UBD.BPD.(PCB) MC No. 7/09.09.001/2011-12
July 1, 2011
The Chief Executive Officers
All Primary (Urban) Co-operative Banks
Madam / Dear Sir,
Master Circular- Priority Sector Lending – UCBs
Please refer to our Master Circular UBD. PCB. MC. No. 7 / 09.09.001 / 2010-11 dated July 1, 2010 on the captioned subject (available at RBI website www.rbi.org.in). The enclosed Master Circular consolidates and updates all the instructions / guidelines on the subject issued up to June 30, 2011 and listed in the Appendix.
Chief General Manager
Encl: as above
Master Circular on Priority Sector Lending
|1||Introduction to priority sector lending|
|2||Categories of priority sector|
|3||Targets / sub-targets under priority sector|
|4||Reporting / monitoring under priority sector|
|5||Detailed guideline on classification|
|6||State-wise list of minority concentrated districts|
|7||Memorandum to be submitted to the board of directors of the bank (Statement I)|
|8||Proforma of the annual return on lending to priority sector and weaker section (Statement II)|
|9||Proforma on credit flow under priority sector to minorities (Statement III)|
1. Introduction on Priority Sector Lending
1.1 At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority sector advances and certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector. Although initially there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by March 1979.
1.2 The need for Primary (urban) Co-operative Banks (UCBs) for providing credit to priority sectors had been examined by the Standing Advisory Committee for UCBs constituted by Reserve Bank in May 1983. The recommendations of the committee were accepted by Reserve Bank and accordingly the targets for lending to priority sector and weaker sections by the UCBs were stipulated.
1.3 On the basis of the recommendations made in September 2005 by the Internal Working Group (Chairman : Shri C. S. Murthy), set up in Reserve Bank to examine, review and recommend changes, if any, in the existing policy on priority sector lending including the segments constituting the priority sector, targets and sub-targets, etc. and the comments / suggestions received thereon from banks, financial institutions, public and the Indian Banks’ Association (IBA), it has been decided to include only those sectors as part of the priority sector, that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and tiny and small enterprises. Accordingly, the broad categories of priority sector for UCBs will be as under:
2. Categories of Priority Sector
2.1 Agriculture (Direct and Indirect Finance): Direct finance to agriculture shall include short, medium and long term loans given for agriculture and allied activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers without limit for taking up agriculture / allied activities. Direct finance may be limited to regular members and not to nominal members or to agencies like primary agriculture credit societies (PACS), primary land development banks etc. Indirect finance to agriculture shall include loans given for agriculture and allied activities as specified in para 5 appended.
Loans granted to agriculture and allied activities irrespective of whether the finance is for export activities or domestic activities, are eligible to be classified as priority sector. The export credit granted for agriculture and allied activities may be reported separately under heading “Export Credit to Agriculture Sector” in statement II.
2.2 Small Enterprises (Direct and Indirect Finance) : Direct finance to small enterprises shall include all loans given to micro and small (manufacturing) enterprises engaged in manufacture / production, processing or preservation of goods, and micro and small (service) enterprises engaged in providing or rendering of services, and whose investment in plant and machinery and equipment (original cost excluding land and building and such items as mentioned therein) respectively, does not exceed the amounts specified in Section I, appended. The micro and small (service) enterprises shall include small road and water transport operators, small business, professional & self-employed persons, and all other service enterprises, as per the definition given in para 5. Indirect finance to small enterprises shall include finance to any person providing inputs to or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.
Loans granted to micro and small enterprises (MSE) (manufacturing and services) are eligible for classification under priority sector provided such enterprises satisfy the definition of MSE sector as contained in MSMED Act 2006, irrespective of whether the finance is for export activities or domestic activities. The export credit granted to MSEs may be reported separately as “Export Credit to Micro and Small Enterprises Sector” in statement II.
2.3 Micro Credit : Provision of credit and other financial services and products of amounts not exceeding Rs.50,000 per borrower or the maximum permissible limit on unsecured advances whichever is lower
2.4 Education Loans : Education loans include loans and advances granted to only individuals for educational purposes up to Rs.10 lakh for studies in India and Rs.20 lakh for studies abroad, and do not include those granted to institutions;
2.5 Housing Loans: Loans up to Rs.20 lakh (Rs.25 lakh for housing loans sanctioned on or after April 1, 2011) to individuals for purchase / construction of dwelling unit per family*, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged dwelling units of families up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban and metropolitan areas.
