Priority Sector Lending

India is the developing nation. The economy is a relatively having faster and inclusive growth as compared to different economies in the world. The aftermath effects of inflation and slowdown of economy were seen at the least. Due to skillful, progressive and sustainable framing of economic plan of the nation, India is overcoming from various economic problems. For a developing country like India, the inclusive growth is more important. The overall development of all the sectors will lead to faster growth of the country.

While talking about inclusive growth we come across the concept of priority sector and its related lending. So “WHAT IS PRIORITY SECTOR?” a priority sector refers to those sectors of the economy which is always in need of timely and adequate credit availability and proper planning and management. In absence of the credit these sector start to decline and it has an adverse effect on the growing economy. Priority sector lending is basically a small value loans that are provided to those sectors that are in need of.

Different categories under priority sectors:-

The small value loans are provided to the sectors like:-

i)                              Agriculture

ii)                           Micro and small enterprises

iii)                        Housing and education

iv)                        Export credit

• Direct and indirect finance and agriculture under priority sector lending:-

When we talk about direct agriculture finance, here the loans or financial assistance is provided to the Self Help Group (SHG’s) or Joint Liability Group (JLG’s) that are engaged in agriculture and allied activities such as animal husbandry and dairy, fishery, poultry, bee-keeping sericulture etc. Such loans are provided to the small and marginal farmers for purpose of land for an agriculture purpose. The direct financing is stretched to the weaker, distressed and indebted farmers that are indebted to non-institutional leaders. The finance is also provided in terms of bank loans to Primary Agricultural Credit Societies (PACS), Farmer Service Societies (FSS) and Large Sized Adivasi Multipurpose Societies (LAMPS) which have an objective of managing/ controlling the credit for agriculture and allied activities.

           While in indirect financing of agriculture the financial assistance is provided to the corporate, partnership firms and institutions that are engaged in agriculture and allied activities. The loans up to five crore and less are provided to the producer companies set up exclusively by only small and marginal farmers under part 1A of company’s act 1956 for agricultural and allied activities.

• Financing for Micro and Small Enterprises under Priority Sector Lending:-

There is a huge network of micro and small enterprises in India. The sector needs a financial assistance with a specific time interval. The financial assistance is provided in the form of loans to the Micro and Small manufacturing and Service Enterprises. The criteria for these enterprises to get the loan are that they must be able to satisfy the norms which are stated under Micro and Small Manufacturing Enterprises Development Act, 2006.

Besides this, in case of plant and machinery of the enterprises only those micro enterprises will get the assistance whose net investment does not exceeds Rs 25 lakh and only those small enterprises whose net investment is above 25 lakh but not exceeds Rs 5 crore. Similarly in case of equipments, only that micro enterprise whose investment does not exceed Rs 10 Lakh and those small enterprises whose investment is more than Rs 10 Lakh but not exceeds Rs 2 crore.

• Financing for Housing and Education under Priority Sector Lending:-

In case of housing loans the loans are assisted to an individual up to Rs 25 Lakh in metropolitan centers with the population above Rs 10 Lakh and 15 Lakh in other areas. The loan is given for the purpose of purchase or construction of a dwelling unit per family excluding loans sanctioned to the bank’s own employees.

  In regard with educational sector, the loans are provided to an individual for educational purposes which include the vocational courses that can cost up to Rs 10 Lakh for the studies to be taken in India. Also for the education in abroad, the assistance is given at the rate of Rs 20 Lakh per individual.

• Financing for the weaker sections under Priority Sector lending:-

The beneficiaries under this section can include

Ø Cottage and Artisans industries in case where the individual credit does not exceed Rs 50,000.

Ø Small and marginal Farmers

Ø Beneficiaries coming under Swarna jayanti Gramin Swarojgar Yojna (SGSY) and Mahatma Gandhi National Rural Employment Guarantee Scheme.

Ø Beneficiaries under Swarna jayanti Shahari Rozgar Yojna (SJSRY), Scheme of Rehabilitation of Manual Scavengers (SRMS) and Differential rate of Interest Scheme.

Ø People from Scheduled castes and Scheduled tribes

Ø Self Help Groups

Ø Individual Women beneficiaries 

In conclusion, one can come across a question that at what rate of interest the assistance is provided under Priority Sector Lending?  The answer to this question is the rate as per the directives of RBI that are issued from time to time. The rate is always linked with the exciting base rate of the banks. According to RBI guidelines, there is no specific preference that is given to any of the sector separately.

Vaibhav Pramod Rajdeep

(rajdeepvaibhav706@gmail.com)

References made: - Policy documents RBI Guidelines.