medium enterprise engaged in providing or rendering of services, registration is optional.
But for a medium enterprise engaged in manufacture or production of goods registration is compulsory, with such authority as
specified by the State Govt. or Central Govt.
Delayed payment toMSEs
The existing provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been
strengthened under the MSMED Act as under:
(I) The buyer to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement
before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days.
(ii) If the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compounded interest with monthly
rests to the supplier on the amount from appointed day or, on the date agreed on, at 3 times of the Bank Rate notified by Reserve
Bank.
Decentralised Sector
Such units include artisans, Khadi & Village Industries, handlooms, sericulture, handicrafts, coir etc. which have been categorised as
Village Industries under Govt.'s SSI policy (Aug 1991).
Artisans, Village And Cottage Industry
It is defined as Artisans (irrespective of location) or small industrial activities in villages and small towns with a population not
exceeding 50000, involving utilisation of locally available natural resources and / or human skills where individual credit
requirements do not exceed Rs.50000.
Cottage industry is run by family members on full or part time basis. It possesses negligible capital investment. There is handmade
production and no wage earning person is employed in cottage industry.
Village industries is established in rural areas with population below 10000 and with less than Rs.50000 as fixed capital investment
per worker.
Ancillary Units
An undertaking which is engaged in the manufacturing or production of parts, components, sub-assemblies, tooling or intermediates
or the rendering of services and undertaking supplies or proposes to supply or renders, at least 50% of its production or services, to
one or more other industrial undertakings. Investment criteria in plant and machinery, is same as in case of MSEs.
Women Enterprises ForMSEs
An MSE unit related service or business enterprise, managed by one or more women-entrepreneurs in the proprietary concerns or in
which she/they individually or jointly have a share capital of not less than 51% as partners/shareholders/directors of private limited
Company/Members of Co-operative society is known as Women Entrepreneurs' Enterprise.
OPERATIONAL GUIDELINES onMSEs
Collateral security
General exemption from collateral is up to an amount of Rs.10 lac. For units having good track record, the exemption limit is Rs.25
lac. As per RBI directions, the proposals, otherwise viable, should not be turned down merely for want of such collateral security or
3rd party guarantees.
Rejection of loan applications in MSE sector As per RBI, a reference to higher authorities of loan proposals of MSE units being
rejected/curtailed should be made before the decision is conveyed to the applicant.
Banks' Code for MSEs
Banking Codes and Standards Board of India prepared voluntary code put in place in 2008 and revised in 2015. It sets minimum
standards of banking practices for banks to follow, while dealing with MSEs.
Code and Regulatory guidelines: Where code sets higher standards than indicated in the RBI instructions, such higher standards will
prevail. Changes in interest rates: Banks will inform the change within a fortnight.
Changes in Fees & Charges : Notify change 30 days_ prior to revised charges becoming effective. Changes to Terms & Conditions:
Banks will convey the change 30 days prior to these becoming effective. If it is to MSE's disadvantage, MSE may within 60 days and
without notice, close /switch the account without paying extra charges or interest.
Additional information : MSE to be contract for additional information within 7 working days from receipt of loan application.
Processing fee : No fee will be recovered for loans up to Rs.5 lakh if the loan is not sanctioned. Loan application disposal period : 2
weeks up to Rs.5 lac, 3 weeks above Rs.5 lac to Rs.25 lac and 6 weeks above Rs.25 lac.
Amount of bank limit: The banks will provide working capital limits computed at minimum of 20 % of projected annual turnover.
Sanction: Banks will supply authenticated copies of alI the loan documents executed with. The banks will permit pre-payment of
loans up to Rs.5 lakh without levying any prepayment penalty. Prepayment of fixed rate loans : No penalty up to Rs.50 lac.
Disbursement : Within 2 working days from the date of compliance with all terms and conditions. Drawing power: Banks will grant
increase in the DP within 24 hours of lodgment of security. Transfer of accounts and release of securities: Banks will convey their
consent or otherwise, within 2 weeks. Release all securities on receiving repayment of loan within 15 days. Recovery: Bank
representatives will contact MSEs between 0700 hrs and 1900 hrs.
Complaint: The banks will send final response within 6 weeks of receipt of complaint.
Banking Ombudsman Scheme: Within 30 days of lodging a complaint with the bank, if MSEs do not get a satisfactory response from
a bank and MSEs wish to pursue other avenues it may approach Banking Ombudsman.
High Level Task Force on MSMEs (Jun 2010) In terms of recommendations of the Prime Minister's Task Force on MSMEs (Chairman:
Shri T K A Nair) constituted by the Govt. of India, RBI advised banks as under:
i. Achieve a 20% year-on-year growth in credit to MSEs to ensure enhanced credit flow;
ii. Achieve a 10% annual growth in number of micro enterprise accounts.
iii. 60% of loans to MSEs should be to micro units.
iv. CREDIT GUARANTEE FUND TRUST FOR MICRO & SMALL ENTERPRISES (CGTMSE) CGTMSE was set up by Govt. of India and
SIDBI in August 2000.
v. Eligible institutions: All scheduled commercial banks and specified RRBs, NSIC, NEDFI, SIDBI (called Member Lending Institutions
(MLIs).
vi. Eligible borrowers: New & existing MSE units as per MSME Dev Act 2006 (except Retail Trade) OR in IT and software
industry services or credit facilities to select activities under Agri-Clinics and Agri-Business Centres.
vii. Rehabilitation cases : For the unit covered under CGTSI and becoming sick due to factors beyond the control of
management, assistance for rehabilitation extended by the lender could also be covered within the overall cap of Rs.200 lac. Extant
of guarantee cover : (wef Dec 08, 2008):
CGTMSE Guarantee - Modifications CGTMSE made the following changes in the Credit Guarantee Scheme w.e.f. 01.01.2017, as
per their circular dated Jan 09, 2017. ‘Guarantee Cover’ means maximum cover available per eligible borrower of the amount in
default in respect of the credit facility extended by the lending institution.
Credit facility eligible under the Scheme: CGTMSE shall cover credit facilities (Fund based and / or Non fund based) extended by
Member Lending Institutions (MLIs) to a single eligible borrower in the Micro and Small Enterprise’s Sector (i) not exceeding Rs.50
lakh (Regional Rural Banks / Financial Institutions) and (ii) not exceeding Rs.200 lakh (Scheduled Commercial Banks and select
Financial Institutions) by way of term loan and / or working capital facilities, without any collateral security and / or third party
guarantee. Iii) The enhancements in existing guarantee cover beyond Rs.100 lakh in respect of working capital facilities, where such
enhancements are approved on or after January 01, 2017 would also be eligible for the enhanced coverage up to Rs.200 lakh provided
the proposal meets the guidelines of CGS.
Credit facilities not eligible under the Scheme: Any credit facility which has been sanctioned by the lending institution with the
maximum interest rate not more than 14% p.a. (including cost of guarantee cover) would be eligible for coverage under CGS. The
revised guidelines on ceiling on Interest Rate that could be charged for the guarantee covered credit facilities would be applicable, also
to those MLIs who would not be eligible for enhanced credit guarantee coverage from Rs.100 lakh to Rs.200 lakh.