2.6 Loans to Self Help Groups (SHG) / Joint Liability Groups (JLGs): Loans to SHGs / JLGs for agricultural and allied activities would be considered as priority sector advance. Further, other loans to SHGs / JLGs up to Rs. 50,000 would be considered as Micro Credit and hence treated as priority sector advances. Lending to SHGs, which qualify as loans to priority sector, would also be treated as part of lending to weaker sections.
3. Targets / Sub-targets
3.1 The targets under priority sector lending would be linked to Adjusted Bank Credit (ABC) (total loans and advance plus investments made by UCBs in non-SLR bonds) or Credit Equivalent amount of Off-Balance Sheet Exposures (OBE), whichever is higher, as on March 31 of the previous year. Existing investments, as on August 30, 2007, made by banks in non-SLR bonds held in HTM category will not be taken into account for calculation of ABC. However, fresh investments by banks in non-SLR bonds will be taken into account for the purpose. For the purpose of calculation of credit equivalent of off-balance sheet exposures, banks may use current exposure method. Inter-bank exposures will not be taken into account for the purpose of priority sector lending targets / sub-targets.
3.2 The targets and sub-targets set under priority sector lending for UCBs are furnished below:
|Targets and Sub-Targets set under Priority Sector Lending|
|Total Priority Sector advances||40 per cent of Adjusted Bank Credit (ABC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.|
|Agriculture Advances||No target.|
|Small Enterprise advances||Advances to small enterprises sector will be reckoned in computing performance under the overall priority sector target of 40 per cent of ABC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.|
|Micro enterprises within Small Enterprises sector||(i)||40 per cent of total advances to small enterprises sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs.5 lakh and micro (service) enterprises having investment in equipment up to Rs.2 lakh;|
|(ii)||20 per cent of total advances to small enterprises sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs.5 lakh and up to Rs.25 lakh, and micro (service) enterprises with investment in equipment above Rs.2 lakh and up to Rs.10 lakh. (Thus, 60 per cent of small enterprises advances should go to the micro enterprises).|
|Advances to weaker sections||Of the stipulated target for priority sector advances, at least 25% (or 10% of the ABC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) should be given to weaker sections.|
|Advances to Minorities||Within the overall target for priority sector lending and the sub-target of 25 per cent for the weaker sections, sufficient care may be taken to ensure that the minority communities also receive an equitable portion of the credit.|
3.3 Salary Earners’ Banks: The stipulation regarding priority sector lending is not applicable to the Salary Earners’ Banks.
3.4 Credit Flow to Minorities: UCBs should initiate steps to enhance / augment flow of credit under priority sector to artisans and craftsmen as also to vegetable vendors, cart pullers, cobblers, etc. belonging to minority communities. The minority communities notified in this regard are Sikhs, Muslims, Christians, Zoroastrians and Buddhists. Within the overall target for priority sector lending and the sub- target of 25 per cent for the weaker sections, sufficient care may be taken to ensure that the minority communities also receive an equitable portion of the credit.
4. Reporting / Monitoring under Priority Sector
4.1 UCBs should take effective steps to achieve the above recommended targets and monitor the priority sector lending, keeping in view the quantitative as well as qualitative aspects.
4.2 In order to ensure that due emphasis is given to lending under priority sector, it is considered desirable that the performance is reviewed periodically. For this purpose, apart from the usual reviews, which the banks are periodically undertaking, specific reviews by the Board of Directors of the respective banks may be made on half-yearly basis. Accordingly, a memorandum may be submitted to the Board of Directors at half-yearly intervals i.e. as on September 30 and March 31 of each year giving a detailed critical account of the performance of the bank during the period showing increase / decrease over the previous half-year (Statement I).
4.3 Further, annual review of the performance under priority sector advances as on March 31 may also be placed before the Board (Statement II-part A) by 15th of the following financial year. A copy of the annual review (Statement II, part A to E) complete in all respect as on March 31 may be forwarded to the concerned Regional Office of the Reserve Bank with the Board’s observations, indicating the steps taken / proposed to be taken for improving the bank’s performance. The report should reach the Regional Office within a period 15 days from the end of the period to which it relates.
