RBI alters priority sector norms to help start-ups, farmers avail loans

Assigns higher weightage to areas with low credit flow

The Reserve Bank of India (RBI) on Friday released revised priority sector lending guidelines to augment funding to segments including start-ups and agriculture.

This has come after a comprehensive review of the Priority Sector Lending (PSL) guidelines “to align it with emerging national priorities and bring sharper focus on inclusive development, after having wide ranging discussions with all stakeholders,” the RBI said.

The revised PSL guidelines will enable better credit penetration to credit deficient areas, increase the lending to small and marginal farmers and weaker sections, boost credit to renewable energy, and health infrastructure, it said.

Bank finance of up to ₹50 crore to start-ups, loans to farmers both for installation of solar power plants for solarisation of grid-connected agriculture pumps, and for setting up compressed biogas (CBG) plants have been included as fresh categories eligible for finance under the priority sector.

The revised PSL guidelines have been framed to address regional disparities in the flow of priority sector credit. Higher weightage has been assigned to incremental priority sector credit in ‘identified districts’ where priority sector credit flow is comparatively low.

The targets prescribed for ‘small and marginal farmers’ and ‘weaker sections’ are being increased in a phased manner and higher credit limit has been specified for farmer producer organisations (FPOs)/farmers producers companies (FPCs) undertaking farming with assured marketing of their produce at a pre-determined price.

Besides, loan limits for renewable energy have been doubled. Commercial banks have been instructed to adhere to the revised guidelines.

“The RBI’s revision in PSL guidelines will incentivise credit flow to specific segments like clean energy, weaker sections, health infrastructure and credit deficient geographies,” commented Krishnan Sitaraman, senior director, CRISIL Ratings.

“These measures are also aligned to focus areas of development as per extant policy environment and will support funding requirements in these specific sectors,” he said.

The PSL guidelines were last reviewed for commercial banks in April 2015 and for UCBs in May 2018 respectively.

To address regional disparities in the flow of priority sector credit at the district level, it has been decided to rank districts on the basis of per capita credit flow to priority sector and build an incentive framework for districts with comparatively lower flow of credit and a dis-incentive framework for districts with comparatively higher flow of priority sector credit.

Accordingly, from FY 2021-22, a higher weight (125%) would be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than ₹6,000), and a lower weight (90%) would be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹25,000), the circular said.

The list of both categories of districts have been provided. This list will be valid for a period up to FY 2023-24 and will be reviewed thereafter. The districts other than those mentioned in both the lists will continue to have existing weightage of 100%, the circular added.

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