Modifications in the Interest Rate Cap under Credit Guarantee Scheme (CGS) of CGTMSE On 30.09.15, CGTMSE had placed
the interest cap up to 2% and 3% over the Base Rate for loans up to 50 lakh and loans above 50 lakh respectively on loans eligible for
guarantee cover. CGTMSE decided (Nov 16, 2015) to restore the earlier Interest Rate Cap of 4% over the Base Rate i.e. any credit
facility which has been sanctioned by MLI, under Credit Guarantee Scheme (CGS), to an eligible borrower, with interest rate more
than 4% over its Base Rate (BR) will not be eligible for coverage under the CGS.
Extent of guarantee cover wef 01.01.2017 :
Women enterprises ,North Eastern States & Sikkim Amt. Rs. in lakhs
Loan up to Rs.5 lac : 85%* 4.25
Loan up to Rs.50 lac: 80%* 40.00
Loan above Rs.50 lac & up to Rs. 200 lac: 50%* 75.00
Total amount restricted to 100.00
Micro Enterprises
Loan up to Rs.5 lac : 85%* 4.25
Loan up to Rs.50 lac: 75%* 37.50
Loan above Rs.50 lac & up to Rs. 200 lac: 50%* 75.00
Total amount restricted to 100.00
Other Category of borrowers loans
Loan up to Rs.50 lac : 75%* 37.50
Loan above Rs.50 lac & up to Rs. 200 lac: 50%* 75.00
Total amount restricted to 100.00
*as %age of principal outstanding on date of NPA/ amount in default or on date of filing the claim, whichever is lower.
Exclusion from risk cover : Other charges such as penal interest, commitment charge, service charge, or any other levies/ expenses
shall not quay for the guarantee cover.
All proposals for sanction of guarantee approvals for credit facilities above Rs.50 lakh upto Rs.200 lakh will have to be rated internally
by the MLI and should be of investment grade.
Conditions for Guarantee Cover Loans (fund and non-fund) extended by banks and/or financial institutions jointly and/or separately
to eligible borrower up to a maximum of Rs.200 lakh (Rs.50 lac for RRBs and select FIs) per borrower subject to ceiling amount of
individual MU are elgible. Rate of interest should not be more than 14%pa.
Collateral security: Loans sanctioned with collateral and/or third party guarantee or against guarantee of Govt. or DICGC, are not
eligible. Time limit for obtaining guarantee cover: Within a quarter, next to the quarter, during which the loans are sanctioned.
Standard Rate SR for Com osite Guarantee Fee
Fee as % of sanctioned loan w.e.f. 1.1.13 Women,NE
States, MSEs Others
For loan up to Rs.5 lac 0.75% p.a. 1% p.a.
Above Rs.5 lac up to Rs.100 lac 0.85% p.a. 1% p.a.
If fee is not paid on time, CGTMSE may allow payment "nterest at bank rate + 4%.
We f 1A.2016 the premium on SR will be as under:
1.Risk premium on NPA in
guaranteed portfolio 2. Risk prem'um on claim
payment ratio
NPA %age Risk Premium Claim payout Risk premium
0-5% SR 0-5% SR
>5% to 10% 10% of SR >5% to 10% 10% of SR
>10 to 15% 15% of SR >10 to 15% 15% of SR
>15 to 20% 2070 of SR >15 to 20% 20% of SR
>20% 25% of SR >20% 25% of SR
NPA level shall be calculated as a % of guarantees Issued on and up to 31st Mar, every year
Invocation of guarantee
Guarantee can be invoked if
(a) account is classified as NPA as per,RBI guidelines
(b) suit has been filed and (c) guarantee is in force Time limit for invocation:
(a) within 2 years from date of NPA If NPA is after lack in period or (b) within 2 years from date of completion of 18 month lock in
period.
Lock-in period of 18 months Is from the date of last disbursement of the loan or the date of payment of the guarantee fee whichever
is later.
Payment of the claim amount : The trust shall pay 75 % of the guaranteed amount on preferring of eligible claim by the lending
institution, within 30 days. For delay beyond 30 days, trust shall pay interest on the eligible claim amount at the prevailing bank rate.
The balance 25 % will be paid on conclusion of recovery proceedings by the lending institution or within 3 years from date of decree,
whichever is earlier.
Sharing of recovery: Recovery shall be first appropriated towards cost of recovery, balance amount for recovery of fee and other
charges of CGTMSE and balance amount on prorate basis i.e. 85:15, 80:20 or 75:25.
Delay in sharing the amount recovered : If any amount due to .the trust remains unpaid beyond a period of 30 days from the date
on which it was first recovered, interest shall be payable to the trust at the rate which is 4% above bank rate for the period for which
payment remains outstanding after the expiry of the said period of 30 days.
DRI for MSEs with guarantee cover of CGTMSE As per RBI guidelines dated Apr 15, 2014, banks can provide differential interest rate
forMSE borrowers, having guarantee cover from CGTMSE. But such rate of interest should not be below the Base Rate.
Evolution : In July 1968 banks were advised to increase lending to priority sectors. Description of priority sector was formalized in
1972. Banks were advised in Nov 1974, to achieve a lending target of 33-1(3 % by March 1979 which was increased to 40% in 1980
(to be achieved by 1985). Sub-targets for lending to agriculture and weaker sections were specified in 1980. The guidelines were
revised on recommendations Of M V Nair Committee on 20.07.12 .RBI revisedthe priority sector lending guidelineswith effect fromApril
23rd 2015 onthe basisof recommendations of an InternalWorkingGroup(IWG) headedbyMs Lily Vadera. Thesalient features of the guidelines
are asunder:-
Categories / Activities under priority sector
1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others
Targets /Sub-targets for Priority sector
Domestic scheduled commercial banks and Foreign banks with 20 branches and above
Total Priority Sector:
40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher.
Sub-Targets:
1. Agriculture : 18% of ANBC or CEOBE, whichever is higher. A sub-target of 8% is prescribed for Small and Marginal Farmers,
to be achieved in a phased manner i.e., 7% by March 2016 and 8% by March 2017. (Banks should reach the level of 13.5%
direct lending to beneficiaries who earlier constituted the direct agriculture sector).
2. Micro Enterprises: 7.5% of ANBC or CEOBE, whichever is higher (7% by March 2016 and 7.5% by March 2017).
3. Weaker Sections : 10% of ANBC or CEOBE, whichever is higher.
Important : Foreign banks with 20 branches and above ' are to achieve the total priority sector target of 40%, agriculture advances
target of 18% and Weaker Sections Target within a maximum period of 5 years starting from April 1, 2013 and ending on March 31,
2018. The sub-target for Small and Marginal farmers and for Micro Enterprises would be made applicable post 2018 after a review in
2017.
Foreign banks with less than 20 branches Total priority sector target : 40% of ANBC or CEOBE, whichever is higher to be achieved in
a phased manner between 2016-2020. (Additional 2% each year to be achieved by lending to sectors other than exports. The sub
targets would be decided in due course).
Computation of priority sector targets
The computation targets/sub-targets is based on ANBC or CEOBE, whichever is higher, as on the corresponding date of the preceding
year.
Description of the eligible categories
1. Agriculture: There is no distinction between direct & indirect agriculture loans. The lending shall include (i) Farm Credit (shortterm
crop loans and- medium/long-term credit to farmers) (ii) Agriculture Infrastructure and (iii) Ancillary Activities.
(1) Farm credit
A) Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers,
provided banks maintain disaggregated data of such loans], directly engaged in Agriculture and Allied Activities, viz., dairy, fishery,
animal husbandry, poultry, bee-keeping and sericulture. This will include:
(1) Crop loans to farmers, including traditional/non-traditional plantations & and horticulture and loans for allied activities.