4.4 The banks should submit Statement III (part A and B) as on March 31 within 15 days thereafter showing the position of direct loan and advances to agriculture and allied activities to the concerned Regional Office of this department under whose jurisdiction they function.
4.5 The reporting formats together with their periodicity are summarized as under :
|Statement I||Memorandum to be submitted to Board||Half yearly returns put up to Board of UCBs|
|Statement II – Part A||Priority Sector Advances detailed sector wise data.||Yearly returns to be submitted to the Board and RBI’s Regional Office.|
|Statement II – Part B||Priority Sector Advances-State wise data – Outstanding||Yearly returns to be submitted to RBI’s Regional Office|
|Statement II – Part C||Priority Sector Advances – State wise data – Disbursal during current year||-do-|
|Statement II – Part D||Priority Sector Advances to Minorities – state wise.||-do-|
|Statement II – Part E||Priority Sector Advances to Minorities in identified district||-do-|
|Statement III – Part A||Advances to Agriculture and allied activities (Direct Finance) – State wise||-do-|
|Statement III – Part B||Recovery of Agriculture (Direct Finance) – State wise||-do-|
4.6 In order to facilitate compilation of the relative figures, banks may maintain a register to indicate all the items of priority sector advances and also another register for weaker section advances showing particulars, with separate folios to each activity so that the total of advances to priority sector and weaker sections under each activity and to each type of beneficiary may be available at any given point of time. The proforma of these registers may be on the lines of the annual return to be submitted to RBI.
5. The detailed guidelines in this regard are given as under :
|1.1||Finance to individual farmers for Agriculture and Allied Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.)|
|1.1.1||Short-term loans for raising crops, i.e. for crop loans. This will include traditional / non-traditional plantations and horticulture.|
|1.1.2||Advances up to Rs.10 lakh against pledge / hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.|
|1.1.3||Working capital and term loans for financing production and investment requirements for agriculture and allied activities.|
|1.1.4||Loans to small and marginal farmers for purchase of land for agricultural purposes.|
|1.1.5||Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral|
|1.1.6||Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by individuals, in rural areas.|
|1.2||Finance to others [such as corporates, partnership firms and institutions] for Agriculture and Allied Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.)|
|1.2.1||Loans granted for pre-harvest and post harvest activities such as spraying, weeding, harvesting, grading, sorting and transporting.|
|1.2.2||Finance upto an aggregate amount of Rs one crore per borrower for the purposes listed at 1.1.1,1.1.2,1.1.3, and 1.2.1 above.|
|1.2.3||One-third of loans in excess of Rs one crore in aggregate per borrower for agriculture and allied activities.|
|1.3||Finance for Agriculture and Allied Activities|
|1.3.1||Two-third of loans to entities covered under 1.2 above in excess of Rs one crore in aggregate per borrower for agriculture and allied activities.|
|1.3.2||Loans to food and agro-based processing units with investments in plant and machinery up to Rs.10 crore, undertaken by those other than 1.1.6 above.|
|1.3.3||(i) Credit for purchase and distribution of fertilizers, pesticides, seeds, etc.|
|(ii) Loans up to Rs.40 lakh granted for purchase and distribution of inputs for the allied activities such as cattle feed, poultry feed, etc.|
|1.3.4||Finance for setting up of Agriclinics and Agribusiness Centres.|
|1.3.5||Finance by scheduled UCBs to NBFCs for hire-purchase schemes for distribution of agricultural machinery and implements.|
|1.3.6||Existing investments as on March 31, 2007, made by banks in special bonds issued by NABARD with the objective of financing exclusively agriculture / allied activities may be classified as indirect finance to agriculture till the date of maturity of such bonds or March 31, 2010, whichever is earlier. Fresh investments in such special bonds made subsequent to March 31, 2007 will, however, not be eligible for such classification.|
|1.3.7||Loans for construction and running of storage facilities (warehouse, market yards, godowns, and silos), including cold storage units designed to store agriculture produce / products, irrespective of their location.|
|If the storage unit is registered as SSI unit / micro or small enterprise, the loans granted to such units may be classified under advances to Small Enterprises sector.|
