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Priority Sector Advances - the
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Priority Sector Advances - the What & Why?(Contd.)
Targets under Priority Sector Lending

The targets and sub-targets set under priority sector lending for domestic and foreign banks operating in India are furnished below :


Categories of Advances Domestic banks (both public sector and private sector banks) Foreign banks operating in India
Total Priority Sector advances 40 percent of NBC 32 percent of NBC
Total agricultural advances 18 percent of NBC No target
SSI advances No target 10 percent of NBC
Export credit Export credit does not form part of priority sector 12 percent of NBC
Advances to weaker sections 10 percent of NBC No target

[note : NBC denotes net bank credit]

What constitutes net bank credit?

The net bank credit should tally with the figure reported in the fortnightly return submitted under section 42(2) of the Reserve Bank of India Act, 1934. However, outstanding deposits under the FCNR(B) and NRNR Schemes are excluded from net bank credit for computation of priority sector lending target/ sub-targets.

Components of Weaker Sections within the Priority Sector

The weaker sections under priority sector include the following:

  • Small and marginal farmers with land holding of 5 acres and less and landless labourers, tenant farmers and share croppers.

  • Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000/-

  • Beneficiaries of Swarnjayanti Gram Swarojgar Yojana (SGSY)

  • Scheduled Castes and Scheduled Tribes

  • Beneficiaries of Differential Rate of Interest (DRI) scheme

  • Beneficiaries under Swarna Jayanti Shahari Rojgar Yojana (SJSRY)

  • Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavangers (SLRS).

  • Self Help Groups (SHGs)

Penalties/Action Taken in the case of Non-Achievement of
Priority Sector Lending Target by a Bank

Domestic scheduled commercial banks having shortfall in lending to priority sector / agriculture are allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established in NABARD. Details regarding operationalisation of the RIDF such as the amounts to be deposited by banks, interest rates on deposits, period of deposits etc., are decided every year after announcement in the Union Budget about setting up of RIDF.

In the case of foreign banks operating in India which fail to achieve the priority sector lending target or sub-targets, an amount equivalent to the shortfall is required to be deposited with SIDBI for one year at the interest rate of 8 percent per annum.

Time Limit for Disposal of Loan Applications under PS Credit

All loan applications upto a credit limit of Rs. 25,000/- should be disposed of within a fortnight and those for over Rs. 25,000/- within 8 to 9 weeks.

Rate of Interest to be Charged for Loans under Priority Sector

As per the current interest rate policy, in the case of loans upto Rs 2 lakh, the interest rate should not exceed the prime lending rate (PLR) of the bank, while in the case of loans above Rs 2 lakh, banks are free to determine the interest rate.

Monitoring of Priority Sector Lending by RBI

Priority sector lending by commercial banks is monitored by Reserve Bank of India through periodical Returns received from them. Performance of banks is also reviewed in the various forums set up under the Lead Bank Scheme (at State, District and Block levels).

[Source: Reserve Bank of India]


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[..Page Updated on 30.11.2004..]<>[chkd-appvd -ef]