(ii) Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural implements and
machinery, loans for irrigation and other developmental activities undertaken in the farm, and developmental loans for allied
activities)
(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading and transporting of
their produce.
(iv) Loans up to Rs.50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not
exceeding 12 months.
(v) Loans to distressed farmers indebted to non-institutional lenders.
(vi) Loans under Kisan Credit Card Scheme.
(vii) Loans to small and marginal fanners for purchase of land for agricultural purposes.
B) Loans to corporate farmers, farmers' producer organizations/companies of individual farmers, partnership firms and co-operatives
of farmers directly engaged in Agriculture and Allied Activities, up to an aggregate limit of Rs. 2 crore per borrower. This will include
the loans as per categories A (i, ii, iii, iv) above:
(ii) Agriculture infrastructure:
i) Construction of storage facilities (warehouses, market yards, godowns and silos) including cold storage units/ chains to
store agriculture produce/products, irrespective of location.
ii) Soil conservation and watershed development. iii). Plant tissue culture and agri-biotechnology, seed production, production
of bio-pesticides, bio-fertilizer, and vermi composting.
An aggregate sanctioned limit of Rs.100 crore per borrower from the banking system, will apply. (iii) Ancillary activities
(i) Loans up to Rs. 5 crore to co-operative societies of farmers for disposing of produce.
(ii) Loans for Agriclinics & Agribusiness Centres.
(iii) Loans for Food and Agro-processing up to an aggregate sanctioned limit of Rs.100 crore per borrower from the banking
system.
(iv) Custom Service Units 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.
(v) Loans to Primary Agricultural Credit Societies (PACS), Farmers' Service Societies (FSS) and Large-sized Adivasi Multi-Purpose
Societies (LAMPS) for on-lending to agriculture.
(vi) Loans to MFIs for on-lending to agriculture sector fulfilling the specified conditions.
(vii) Outstanding deposits under RIDF and other
eligible funds with NABARD on account of priority sector shortfall.
To compute 8% target, the Small and Marginal Farmers will include the following:-
• Farmers with landholding of up to 1 hectare considered as Marginal Farmers and farmers with a landholding of more than 1
hectare and upto 2 hectares considered as Small Farmers.
• Landless agricultural labourers, tenant farmers, oral lessees and share-croppers.
• Loans to SHGs or 31.Gs, i.e. groups of individual Small and Marginal farmers directly engaged in Agriculture and Allied
Activities, provided banks maintain disaggregated data of such loans.
Loans to 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% by number and whose land-holding share is also
not less than 75% of the total land-holding.
2. Micro, Small & Medium Enterprises
I. Bank loans to MSMEs in manufacturing and production.
2. Loans up to Rs. 5 crore to Micro & Small Enterprises and Rs.10 crore to Medium Enterprises providing or rendering of
services.
3. Loans to units in the Khadi and Village Industries (KVI) sector which will be eligible for classification under the sub-target of
7.5% prescribed for Micro Enterprises.
Other Finance to MSMEs
(i) Loans to entities involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of
artisans, village and cottage industries.
(ii) Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries.
(iii) Loans to MFIs for on-lending to MSME sector fulfilling the specified conditions.
(iv) Loans outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card,
and Weaver's Card etc. meeting non-farm entrepreneurial credit needs)
(v) overdraft up to Rs.5000 under PM Jan Dhan accounts (where borrowers household annual income does not exceed
Rs.100,000 for rural areas and Rs.1,60,000 for non-rural areas).
(vi) Factoring transactions on 'without recourse' basis with MSMEs.
(vii) Outstanding deposits with SIDBI or MUDRA on account of priority sector shortfall.
Important : MSME units will continue to enjoy the priority sector lending status up to 3 years after they grow out of the MSME
category concerned.
3. Export Credit.
Incremental export credit over corresponding date of the preceding year, up to 2% of ANBC or CEOBE, whichever is higher, effective
from April 1, 2015 for domestic banks, subject to a sanctioned limit of Rs.25 crore per borrower to units having turnover of up to
Rs.100 crore. For foreign banks with 20 branches and above this to become effective from April 1, 2017.
4. Education:
Loans to individuals for educational purposes including vocational courses up to Rs. 10 Iakh irrespective of the sanctioned amount
will be considered as eligible for priority sector.
5. Housing
(i) Loans for purchase/construction of a dwelling unit per family : Up to Rs. 28 Iakh (overall cost of house maximum Rs.35 lac)
in metropolitan centres (with population of 10 latch and above) and loans up to Rs. 20 lakh (overall cost of house maximum
Rs.25 lac) in other centres.
Note (1) The housing loans to banks' own employees will be excluded. (ii) The housing loans backed by long term bonds (which are
exempted from ANBC), should either be included under loans to individuals or banks may take benefit of exemption from ANBC, but
not both.
(ii) Loans for repairs to damaged dwelling units of families up to Rs. 5 lakh in metropolitan centres and up to Rs.2 lakh in other
centres.
(iii) Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum
dwellers. (Ceiling - Rs.10 lakh per dwelling unit).
(iv) The loans for housing projects exclusively for construction of houses for economically weaker sections and low income
groups, the total cost of which does not exceed Rs. 10 lakh per dwelling unit. For identifying the economically weaker
sections and low income groups, the family income limit of Rs. 2 lakh per annum, irrespective of the location, is prescribed.
(v) Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of
purchase/ construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers,
subject to an aggregate loan limit of Rs. 10 lakh per borrower. These loans are restricted to 5% of the individual bank's total
priority sector lending. The maturity of bank loans should be co-terminus with average maturity of loans by HFCs.
(vi) Outstanding deposits with NI1B on account of priority sector shortfall.
6. Social infrastructure
Loans up to a limit of Rs. 5 crore per borrower for building social infrastructure namely schools, health care facilities, drinking water
facilities and sanitation facilities in Tier H to Tier VI centres.
7. Renewable Energy
Bank loans up to a limit of Rs. 15 crore to borrowers for solar and biomass based power generators, wind mills, micro-hydel plants
and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification. For individual
households, the loan limit will be Rs. 10 lakh per borrower.
8. Others
I. Loans not exceeding Rs. 50,000/- per borrower to individuals and their SHG/ILG (household annual income in rural areas
does not exceed Rs. 100,000 and for non-rural areas Rs.1,60,000).
2. Loans to distressed persons (other than farmers) not exceeding Rs.100,000 per borrower to prepay their debt to noninstitutional
lenders.
3. Loans to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for specific purpose of purchase and supply
of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.
Investments eligible for classification as Priority Sector lending
In all the following cases, the assets in which the investment is made, should be originated by banks as eligible priority sector
advances except `other priority sector' loans.
1. Investments in securitised assets originated by banks and financial institutions. The all inclusive interest charged to the
ultimate borrower by the originating entity should not exceed the Base Rate of the investing bank plus 8% per annum.
Investments in securitised assets originated by NBFCs, where the underlying assets are loans against gold jewellery, are not
eligible for priority sector status.
2. Transfer of Assets through Direct Assignment /Outright purchases
(i) Assignments/Outright purchases of pool of assets by banks originated by banks & FIs.
(ii) Eligible Loan assets purchased, should not be disposed of other than by way of repayment.
(iii) All inclusive interest charged to the ultimate borrower by the originating entity should not exceed Base Rate of purchasing
bank plus 8%%.
