IMPACT OF PRIORITY SECTOR LENDING

INTRODUCTION

• Priority sector lending scheme is a policy of providing a specified portion of bank lending to the important sectors of the economy.

• It includes agriculture, small-scale industries, cottage sector, tiny sector, export sector, and other small business (service) firms.

• The Reserve Bank of India was first to initiate priority sector lending scheme in India.

• The main purpose of this scheme was to see that timely and sufficient credits (loans) are given (provided) to the priority sector.

• Previously, only public sector banks were asked to give loans to this sector. However, now even private and foreign banks have to give loans to this sector.

Contd..

• The PSL program has been implemented by the RBI since 1974, when banks were advised to raise credit to priority sectors to the level of 33.3% by March 1979.

• Today this number stands at 40%, out of which direct agriculture lending has to be 18%.

Areas Under Priority Sector

Agriculture sector • Direct finance to agriculture shall include short,

medium and long term loans given for agriculture and allied activities directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities.

Indirect Agricultural Loans

• Farmers are provided loans at concessional rates of interest.

• These loans are given for cattle feed, warehouse, seeds, pesticides, rural electrification, subscription of bonds issued by NABARD, equipments, etc.

Small-scale industrial loans

Professional and self-employed

Educational loan

• Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India

• Rs. 20 lakh for studies abroad.

Housing loan

• Loans up to Rs. 15 lakh for construction of houses by individuals, (excluding loans granted by banks to their own employees)

• Loans given for repairs to the damaged houses of individuals up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban areas.

GUIDELINES

• Investments by banks in securitised assets of other banks and financial institutions, representing loans to various categories of priority sector, provided original loans fulfill the Reserve Bank of India guidelines on securitisation.

• Outright purchases of any loan provided the loans purchased are eligible to be categorized under priority sector;

• Investments in eligible assets by banks in Inter Bank Participation Certificates (IBPCs), on a risk sharing basis, and are held for at least 180 days from the date of investment are also eligible.

Contd..

• No loan related and adhoc service charges/inspection charges should be levied on priority sector loans up to Rs. 25,000.

• The rates of interest on various categories of priority sector loans will be as per directives issued by RBI from time to time.

• A register should be maintained at the branch, wherein the date of receipt, sanction/rejection/disbursement with reasons therefore, etc., should be recorded. The

• Banks should give acknowledgement for loan applications received from weaker sections, etc.

TARGETS AND SUBTARGETS SET BY RBI UNDER PSL

• Priority sector lending should constitute 40% aggregate bank credit.

• Out of the priority sector advances, at least 40% should be provided to agriculture.

• Direct advances to the weaker sections in agriculture and allied activities in rural sector should form at least 50% of the total direct lending to agriculture.

• The advances to rural artisans, village craftsmen and cottage industries should be at least 12.5 % of the total advances to the small scale industries

Expected Effects of Good Priority sector lending

• Following may be the expected outcomes of a strong and good priority sector lending system1. Increase in Industries and allied activities at grass root level.2. Improved living standards of rural people.3. Poverty eradication.4. Development of infrastructure in rural areas.5. Increase in production of agriculture and allied goods.6. Support to gross domestic product; etc.

Impact on Income• The average pre-loan income in the agriculture sector

was Rs. 833 and in the post-loan period it has increased to Rs. 3,458.

• In the SSI sector it has increased from Rs. 656 to Rs. 3,944.

• In Government-sponsored programmes the average income has improved from Rs. 500 to 2,062 .

• In other tertiary sectors, the increase was from Rs. 1,180 to Rs. 4,413.

• On the whole the average pre-loan income was Rs. 760 and in the post-loan period it was Rs. 3,212.

Impact on Employment• In the agriculture sector, the man Labour has recorded an increase of 91 per

cent, woman 166 per cent • The average employment level has increased from 162 to 347 person days from

pre-loan to post-loan period,recording 114 per cent increase. • In the small-scale industries sector, the man Labour has registered an increase of

447 per cent and that of woman to 484 per cent .• The skilled man Labour has increased to 343 per cent and that of woman to 289

per cent. • The average employment level has increased from 199 to 926 person days

recording an increase of 365 per cent. • In the government-sponsored schemes, man Labour has increased to 234 per

cent and that of woman to 979 per cent..• The average increase in employment generation is 338 person days, i.e. 393 per

cent. • In the other tertiary sectors, average employment has increased from 73 to 742

person days, man Labour from 30 to 237 person days, skilled man Labour from 37 to 330 person days and woman Labour from 6 to 195 person days.

Goals Achieved Through PSL

• Eradication of poverty is achieved through the implementation of PSL programme.

• Through the concept of PSL, upliftment of weaker sections is made Possible.

• Providing new opportunities for productive and gainful self-employment to

the educated unemployed youth is one of the major aims of PSL programme.

• Reduction of unemployment is one of the major goals achieved through PSL,.

• Due to agriculture financing the goal of self-sufficiency in food is achieved.

SOME PROBLEMS FACED BY BANKS IN FINANCING WEAKER SECTION

• Increasing N.P.A. • Political issues • High over dues

CONCLUSION & RECOMMENDATIONS

• Overall impact of priority sector lending scheme is positive.

• Banks are now deploying credit in desired direction and providing an impetus to the rural economy.

• Future prospect of the PSL is bright in India. • Suggestions regarding weaker section financing

are direct subsidy should be given to the banks for financing this section so that loss and NPA of bank be reduced

• Assistance should be provided by local NGO’s for identification of poor.

• A separate segment of banking operation “Banking for weaker section ” be created and result of banks be highlighted with this segment.

• Interest rate should be reduced & subsidized.• Financial education for weaker section be

spread with more involvement of educational institutions

THANKYOU

SUBMITTED BY- SHIFALI