|1.3.8||Advances to Custom Service Units managed by individuals, institutions or organisations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake work for farmers on contract basis.|
|1.3.9||Finance extended to dealers in drip irrigation / sprinkler irrigation system / agricultural machinery, irrespective of their location, subject to the following conditions :|
|(a) The dealer should be dealing exclusively in such items or if dealing in other products, should be maintaining separate and distinct records in respect of such items.|
|(b) A ceiling of up to Rs.30 lakh per dealer should be observed.|
|1.3.10||Loans already disbursed and outstanding as on the date of this circular to State Electricity Boards (SEBs) and power distribution corporations / companies, emerging out of bifurcation / restructuring of SEBs, for reimbursing the expenditure already incurred by them for providing low tension connection from step-down point to individual farmers for energising their wells and for Systems Improvement Scheme under Special Project Agriculture (SI-SPA), are eligible for classification as indirect finance till the dates of their maturity / repayment or March 31, 2010, whichever is earlier. Fresh advances will, however, not be eligible for classification as indirect finance to agriculture.|
|1.3.11||Loans to National Co-operative Development Corporation (NCDC) for onlending to the co-operative sector for purposes coming under the priority sector will be treated as indirect finance to agriculture till March 31, 2010.|
|1.3.12||Loans granted by scheduled UCBs to Non-Banking Financial Companies (NBFCs) for on-lending to individual farmers.|
|1.3.13||Loans granted to NGOs / MFIs provided they have been admitted as members for on-lending to individual farmers.|
|2.1 Direct Finance in the small enterprises sector will include credit to :|
|2.1.1 Manufacturing Enterprises|
|(a) Small (manufacturing) Enterprises|
|Enterprises engaged in the manufacture / production, processing or preservation of goods and whose investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E) dated October 5, 2006] does not exceed Rs.5 crore.|
|(b) Micro (manufacturing) Enterprises|
|Enterprises engaged in the manufacture / production, processing or preservation of goods and whose investment in plant and machinery [original cost excluding land and building and such items as in 2.1.1 (a)] does not exceed Rs.25 lakh, irrespective of the location of the unit.|
|2.1.2 Service Enterprises|
|(a) Small (service) Enterprises|
|Enterprises engaged in providing / rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs.2 crore.|
|(b) Micro (service) Enterprises|
|Enterprises engaged in providing / rendering of services and whose investment in equipment [original cost excluding land and building and furniture, fittings and such items as in 2.1.2 (a)] does not exceed Rs.10 lakh.|
|(c) The small and micro (service) enterprises shall include small road & water transport operators, small business, professional & self-employed persons, and all other service enterprises. Loans granted in respect of the following activities are also included under Micro and Small (Service) Enterprises within the priority sector subject to the enterprises satisfying the definition of Micro and Small (Service) Enterprises in respect of their investment in equipment (original cost excluding land and building and furniture, fitting and other items not directly related to the service rendered or as may be notified under the MSMED Act 2006 i.e., not exceeding Rs 10 lakh and Rs 2 cr respectively) :
(i) Consultancy Services including Management Services
Note : Loans granted for Retail Trade (i.e., advances granted to retail traders dealing in essential commodities (fair price shops), consumer cooperative stores; and advances granted to private retail traders with credit limits not exceeding Rs 20 lakh would be part of the Small (Service) Enterprise.
|2.1.3||Khadi and Village Industries Sector (KVI)|
|All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60 per cent) of the small enterprises segment within the priority sector.|
|2.2||Indirect finance to the small (manufacturing as well as service) enterprises sector will include credit to :|
|2.2.1||Persons involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.|
|2.2.2||Existing investments as on March 31, 2007, made by banks in special bonds issued by NABARD with the objective of financing exclusively nonfarm sector may be classified as indirect finance to Small Enterprises sector till the date of maturity of such bonds or March 31, 2010, whichever is earlier. Investments in such special bonds made subsequent to March 31, 2007 will, however, not be eligible for such classification.|
|2.2.3||Loans granted by scheduled UCBs to NBFCs for on-lending to small and micro enterprises (manufacturing as well as service|