(iv) When banks undertake outright purchase, they must report the nominal amount actually disbursed to end priority sector
borrowers and not premium embedded amount paid to the sellers. Purchase/ assignment/investment transactions
undertaken by banks with NBFCs, where the underlying assets are loans against gold jewellery, are not eligible for priority
sector status.
3. Inter Bank Participation Certificates: IBPCs bought by banks, on a risk sharing basis.
4. Priority Sector Lending Certificates: The outstanding priority sector lending certificates bought by the banks.
Priority Sector Lending Certificates Through PSLC, the seller sells the fulfillment of priority sector obligation and the buyer
buys the same. There will be no transfer of risks or loan assets. Sellers/Buyers: Commercial Banks, RRBs, Local Area Banks,
Small Finance Banks & Urban Co-op Banks. The PSLCs are traded and settled through the CBS portal (e-Kuber) of RBI.
Types of PSLCs: There would be 4 kinds of PSLCs :
1. PSLC - Agriculture : Eligible Agriculture loans except SF/MF, for achievement of agriculture target and overall PSL target.
2. PSLC - SF/MF : Eligible loans to small/marginal 'farmers for achievement of SF/MF sub-target, agriculture target and overall
PSL target.
3. PSLC - Micro Enterprises : All PSL Loans to Micro Enterprises for achievement of micro-enterprise sub-target and overall PSL
target.
4. PSLC - General : The residual priority sector loans i.e. other than loans to agriculture and micro enterprises for for
achievement of overall PSL target
Amount for issue: Normally PSLCs will be Issued against the underlying assets. A bank can issue PSLCs upto 5G% of previous year's
PSL achievement without having the underlying in its books.
Expiry date : All PSLCs will expire by March 31st irrespective of the date it was first sold.
Value and Fee: The nominal value of PSLC would represent the equivalent of the PSL that would get deducted from the PSL portfolio
of the seller and added to the PSL portfolio of the buyer. The buyer would pay a fee to the seller which will be market determined.
Lot Size: The PSLCs would have a standard lot size of Rs.25 lakh and multiples thereof.
COMPUTATION OF PRIORITY SECTOR ADVANCES FOR TARGET PURPOSE
Targets : The targets to be computed based on ANBC / CEOBE, whichever higher, of precedingMarch 31/.
ComputationofAdjustedNetBank Credit (ANBC )
Bank Credit inIndia [ItemNo.VIof Form‘A’ under Section42 (2) of the RBIAct, 1934]. I
BillsRediscountedwithRBI andother approvedFinancial Institutions II
Net Bank Credit (NBC) - For thepurposeof priority sector computationonly III (I-II)
Bonds/debentures inNon-SLR categories underHTMcategory+ other investments eligibletobe treatedas
priority sector +OutstandingDepositsunderRIDF and other eligible fundswithNABARD,NHB and SIDBIon
accountof priority sector shortfall +outstandingPSLCs
IV
Eligibleamount for exemptions onissuanceof long-termbonds for infrastructure andaffordable housing V
Eligibleadvances extended inIndia against theincremental FCNR(B)/NRE deposits, qualifying for exemptionfrom
CRR/SLR requirements. VI
ANBC III+IV-V-VI
For calculation of Credit Equivalent Amount of Off-Balance Sheet Exposures, banks to follow Master Circular on Exposure Norms* For priority
sector computation. Banks should not deduct / net any amount like provisions, accrued Interest, etc. from NBC.
Where banks subtract prudential write off at
Corporate/Head Of level while reporting Bank Credit,
the bank are to ensure to credit to priority sector and all other sub-sectors so written off should also be subtracted category wise
from priority sector and sub-target achievement. All types of loans, investments or any other items which are treated as eligible for
classification under priority sector target/sub-target achievement should also form part of Adjusted Net Bank Credit.
Data / Report on PS Lending to RBI
Banks are to report priority sector lending, to RBI on quarterly (within 15 days) and annual basis (within 1 month) on prescribed
format.
Non-achievement of priority sector targets and sub-targets
A simple average of all quarters will be arrived at and considered for computation of shortfall / excess at end of the year for overall
and sub-targets.
DOMESTIC BANKS and FOREIGN BANKS with 20 or more brandies
The amount of shortfall in lending to priority sector or agriculture or weaker section, to be deposited in RIDF, Warehouse
Infrastructure Fund, Short Term Co-operative Rural Credit Refinance Fund and Short Term RRB Fund with NABARD or other funds
with NITB/SIDBI. This amount is shown in Schedule 11 (other assets) of bank balance sheet.
FOREIGN BANKS with less than 20 branches Amount of shortfall in PS target, will be placed with SIDBI or other financial institution.
This amount is shown in Schedule 11 (other assets) of bank balance sheet.
Rate of interest on amount deposited
1- For shortfall less than 5%age points : Bank Rate minus 2%age points
2- For shortfall 5 and above, but less than 10%age points : Bank Rate minus 3 percentage points
3- Shortfall 10 percentage points and above : Bank Rate minus 4 percentage points
ROI on loans disbursed from RIDF /SEDF = Bank Rate minus 1.5%.
Misclassification : The misclassifications reported by RBI's Department of Banking Supervision would be adjusted/ reduced from the
achievement of that year, to which the amount of declassification/ misclassification pertains, for allocation to various funds in
subsequent years.
WEAKER SECTION IN PRIORITY SECTOR
1. Small and Marginal Farmers
2. Artisans, village and cottage industries where individual credit limits do not exceed Rs.1 lakh
3. Beneficiaries under National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM), Differential Rate
of Interest (DRI) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
4. Scheduled Castes and Scheduled Tribes
5. Beneficiaries of Differential Rate of Interest (DRI) scheme
6. Self Help Groups
7. Distressed farmers indebted to non-institutional lenders _
8. Distressed persons other than-farmers, with loan amount not exceeding Rs.1 lakh per borrower to prepay their debt to noninstitutional
lenders
9. Individual women beneficiaries up to Rs. 1 lakh per borrower
10. Persons with disabilities
11. Overdrafts upto Rs.5,000/- under PM Jan-Dhan Yojana a/c (provided household annual income does not exceed Rs, 100,000
for rural areas and Rs. 1,60,000 for non-rural areas)
12. Minority communities notified by Govt. of India.
Common guidelines for priority sector loans
1. Time limit for disposal of loan applications At discretion of the bank concerned (instead of the earlier time limit prescribed
by R131).
2. Rejection of Loan Proposals
Reasons to be given for rejection, in writing. Branch Managers can reject applications and cases of rejection are to be verified
subsequently by Divisional/Regional Managers. For SC/ST, rejection should be at a level higher than that of Branch Manager.
Rates of Interest
Banks have full discretion to fix interest rates which must not be less than the MCLR.
In case of agriculture advances, interest to be compounded annually as per Supreme Court judgement dated June 20, 1994.
No dues certificate
Banks have been advised by RBI (Jan 28, 2015) to dispense with obtaining 'No Due Certificate' from the individual borrowers
(including SHGs & JLGs) in rural and semi-urban areas for all types of loans including loans under Government Sponsored Schemes,
irrespective of the amount involved unless the Government Sponsored Scheme itself provides for obtaining 'No Dues Certificate'.
SUMMARY OF COLLATERAL SECURITY NORMS
Common guidelines for priority sector loans
1. Loans up to Rs 25,000 in PS there is no margin, no collateral security, no penal interest on advance, no processing fees
and no inspection charge.
