Banking Awareness: What Is Priority Sector Lending?

Banking Awareness is an important section and if you are a banking aspirant then you must be knowing it that how much difference can this section bring into your total score. A lot of questions are asked from this topic as well as in some of the exam a separate section is dedicated to this topic in General awareness. It will also be helpful for you in your interview as maximum number of questions are asked from this topic. In this article, we will be discussing about Priority Sector Lending.

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What Is Priority Sector Lending?

Priority Sectors are those sectors of a nation which requires timely and adequate credit to grow and to prosper. So, this is a mechanism that assures the timely distribution of money in the economy of a country. There is a certain percentage that every bank has to achieve by distributing the loan to these sectors.
There are several priority sectors are recognized by RBI, and certain targets are given to banks according to which banks must provide loans in priority to these sectors.
The interest rate is decided based on the directives issued by the Department of Banking Regulation of RBI, from time to time

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As notified by RBI on on December 28, 2018, given below are categories under priority sector

(i) Agriculture
(ii) Micro, Small and Medium Enterprises
(iii) Export Credit
(iv) Education
(v) Housing
(vi) Social Infrastructure
(vii) Renewable Energy
(viii) Others

Initially when priority sector lending mechanism came into existence there was no specific target fixed in it, It was in November 1974 the banks were advised to raise the share of these sectors. Later on it was agreed that banks should aim at raising the proportion of their advances to priority sector to 40 percent.

Targets and Sub-targets for banks under priority sector

The targets and sub-targets for banks under priority sector are given below:

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Description of the Categories under priority sector:

Agriculture

• As per the RBI, The activities covered under Agriculture are classified under three sub-categories viz. Farm credit, Agriculture infrastructure and Ancillary activities.
• People who are individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on such loans] engaged in Agriculture and services related to it, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture.
• Loans will be provided to all the  corporates, partnership firms and institutions engaged in Agriculture and Allied Activities (dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture).

Micro and small enterprises
As per the RBI, The limits for investments as notified by Ministry of Micro Small and Medium Enterprise are as given below:

The sector also includes loans for Food and Agro Processing, Khadi and Village Industries Sector (KVI) sectors to help the people involve in these.

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Education

Education Loans will be given to individuals for educational purposes including vocational courses upto Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad.

Housing

• Loans will be provided to individuals up to Rs 25 lakh in metropolitan centres with population above ten lakh and Rs 15 lakh in other centres for purchase/construction of a dwelling unit per family excluding loans sanctioned to bank’s own employees.
• Loans will be provided for repairs to the damaged dwelling units of families up to Rs 2 lakh in rural and semi- urban areas and up to Rs 5 lakh in urban and metropolitan areas.

Export Credit

Export Credit which is extended by foreign banks with less than 20 branches will be reckoned for priority sector target achievement.

Others

• Loans, not exceeding Rs 50,000 per borrower provided directly by banks to individuals, provided that the borrower’s household annual income in rural areas does not exceed Rs 60,000 and for non-rural areas it should not exceed Rs 1,20,000, as per RBI.
• Loans to distressed persons will be provided.
• Overdrafts facility of  up to Rs 50,000 (per account), granted against ‘no-frills’ / basic banking / savings accounts provided that the borrowers household annual income in rural areas does not exceed `Rs 60,000 and for non-rural areas it should not exceed  Rs 1,20,000.

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Under Weaker Sections Category:

As per the central bank of Inda, Priority sector loans to the following borrowers are eligible to be considered under Weaker Sections category:-

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