|3.1||Loans of amounts not exceeding Rs.50,000 per borrower or the maximum permissible limit on unsecured advance whichever is lower.|
|3.2||Loans to poor indebted to informal sector Loans to distressed persons (other than farmers) to prepay their debt to non institutional lenders, against appropriate collateral , would be eligible for classification under priority sector.|
|4.||State Sponsored Organizations for Scheduled Castes / Scheduled Tribes|
|Advances sanctioned to State Sponsored Organisations for Scheduled Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs to and / or the marketing of the outputs of the beneficiaries of these organisations.|
|5.1||Educational loans granted to individuals for educational purposes up to Rs.10 lakh for studies in India and Rs.20 lakh for studies abroad. Loans granted to institutions will not be eligible to be classified as priority sector advances.|
|5.2||Loans granted by scheduled UCBs to NBFCs for on-lending to individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs.20 lakh for studies abroad|
|6.1||Loans up to Rs.20 lakh (Rs.25 lakh for housing loans sanctioned on or after April 1, 2011), irrespective of location, to individuals for purchase / construction of a dwelling unit per family, excluding loans granted by banks to their own employees.|
|6.2||Loans given for repairs to the damaged dwelling units of families up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban and metropolitan areas.|
|6.3||Assistance given to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of Rs.5 lakh of loan amount per dwelling unit.|
|6.4||Assistance given to a non-governmental agency approved by the NHB for the purpose of refinance for construction / reconstruction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of loan component of Rs.5 lakh per dwelling unit.|
|6.5||Investments made by UCBs in bonds issued by NHB / HUDCO on or after April 1, 2007 shall not be eligible for classification under priority sector lending.|
|7.||Loans to Self Help Groups (SHG) / Joint Liability Groups (JLGs):|
|Loans to SHGs / JLGs for agricultural and allied activities would be considered as priority sector advance. Further, other loans to SHGs / JLGs up to Rs. 50,000 would be considered as Micro Credit and hence treated as priority sector advances.|
|The weaker sections under priority sector shall include the following:|
|(a)||Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers;|
|(b)||Artisans, village and cottage industries where individual credit limits do not exceed Rs.50, 000;|
|(c)||Scheduled Castes , Scheduled Tribes and Women|
|(d)||Loans to distressed poor to prepay their debt to informal sector, against appropriate collateral|
|(e)||Education loans to persons having monthly income not exceeding Rs.5000/-|
|(f)||Persons from minority communities as may be notified by Government of India from time to time. In States, where one of the minority communities notified is, in fact, in majority, item (f) will cover only other notified minorities. These States / Union Territories are Jammu & Kashmir, Punjab, Sikkim, Mizoram, Nagaland and Lakshadweep.|
|(g)||Lending to SHGs, which qualify as loans to priority sector, would also be treated as part of lending to weaker sections.|
Note : Although no specific target for lending to agriculture both direct and indirect has been prescribed for UCBs, the classification mentioned herein should be used for monitoring the credit flow and reporting purposes.
State-wise List of Minority Concentrated Districts
(Vide para no 3.4)
|15.||Karimganj||76.||West Garo Hills|
|22.||North Cachar Hills||80.||Mahe|
|36.||Lahul and Spiti||95.||Gaziabad|
|Jammu and Kashmir||97.||Bareilli|
|39.||Pakaur||100.||Jyotiba Phule Nagar|
|47.||Ernakulam||109||Udham Singh Nagar|
|53.||Kasargode||114.||South 24 – Parganas|
List of Circulars consolidated in the Master Circular
|1||UBD.BPD.(PCB)CIR No. 50 13.05.000(B)/2010-11||02.06.11||Financing of Self Help Groups (SHGs) and Joint Liability Groups (JLGs) by Primary (Urban) Co-operative Banks (UCBs)|
|2||UBD.BPD.(PCB)CIR No.46 /09.09.001/2010-11||11.05.11||Limit of Housing Loans Under Priority Sector Advances – UCBs|
|3||UBD.CO.BPD.No.70/09.09.001/2009-10||15.06.10||Advances to MSEs engaged in exports and export credit to agriculture / allied activities|
|4||UBD.BPD(PCB).Cir.No.50/09.09.01/ 2009-10||25.03.10||Categorisation of activities under Services|
|5||UBD.PCB.Cir.No.58/09.09.001/07-08||30.06.08||Priority Sector Lending – Revision of Reporting Formats – UCBs|
|6||UBD.PCB.Cir.No.26/09.09.001/07-08||30.11.07||Priority Sector lending-Revision of target – UCBs|
|7||UBD.PCB.Cir.No.11/09.09.01/07-08||30.08.07||Revised Guidelines on Lending to Priority Sector for UCBs|
|8||UBD.PCB.Cir.No.11(126A)/09.09.001/ 2007-08||30.08.07||Priority Sector Advances – List of minority Concentrated Districts|