2. Loan more than Rs 25,000, the margin will be from 15% to 25%. For Loans beyond Rs 25,000, bank can ask for
TPG/collateral security or both.
3. Loanapplicationdisposalnorms :AsdecidedbyBank'sBoardofDirectors
4. COLLATERAL SECURITY :
For agriculture: NIL In case of: Up to Rs.100000.
Up to Rs.3 lac in case of recovery tie-up
Other priority sector Up to Rs.25000 nil
Micro & Small Enterprises:
-normal accounts -good track record a/c -accounts guaranteed
under CGF guarantee
Not to be insisted upon: Up to Rs.10 lac
Up to Rs.25 lac
up to Rs.100 lac Up to Rs.5 lac —nil
Agro clinics & business centres
SGSY:
-Individual up to Rs.100000
-Group up to Rs. 10 lac
Not to be obtained up to this amount
SISRY Not to be obtained
Education loan up to Rs.7.50 lac Not to be obtained up to this amount.
1. Rate of interest: As per directives issued by RBI.
2. Service charges: No loan related and adhoc service charges/inspection charges on priority sector loans up to Rs 25,000.
3. Receipt, Sanction/Rejection/Disbursement Register: A register/ electronic record should be maintained by the bank, wherein
the date of receipt,
sanction/rejection/disbursement with reasons thereof, etc., should be recorded.
4. Issue of Acknowledgement of Loan Applications: Banks should provide acknowledgement for loan applications received under
priority sector loans. Bank Boards should prescribe a time limit within which the bank communicates its decision in writing to the
applicants.
PROCESSING/INSPECTION FEE, SERVICE CHARGE, PENAL INTT IN PRIORITY SECTOR ADVANCES
For loans up to Rs.25000 No charges
For loans above Rs.25000 Bank discretion
Priority Sector Lending Targets for RRBs
RBI fixed the following targets for Regional Rural Banks w.e.f. 1.1.2016 :
1. PS Lending Targets: 75% of total outstanding.
2. Agriculture: 18%% of total outstanding.
3. Small and Marginal Farmers: 8% of total outstanding*
4. Micro Enterprises: 7.5% of total outstanding**
5. Weaker Sectors: 15% of total outstanding. (* 7% by March 2016 and 8% by March 2017.) (**7% by March 2016 and `
7.5% by March 2017.)
AGRICULTURALADVANCES
1. NoMarginandNo Collateral security for agricultural advances uptoRs 100,000
2. No no dues certificatefor loans upto Rs 50,000.
3. Committeeonflowof credit toagriculturewasheadedby:ProfVyas
4. Crops divided into short duration and long duration. Short duration crop where crop season upto: 12 months. Long
Duration crop where crop season more than 12 months. 5_ The decision regarding duration of crop by SLBC_
6. ServiceArea approach discontinued except forGovernment sponsored schemes.
7. Rashtriya Krishi Birna Yojna (RKBY) is operated by : Agri Insurance company Limited.
8. Risks coveredby RKBY: damagetocrops by natural calamities likeflood,draught, pest attack etc
9. Risks not covered under RKBY :War andNuclear risk
10. Membersof Joint LiabilityGroupcanbe: 4to10
11. MaximumadvancetoJoint LiabilityGroup:Rs 50,000permember andRs5lac for thegroup.
12. The scale of finance per acre for crop loans is to be decided byDistrict Technical Committee.
13. If cropisdamaged, croploanhas tobeconvertedtomediumtermloanrepayablein3to5years.
14. Annewari refers todamagetocropduetonatural calamities likedraught, flood,hailstormetc.
There aremainly two types of crops Le. Rabi and Khalif. Rabi is generally sown inOct/Nov and harvestedinApril and Kharif is generally sown in July
and harvestedin Sept/Oct.Main Rabi crops arewheat and gramandmain Kharif crops are paddy, jwar, bajra.
Various types of cultures and revolutions :
1. Sericulture: Silk production. 2. Apiculture: Honey Bee keeping
3. Aquaculture: Shrimp farming, fishes 4. Pisciculture: Breeding of fishes in pond
5. Floriculture: Flower production 6. Apriculture: Mushroom production
7. Silviculture: Forestry 8. Horticulture: Fruits production
9.White revolution: milk production 10_ Green revolution: increase in foodgrain production
11. Blue revolution: fish production 12_ Yellow revolution: increase in oilseeds and pulses
13. Olericulture : Vegetable Cultivation 14. Tissue culture: Improvement of plant varieties
15. Vermiculture - Rearing of earth worm 16. Mulberry Associated with - Sericulture 17. Rainbow
revolution- connected with flowers
Interest Subvention for Agricultural Loans
1. Available for short term production loans in agriculture up to : Rs 3 lakh
2. Available only to public sector banks
3. Subvention provided by Central Govt
4. Rate of subvention: 2% p.a.
5. Interest charged by banks: 7% per annum.
6. Submission of claims: Half-yearly as at September 30, and March 31,
7. Additional subvention for prompt repayment: 3% if repayment within one year.
8. Effective rate to farmer: 4%
Kisan Credit Card
1. Scheme prepared by Nabard and changes also by Nabard.
2. Revised on recommendations of Committee headed by Shri T.M.Bhasin.
3. Kisan Credit Card Scheme can be used for (a) meeting the short term credit requirements for cultivation of crops (b) Post
harvest expenses (c) Produce Marketing loan (d) Consumption requirements of farmer household (e) Working capital for
maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery etc. (f) Investment credit
requirement for agriculture and allied activities like pump sets, sprayers, dairy animals etc
4. Fixation of limits: The short credit limit for farmers other than marginal farmers for first year will be calculated as under -
Scale of finance for the crop (as decided by District Level Technical Committee) x Extent of area cultivated + 10% of limit
towards post-harvest / household / consumption requirements + 20% of limit towards repairs and maintenance expenses
of farm assets + crop insurance, PAIS & asset insurance_ For subsequent years, limit will be increased each year by 10%
towards cost escalation increase in scale of finance for every successive year and estimated Term loan component for the
tenure of Kisan Credit Card, i.e., five years
5. Validity Period of KCC: Banks may determine the validity period of KCC and its periodic review.
6. If there is a credit balance in the account it will earn interest at Saving Fund rate as per rules applicable in SF account.
7. Personal Accident Insurance for KCC holders: KCC holders are covered against death or permanent disability due to
accident for Rs 50,000. For partial disability due to accident the cover is available for Rs 25,000. The cover is available only
to KCC holders up to 70 years of age at the time of entry to the Scheme. The insurance premium is competitive but not
more than Rs 15 per annum to be shared by the bank and the borrower in the ratio of 2:1.
Farmers' Club Programme (FCP)
1. Features of the Club:
Size of the Club:No restriction on the upper limit but theminimumsize should be 10members Membership: Both farmers as
well as non farmers can become themembers of the club.
Office bearers: Each Club will have two office bearers, viz, Chief Co-ordinator and Associate Coordinator.
Operational area: Preferably one village or a group of 2-3 villages on contiguous basis.
Registration: Not required.
Bank Linkage: All the Clubs should have savings bank accounts with the bank in the joint name of the office bearers.
2. NABARD assistance: Rs.10000/- per club per annum for a period of three years as per following details: Formation and
maintenance expenses:Rs.2000; Awareness / orientation meet at base level:Rs.5000; Meet with experts programme (2
programmes in a year) : Rs.3000
3. Assistance exceeding Rs.10,000/- may be met by the bank with maximum of Rs 50001- per annum during the first three
years and
Rs.10000/- per year during 4th & 5th year of formation of the club.
