Important Banking term for IBPS PO Main Exam: Priority Sector Lending

The online Main examination for IBPS PO/MT 2015 posts is tentatively scheduled in last week of October. Here, the banking team of jagranjosh is providing the description of important banking term asked in previous years in General Awareness section.

What is meant by Priority Sector?

Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. It  includes agriculture and allied activities, small and micro enterprises and also education and home loans up to a certain limit.

Different 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

Note: The RBI has revamped priority sector lending (PSL) norms in April 2015, announced that medium enterprises, social infrastructure and renewable energy would form part of priority sector in addition to the existing categories.

Target for Priority sector:

RBI set the target of 40 % of Adjusted Net Bank Credit (ANBC) for lending to the priority sector by all scheduled commercial banks in India.  

Description of the eligible categories under priority sector

I. Agriculture

It prescribed a target of 8 per cent for the small and marginal farmers within agriculture. Earlier, there were sub-limits for direct lending and indirect lending to agriculture. These two segments have been merged making it easier for banks to achieve the 18% agriculture target as large loans to processed food industry are also now covered under agriculture. The challenge for banks lies in disbursing 8% of their total credit to small farmers. RBI asked banks to achieve this in a phased manner, that is, 7 per cent by March 2016 and 8 per cent by March 2017.

For the purpose of computation of 7 percent/ 8 percent target, Small and Marginal Farmers will include the following:-

Farmers with landholding of up to 1 hectare are considered as Marginal Farmers. Farmers with a landholding of more than 1 hectare and upto 2 hectares are considered as Small Farmers.

II. Micro, Small and Medium Enterprises (MSMEs):

A target of 7.5 per cent has been prescribed for micro enterprises, which also has to be achieved in a phased manner, that is, 7 per cent by March 2016 and 7.5 per cent by March 2017.

The limits for investment in plant and machinery/equipment for manufacturing / service enterprise, as notified by Ministry of Micro, Small and Medium Enterprises are as under:-

III. Export Credit

Incremental export credit over corresponding date of the preceding year, up to 2 percent of ANBC subject to a sanctioned limit of rupees 25 crore per borrower to units having turnover of up to rupees100 crore.

IV. Education

Loans to individuals for educational purposes including vocational courses upto rupees 10 lakh irrespective of the sanctioned amount will be considered as eligible for priority sector.

V. Housing

Home Loans to individuals up to

• 28 lakh in metropolitan centres (with population of ten lakh and above)  
• And loans up to Rupees 20 lakh in other centres will qualify as PSL, provided the overall cost of the dwelling unit is Rupees 35 lakh in the metropolitan centres and Rupees 25 lakh in other centres.

VI. Social infrastructure

Banks can also lend up to Rupees 5 crore per borrower for building social infrastructure such as schools, healthcare facilities, drinking water facilities and sanitation facilities in tier II to tier VI centres.

VII. Renewable Energy

• Bank loans up to a limit of rupees 15 crore to borrowers for purposes like solar based power generators, 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 rupees 10 lakh per borrower.

VIII. Others

• Loans to distressed persons
• Overdrafts extended by banks upto rupees 5,000/- under Pradhan Mantri Jan-DhanYojana (PMJDY)
• Loans sanctioned to State Sponsored Organisations for SC/ST etc.

Play Quiz on Priority Lending