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RBI releases revised PSL norms for banks

The Reserve Bank of India (RBI) today revised priority sector lending (PSL) norms, adding new segments such as micro, small and medium enterprise (M SME ), social infrastructure and renewable energy under the ambit of priority sectors.

The changes would come into effect with immediate effect, the central bank said in a release.

Further, the Reserve Bank outlined targets of 8 percent and 7.5 percent (of a bank’s total loan book) for small and marginal farmers and micro enterprises, respectively, which shall be achieved in a phased manner by March 2017. The RBI also maintained the PSL target for the weaker section at 10 percent.

The central bank also did away with the distinction between direct and indirect agriculture for the purpose of PSL. As a result, loans to units such as food and agro processing would qualify under agriculture.

Foreign banks with less than 20 branches have been given time till fiscal year 2020 to achieve the overall 40 percent target, the central bank said.

Further, the priority sector non-achievement will be assessed on quarterly average basis at the end of the respective year from 2016-17 onwards, instead of annual basis as at present.

In an interview with CNBC-TV18’s Shereen Bhan, Bank of India CMD Vijaylaxmi Iyer outlined her views on the same.

Below is the transcript of the interview.

Q: What does this mean now for a bank like yours and how significant is the chain specifically as far as what the Reserve Bank has now said or revised as far as the Priority Sector Lending (PSL) norms are concerned for the agri sector?

A: It is overall a very good. In fact it will benefit the bankers. The main changes as you were just now pointing out is that the distinction between depth and in depth agriculture has been dispensed with and what has been added is bank loans to food and agro processing unit will now be part of the agricultural loan. Loans of Rs 100 crore per borrower will also be included here. So that is a very welcome move and it would be easy for the banks to achieve the 18 percent agricultural advance now.

Otherwise as of now most of us fall short by about 1.5 to 2 percent in the overall 18 percent. So this is a good move an addition, and another welcome move is that medium enterprises, social enterprises with loans up to Rs 5 crore per borrower and renewal energy up to Rs 15 crore per borrower will for part of the PSL in addition to the existing categories. So, this also will aid.

What will come as a challenge is this eight percent of the Adjusted Net Bank Credit (ANBC) to the small and marginal farmers to be achieved in a phase manner because they will have land holding up to one hectare is actually categorised under marginal farmer and one who has up to two hectares will be categorised under small farmer. This will be a little bit of a challenge for the bankers.

Q: You pre-empted my question because that is exactly what I was going to ask you, how achievable is that or how feasible is that going to be and currently what is the kind of percent of loan portfolio that goes to, for instance, the small and marginal farmer?

A: We are more or less complying with the fact but what I wanted to tell you is this requires a lot of effort and we should have a distribution channel across. So, the private sector banks maybe finding it difficult. Almost two thirds of our bank is in the rural and semi-urban sector. So, we will be able to cater to it. Otherwise this will definitely be a challenge.

Likewise even the 7.5 percent of the ANBC which has been prescribed for micro enterprises also would be a little bit of challenge to achieve. But you have good microfinance institutions who are well entrenched into it. So, financing them also would get included under the priority sector lending. So, that we may be able to do.

What is another important deviation which the Reserve Bank has said is so far hitherto they were doing the evaluation only on an annual basis but now it will be done on a quarterly basis. So, that will actually require that we do it on a sustainable basis, on an average basis quarter-on-quarter (QoQ). So that also we will have to prepare ourselves that we grow on a sustainable basis.

Q: The country today is talking about the rural distress, the agri distress. Can you give us some sense at the bank on what you are getting to hear at this point in time, what the quantum of the distress could perhaps be from your bank’s perspective?

A: From the bank’s perspective, microenterprises we have no issue, we are doing 10 percent of the ANBC. So, we have no issues from Bank of India side. Of course small and marginal farmers I don’t have this statistics in sight of me, maybe I can tell you tomorrow but there also we should be able to do it. Overall there should not be much of a problem for Bank of India.

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