AGRI CLINIC & AGRI BUSINESS CENTRE
1. Eligibility: (i) The applicant should be Agricultural Graduates/Graduates in subjects allied to agriculture. (ii)Diploma in agriculture
and allied subjects from State Agricultural Universities. (iii)Science graduates with post graduation in agriculture and allied
subjects (iv) Individuals or in group of not exceeding 5 persons; of which one could be a Management Graduate with
qualification or experience in business development and management.
2.MaximumProject cost: (a) Project by individual:Rs 20lakh; (b) Projectby aGroup: Rs 100 lakh.
Margin: (a)UptoRs5Lakh:Nil;(b)AboveRs 5lakh:25%.
4. Security: (i)Upto Rs. 5 Lakh: No collateral security (ii) Above Rs.5 Lakh: Hypothecation of assets created out of bank loan
and Collateral security or Third Party Guarantee.
5. NABARDRefinance: 100per cent ofbank loan.
6. AutomaticRefinance Scheme ofNABARD:Maximumloan- Rs.30lakh, and the ceiling for refinancewouldbeRs.20 lakh. Projectswith
outlayover Rs 30 lakhrequireNABARDapproval.
7. Depending on the type of venture, the loan can be repaid within 5-10 years (with moratorium upto 2 years), in easy
installment.
8. Credit linked capital subsidybyGovt of India: (a) 36%of thecapital cost of the project. Itwouldbe 44%for SC, ST,Women and other
disadvantaged sections andthose fromNorth-EasternandHilly States. Lock inperiodfor subsidy is 3 years
IBAMODEL EDUCATION LOAN SCHEME It was prepared on Kamath Committee recommendations & approved by RBI in April 2001:
Eligibility : Student secured • admission to professional/ technical courses through Entrance Test/ Selection process or
Secured admission to foreign university/ Institutions after 10+2. Expenses considered for loan : Fee and all other expense required to
complete the course. Amount of loan for PS classification: Out of sanctioned loans, the amount up to Rs. 10 lakh will be classified as
priority sector.
Margin: Upto Rs.4 Lacs : Nil (India/abroad). Above Rs. 4 lacs : India : 5% Abroad : 15% (Margin can be on year-to-year basis as and
when disbursements are made on a pro-rata basis). Collateral Security: Parents would be co-borrowers (in case of married, the
spouse or parents in law). For loans above Rs.4 lac and up to Rs.7.50 lac, 31.4 party guarantee may be obtained. For loans above
Rs.7.50 lakh, collateral security can be obtained.
Rate of interest : Base rate or above. The accrued interest during moratorium period, to be added to the principal and repayment to
be fixed in Equated Monthly Instalments. 1% interest concession is to be provided if the interest is serviced during the moratorium
period.
Moratorium : Course,period + 1 year. (extension of completion of course up to 2 years can be allowed if student could not complete
the course)
Repayment — up to 15 year, after commencement of repayment.
Other conditions: 1. Existence of an education loan to brother/sister does not affect eligibility of another student from same family
to obtain education loan. If student is minor, the loan documents signed by parents to be got rectified on his attaining the majority.
2. Service Area not applicable. Bank branch to be near place of parent residence or educational institution.
Credit Guarantee Fund Scheme for Education Loans (CGFSEL)
The guarantee is provided by National Credit Guarantee Trust Company for loan up to Rs 7.5 lakh, given under IBA Education Loan
Scheme, without any collateral security and third party guarantee, on which the Interest Rate charged by Member Lending
Institution (MLI) can be max up to 2% p.a. over the Base Rate. MLI applies for guarantee cover for loans disbursed in a quarter prior
to expiry of the following quarter.
Annual Guarantee Fee: 0.50% p.a. of the outstanding amount to be paid upfront within 30 days i.e. before April 30.
Guarantee cover : 75% of the amount in default. Invocation of guarantee : MLI may invoke the guarantee within one year from date
of NPA, if NPA is after lock-in period or within one year of lock-in period, if NPA is within lock-in period
Payment : NCGTC shall pay 75% of the guaranteed amount on preferring of eligible claim by the lending institution, within 30 days.
For delay period, interest would paid at bank rate. The balance 25% will be paid after conclusion of recovery proceedings.
Credit Facilities to Minority Communities
Govt. of India revised the Prime Minister's New 15-Point Program for theWelfare of Minorities.
Minority Communities : The communities notified as minority include (a) Sikhs (b) Muslims (c) Christians (d) Zoroastrians (e)
Buddhists and (f) Jains
Minority concentration districts : 121 minority concentration districts having at least 25% minority population, excluding those
States/UTs where minorities are in majority (3 & K, Punjab, Meghalaya, Mizoram, Nagaland & Lakshdweep).
National Minorities Development and Finance Corporation (NMDFC)
NMDFC was established in Sept 1994 for the backward sections amongst the minorities. It works as an apex body and channenses its
funds to the beneficiaries through the State Minority Finance Corporation of the respective State/Union Territory Governments. It Is
operating, the Margin Money Scheme. Bank finance under the scheme will be up to 60% of the project cost. The remaining amount
of the project cost is shared by NMDFC, the State channelising agency and the beneficiary in the ratio of 25%, 10%, and 5%,
respectively. Banks may implement the Margin Money scheme evolved by NMDFC. Where recoveries have been made by the banks,
it would be in order if the amounts are appropriated first towards bank dues.
Role of banks
• Banks to set up a Special Cell (head Nodal Officer - AGM/DGM) for flow of credit to minority communities.
• The Lead Bank in minority concentration districts, to have an officer to look after the problems regarding the credit flow to
minority communities.
Monitoring
• Data on credit assistance provided to members of minority communities should be furnished to RBI and Govt. of India on
half yearly basis (last Friday of Mar and Sept) to reach within one month.
• The Lead Banks to furnish relevant extracts of the agenda notes and minutes of the meetings to Ministry of Finance and
Ministry of Welfare on a quarterly basis.
Finance to Micro, Small & Medium Enterprises (MSMEs)
Govt. of India enacted MSMED Act, 2006 on June 16, 2006 (notified on Oct 2, 2006). Consistent with the notification of the MSMED
Act 2006, the definition of micro, small and medium enterprises engaged in manufacturing or production and providing or rendering
of services (earlier known as SSI, Tiny or SSSBE) has been modified as under:
Investment Criteria for MSME
Enterprises engaged in Micro Small Medium
Manufacturing, production,
preservationor processing (Investment
in Plant & Machinery)
Upto Rs.25 lac > 25 lac up to Rs.5 cr > 5 cr up to Rs.10 cr
.
Rendering services (investment in
equipment excluding Land & building,
fixture and furniture etc.)
Upto Rs.10 lac - > 10 lac upto Rs.2 cr > 2 cr upto Rs.5 cr
Eligibilityof enterprises for PS classification:
Manufacturing Enterprises: Bank loantoMicro, Small andMediumEnterprises irrespective of amountof loan. Service Enterprises: Bank loans up to
Rs 5 croreper unit toMicro and Small Enterprises and Rs 10 crore toMediumEnterprises engagedinprovidingor rendering of services.
Khadi and VillageIndustries Sector (KVI):All loans to units inthe KVI sectorwill be eligiblefor classificationasMicro enterprise under thesub-target of
7percent /7.5 percent prescribedforMicroEnterprises underpriority sector.
Other Finance toMSMEs
1. Loans to entities involvedin assisting the decentralizedsector in the supplyof inputs to andmarketingof outputs of artisans, village andcottage
industries.
2. Loans to co-operatives of producers inthe decentralized sector viz. artisans, village andcottage industries.
3. Loans sanctionedby banks toMFIs foron-lending toMSME sector
4. Credit outstandingunderGeneral Credit Cards (includingArtisan Credit Card, LaghuUdyami Card, Swarojgar Credit Card, andWeaver’s Card etc.
catering to thenon-farmentrepreneurial credit needs of individuals).
5. Outstandingdepositswith SIDBI onaccount of priority sector shortfall.
SubcategorizationofMicro enterprises: The earlier sub-categorizationwithinthe definitionofmicro enterprises (i.e. investment up to Rs 10 lac in
plant andmachinery and up to Rs 4 lakhin equipment) has beendispensedwith. ContinuationofMSME status: TheMSME unitswill continue to
enjoy the priority sector lending status up to three years after they growout of theMSME category concerned.
Important : For investment purpose, purchase value (and not book value) to be taken. Cost of land & building and items specified by
Ministry of MSME Development, are to be excluded from original cost. Documents that can be relied upon are (a) invoice (2) copy of
audited balance sheet (c) CA certificate.
The services enterprises broadly include (a) small road & water transport operators (b) small business and (c) professional & self
employed persons (d) retail trade.
Additional Activities included in MSE (Govt. of India -June 12, 2009) where such enterprises satisfy the definition of Micro and Small
(Service) Enterprises in respect of investment in equipment are (a) Consultancy Services including Management Services; (b)
Composite Broker Services in Risk and Insurance Management; (c) Third Party Administration (TPA) Services for Medical Insurance
Claims of Policy Holders; (d) Seed Grading Services; (e) Training-cum-Incubator Centre; (f) Educational Institutions; (g) Training
InStitutes; (h) Retail Trade; (I) Practice of Law, I.e. legal services; (j) Trading In medical instruments (brand new); (k) Placement and
Management Consultancy Services; and (I) Advertising agency and Training centres.
Ownership of units — 2 or more undertakings The MSMED Act, 2006 does not provide for clubbing of investments of different
enterprises set up by the same person / company for the purpose of classification as micro, small and medium enterprises (Gov.
clarification by RBI Dec 06, 2010)
Loans to MSMEs
The amount of loan to MSMEs in the form of term loans, working capital and non-fund based lbans is need based.
But for servicing enterprises, the amount is restricted to Rs.5 cr for micro and small enterprises and Rs.10 cr for medium enterprises.
Further, composite loan under single window is restricted to Rs. I cr.
Registration
For all micro or small enterprises and for medium enterprise engaged in providing or rendering of services, registration is optional.
But for a medium enterprise engaged in manufacture or production of goods registration is compulsory, with such authority as
specified by the State Govt. or Central Govt.
Delayed payment toMSEs
The existing provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been
strengthened under the MSMED Act as under:
(I) The buyer to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement
before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days.
(ii) If the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compounded interest with monthly
rests to the supplier on the amount from appointed day or, on the date agreed on, at 3 times of the Bank Rate notified by Reserve
Bank.
Decentralised Sector
Such units include artisans, Khadi & Village Industries, handlooms, sericulture, handicrafts, coir etc. which have been categorised as
Village Industries under Govt.'s SSI policy (Aug 1991).
Artisans, Village And Cottage Industry
It is defined as Artisans (irrespective of location) or small industrial activities in villages and small towns with a population not
exceeding 50000, involving utilisation of locally available natural resources and / or human skills where individual credit
requirements do not exceed Rs.50000.
Cottage industry is run by family members on full or part time basis. It possesses negligible capital investment. There is handmade
production and no wage earning person is employed in cottage industry.
Village industries is established in rural areas with population below 10000 and with less than Rs.50000 as fixed capital investment
per worker.
Ancillary Units
An undertaking which is engaged in the manufacturing or production of parts, components, sub-assemblies, tooling or intermediates
or the rendering of services and undertaking supplies or proposes to supply or renders, at least 50% of its production or services, to
one or more other industrial undertakings. Investment criteria in plant and machinery, is same as in case of MSEs.
Women Enterprises ForMSEs
An MSE unit related service or business enterprise, managed by one or more women-entrepreneurs in the proprietary concerns or in
which she/they individually or jointly have a share capital of not less than 51% as partners/shareholders/directors of private limited
Company/Members of Co-operative society is known as Women Entrepreneurs' Enterprise.
OPERATIONAL GUIDELINES onMSEs
Collateral security
General exemption from collateral is up to an amount of Rs.10 lac. For units having good track record, the exemption limit is Rs.25
lac. As per RBI directions, the proposals, otherwise viable, should not be turned down merely for want of such collateral security or
3rd party guarantees.
Rejection of loan applications in MSE sector As per RBI, a reference to higher authorities of loan proposals of MSE units being
rejected/curtailed should be made before the decision is conveyed to the applicant.
Banks' Code for MSEs
Banking Codes and Standards Board of India prepared voluntary code put in place in 2008 and revised in 2015. It sets minimum
standards of banking practices for banks to follow, while dealing with MSEs.
Code and Regulatory guidelines: Where code sets higher standards than indicated in the RBI instructions, such higher standards will
prevail. Changes in interest rates: Banks will inform the change within a fortnight.
Changes in Fees & Charges : Notify change 30 days_ prior to revised charges becoming effective. Changes to Terms & Conditions:
Banks will convey the change 30 days prior to these becoming effective. If it is to MSE's disadvantage, MSE may within 60 days and
without notice, close /switch the account without paying extra charges or interest.
Additional information : MSE to be contract for additional information within 7 working days from receipt of loan application.
Processing fee : No fee will be recovered for loans up to Rs.5 lakh if the loan is not sanctioned. Loan application disposal period : 2
weeks up to Rs.5 lac, 3 weeks above Rs.5 lac to Rs.25 lac and 6 weeks above Rs.25 lac.
Amount of bank limit: The banks will provide working capital limits computed at minimum of 20 % of projected annual turnover.
Sanction: Banks will supply authenticated copies of alI the loan documents executed with. The banks will permit pre-payment of
loans up to Rs.5 lakh without levying any prepayment penalty. Prepayment of fixed rate loans : No penalty up to Rs.50 lac.
Disbursement : Within 2 working days from the date of compliance with all terms and conditions. Drawing power: Banks will grant
increase in the DP within 24 hours of lodgment of security. Transfer of accounts and release of securities: Banks will convey their
consent or otherwise, within 2 weeks. Release all securities on receiving repayment of loan within 15 days. Recovery: Bank
representatives will contact MSEs between 0700 hrs and 1900 hrs.
Complaint: The banks will send final response within 6 weeks of receipt of complaint.
Banking Ombudsman Scheme: Within 30 days of lodging a complaint with the bank, if MSEs do not get a satisfactory response from
a bank and MSEs wish to pursue other avenues it may approach Banking Ombudsman.
High Level Task Force on MSMEs (Jun 2010) In terms of recommendations of the Prime Minister's Task Force on MSMEs (Chairman:
Shri T K A Nair) constituted by the Govt. of India, RBI advised banks as under:
i. Achieve a 20% year-on-year growth in credit to MSEs to ensure enhanced credit flow;
ii. Achieve a 10% annual growth in number of micro enterprise accounts.
iii. 60% of loans to MSEs should be to micro units.
iv. CREDIT GUARANTEE FUND TRUST FOR MICRO & SMALL ENTERPRISES (CGTMSE) CGTMSE was set up by Govt. of India and
SIDBI in August 2000.
v. Eligible institutions: All scheduled commercial banks and specified RRBs, NSIC, NEDFI, SIDBI (called Member Lending Institutions
(MLIs).
vi. Eligible borrowers: New & existing MSE units as per MSME Dev Act 2006 (except Retail Trade) OR in IT and software
industry services or credit facilities to select activities under Agri-Clinics and Agri-Business Centres.
vii. Rehabilitation cases : For the unit covered under CGTSI and becoming sick due to factors beyond the control of
management, assistance for rehabilitation extended by the lender could also be covered within the overall cap of Rs.200 lac. Extant
of guarantee cover : (wef Dec 08, 2008):
CGTMSE Guarantee - Modifications CGTMSE made the following changes in the Credit Guarantee Scheme w.e.f. 01.01.2017, as
per their circular dated Jan 09, 2017. ‘Guarantee Cover’ means maximum cover available per eligible borrower of the amount in
default in respect of the credit facility extended by the lending institution.
Credit facility eligible under the Scheme: CGTMSE shall cover credit facilities (Fund based and / or Non fund based) extended by
Member Lending Institutions (MLIs) to a single eligible borrower in the Micro and Small Enterprise’s Sector (i) not exceeding Rs.50
lakh (Regional Rural Banks / Financial Institutions) and (ii) not exceeding Rs.200 lakh (Scheduled Commercial Banks and select
Financial Institutions) by way of term loan and / or working capital facilities, without any collateral security and / or third party
guarantee. Iii) The enhancements in existing guarantee cover beyond Rs.100 lakh in respect of working capital facilities, where such
enhancements are approved on or after January 01, 2017 would also be eligible for the enhanced coverage up to Rs.200 lakh provided
the proposal meets the guidelines of CGS.
Credit facilities not eligible under the Scheme: Any credit facility which has been sanctioned by the lending institution with the
maximum interest rate not more than 14% p.a. (including cost of guarantee cover) would be eligible for coverage under CGS. The
revised guidelines on ceiling on Interest Rate that could be charged for the guarantee covered credit facilities would be applicable, also
to those MLIs who would not be eligible for enhanced credit guarantee coverage from Rs.100 lakh to Rs.200 lakh.
Modifications in the Interest Rate Cap under Credit Guarantee Scheme (CGS) of CGTMSE On 30.09.15, CGTMSE had placed
the interest cap up to 2% and 3% over the Base Rate for loans up to 50 lakh and loans above 50 lakh respectively on loans eligible for
guarantee cover. CGTMSE decided (Nov 16, 2015) to restore the earlier Interest Rate Cap of 4% over the Base Rate i.e. any credit
facility which has been sanctioned by MLI, under Credit Guarantee Scheme (CGS), to an eligible borrower, with interest rate more
than 4% over its Base Rate (BR) will not be eligible for coverage under the CGS.
Extent of guarantee cover wef 01.01.2017 :
Women enterprises ,North Eastern States & Sikkim Amt. Rs. in lakhs
Loan up to Rs.5 lac : 85%* 4.25
Loan up to Rs.50 lac: 80%* 40.00
Loan above Rs.50 lac & up to Rs. 200 lac: 50%* 75.00
Total amount restricted to 100.00
Micro Enterprises
Loan up to Rs.5 lac : 85%* 4.25
Loan up to Rs.50 lac: 75%* 37.50
Loan above Rs.50 lac & up to Rs. 200 lac: 50%* 75.00
Total amount restricted to 100.00
Other Category of borrowers loans
Loan up to Rs.50 lac : 75%* 37.50
Loan above Rs.50 lac & up to Rs. 200 lac: 50%* 75.00
Total amount restricted to 100.00
*as %age of principal outstanding on date of NPA/ amount in default or on date of filing the claim, whichever is lower.
Exclusion from risk cover : Other charges such as penal interest, commitment charge, service charge, or any other levies/ expenses
shall not quay for the guarantee cover.
All proposals for sanction of guarantee approvals for credit facilities above Rs.50 lakh upto Rs.200 lakh will have to be rated internally
by the MLI and should be of investment grade.
Conditions for Guarantee Cover Loans (fund and non-fund) extended by banks and/or financial institutions jointly and/or separately
to eligible borrower up to a maximum of Rs.200 lakh (Rs.50 lac for RRBs and select FIs) per borrower subject to ceiling amount of
individual MU are elgible. Rate of interest should not be more than 14%pa.
Collateral security: Loans sanctioned with collateral and/or third party guarantee or against guarantee of Govt. or DICGC, are not
eligible. Time limit for obtaining guarantee cover: Within a quarter, next to the quarter, during which the loans are sanctioned.
Standard Rate SR for Com osite Guarantee Fee
Fee as % of sanctioned loan w.e.f. 1.1.13 Women,NE
States, MSEs Others
For loan up to Rs.5 lac 0.75% p.a. 1% p.a.
Above Rs.5 lac up to Rs.100 lac 0.85% p.a. 1% p.a.
If fee is not paid on time, CGTMSE may allow payment "nterest at bank rate + 4%.
We f 1A.2016 the premium on SR will be as under:
1.Risk premium on NPA in
guaranteed portfolio 2. Risk prem'um on claim
payment ratio
NPA %age Risk Premium Claim payout Risk premium
0-5% SR 0-5% SR
>5% to 10% 10% of SR >5% to 10% 10% of SR
>10 to 15% 15% of SR >10 to 15% 15% of SR
>15 to 20% 2070 of SR >15 to 20% 20% of SR
>20% 25% of SR >20% 25% of SR
NPA level shall be calculated as a % of guarantees Issued on and up to 31st Mar, every year
Invocation of guarantee
Guarantee can be invoked if
(a) account is classified as NPA as per,RBI guidelines
(b) suit has been filed and (c) guarantee is in force Time limit for invocation:
(a) within 2 years from date of NPA If NPA is after lack in period or (b) within 2 years from date of completion of 18 month lock in
period.
Lock-in period of 18 months Is from the date of last disbursement of the loan or the date of payment of the guarantee fee whichever
is later.
Payment of the claim amount : The trust shall pay 75 % of the guaranteed amount on preferring of eligible claim by the lending
institution, within 30 days. For delay beyond 30 days, trust shall pay interest on the eligible claim amount at the prevailing bank rate.
The balance 25 % will be paid on conclusion of recovery proceedings by the lending institution or within 3 years from date of decree,
whichever is earlier.
Sharing of recovery: Recovery shall be first appropriated towards cost of recovery, balance amount for recovery of fee and other
charges of CGTMSE and balance amount on prorate basis i.e. 85:15, 80:20 or 75:25.
Delay in sharing the amount recovered : If any amount due to .the trust remains unpaid beyond a period of 30 days from the date
on which it was first recovered, interest shall be payable to the trust at the rate which is 4% above bank rate for the period for which
payment remains outstanding after the expiry of the said period of 30 days.
DRI for MSEs with guarantee cover of CGTMSE As per RBI guidelines dated Apr 15, 2014, banks can provide differential interest rate
forMSE borrowers, having guarantee cover from CGTMSE. But such rate of interest should not be below the Base Rate.
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