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Priority sector lending in Urban Cooperative Banks-RBI guidelines

Priority Sector Lending

The need for primary (urban) co-operative bank (PCBs) for providing credit to priority sectors had been examined by the Standing Advisory Committee for PCBs constituted by Reserve bank of India in May 1983. The recommendations of the Committee were accepted by Reserve Bank of India and accordingly the targets for lending to priority sector and weaker section by the PCBs were stipulated.

General
1.1 As a prudential measure aimed at better risk management and avoidance of concentration of credit risk, the primary (urban) co-operative banks have been advised to fix limits on their exposure–
•    to individual borrowers and group borrowers,
•    to specific sectors, and
•    towards unsecured advances and unsecured guarantees
1.2 In addition, these banks are also required to observe certain statutory and regulatory restrictions in respect of :
i.    advances against shares, debentures and bonds
ii.    investments in shares, debentures and bonds
1.3 Currently operative instructions on all these aspects are detailed in the following paragraphs.

1 LENDING TARGETS

1.1 Based on the recommendations made by the Standing Advisory Committee for PCBs, the targets for lending to Priority Sector and weaker sections have been prescribed for the PCBs as given below:
1.1.1 60% of total loans and advances to priority sector and
1.1.2 Of the stipulated target for priority sector advances, at least 25% (or 15% of the total loans and advances) to weaker sections. 

1.2 In order to ensure that credit is available to all segments of Small Scale Industries (SSI) sector, (classified on the basis of investment in plant and machinery), the following sub-targets should be achieved:

Sr.
No.         Category Investment in plant & machinery                  % to total SSI advances

I Cottage industries, khadi & village industries, artisans and tiny industries Upto Rs. 5 lakh

II Cottage industries, khadi & village industries, artisans and tiny industries Between Rs. 5 lakh and Rs. 25 lakh

III Other SSI units Between Rs. 25 lakh and Rs. 100 lakh

1.3 The stipulation regarding priority sector lendings is not applicable to the Salary Earners' Banks.

1.4 The banks should make concerted efforts to achieve the targets and, if necessary, suitably simplify the systems and procedures keeping in view the types of beneficiaries to be financed.

2 CLASSIFICATION OF PRIORITY SECTOR AND WEAKER SECTION ADVANCES

2.1 The types of advances to be reckoned as priority sector advances and those of it to be considered as advances to weaker sections are indicated in Annexure I.

2.2 The definition of weaker section in priority sectors broadly corresponds to the beneficiaries under the 20-Point Economic Programme aimed at improving the standard of living of the weaker sections of the society.

2.3 For classifying priority sector advances under various categories, it may be noted that the banks should not merely take into account the purpose of the loan mentioned in the borrower's loan application but also the amount involved and should satisfy themselves that the amount borrowed would be utilised for the purpose for which it was sanctioned, by calling for documentary evidence in support thereof, wherever considered necessary. For example, loans to small traders or small businessmen are essentially in the nature of working capital loans and they have to be given primarily against the hypothecation or pledge of the goods in which they are dealing and therefore loans to small traders or small businessmen against gold or jewellery may not necessarily be the loans for undertaking trade or business. Similarly, in the case of a loan for construction of a house, it would have to be satisfied that the borrower has the land and his construction plans bear the approval of the competent authority or he has joined some co-operative society to construct the house Mere security of jewels coupled with indication of "housing" as purpose in the loan application should not satisfy the bank for classification of priority sector advances.

2.4 Therefore, loans against gold ornaments (jewel loans) which are in a majority of cases availed of by the weaker sections of the society, the purpose of the loan and the loan amount actually sanctioned to each borrower and not the security therefor, should be adopted as the criteria for classification of the priority sector advances and advances given to weaker sections of the society.

2. Exposure Norms
2.1 Exposure Ceiling to Individual/Group Borrowers
2.1.1 Primary (urban) co-operative banks are required to fix, with the approval of their Board of Directors, exposure ceiling in relation to bank's capital funds. The exposure for the purpose shall comprise both credit exposure (loans and advances and investment exposure (Non SLR) as detailed at para 2.2.2(B) so that –
i.    the exposure to an individual borrower does not exceed 15 per cent of capital funds, and
ii.    the exposure to a group of borrowers does not exceed 40 per cent of capital funds.

List of Items of Priority Sector/Weaker Sections Advances

1 PRIORITY SECTOR

1.1 Agriculture and Allied Agricultural Activities
1.1.1 Advances to individuals for Agriculture activities
1.1.1.1 Primary (urban) co-operative banks may finance agricultural activities subject to the following conditions:

(a) Banks would provide direct finance only to regular members not to nominal members
and not through any agency like primary agricultural credit societies and primary land
development banks etc.

(b) Credit should be extended only after obtaining 'no dues certificate' from the existing
credit agencies in the area,

(c) Banks should follow the scales of finance and obtain security as per guidelines issued by RBI/NABARD.

1.1.1.2 Finance granted by scheduled primary (urban) co-op banks under the NABARD's scheme of financing "Agriclinics and Agribusiness Centres" will be considered direct finance to farmers for agriculture purposes. These may be reported under agriculture and allied activities in the annual Priority Sector Lending statement.

1.1.1.3 The scheduled primary (urban) co-operative banks may lend to non-banking financial companies (NBFCs) for on-lending to agriculture and such loans may be reckoned for the purpose of priority sector lending as indirect finance to agriculture.

1.1.1.4 Advances granted by banks upto Rs.20 lakh per dealer for dealing in drip irrigation/sprinkler irrigation systems and agricultural machinery, may be classified under ‘Indirect Finance to Agriculture as part of the priority sector lending' and reported under this head in the annual statement sent to RBI.

1.1.2 Advances to individual for Activities Allied to Agriculture

The following activities undertaken by the members of the primary co-operative banks will comprise activities allied to agriculture:

1.1.2.1 Development of Dairy and Animal Husbandry.

1.1.2.2 Development of Fisheries.

1.1.2.3 Development of Poultry, Piggery etc.

1.1.2.4 Development and maintenance of Studfarms, Beekeeping, Sericulture, etc. However, breeding of race horses cannot be classified under this head.

1.1.2.5 Purchase of Bullock Carts, Camel Carts, Pack Animals etc.

1.1.2.6 Distribution of inputs for allied activities such as poultry feed, cattle feed, etc.

1.2 Small Scale Industrial Units , Equipment/System for development of
new and renewable source of energy, etc.

1.2.1 Small Scale and Ancillary Industries

1.2.1.1 Small-scale industrial units are those engaged in the manufacture/processing/ preservation of goods / tyre retreading activity (through cold/hot process)/ coffee curing or processing (does not include growing coffee) / water mills and whose investment in plant and machinery of (original cost) does not exceed Rs. 100 lakh. An ancillary industry is an industrial undertaking which is engaged or is proposed to be engaged in the manufacturing or production of parts, components, sub-assemblies, tooling or intermediates, rendering of services, and undertaking supplies, or proposes to supply, or renders not more than fifty percent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant & machinery does not exceed Rs.100 lakh. These industries are included under SSI.

Note: No SSI Unit or Ancillary unit referred to above shall be subsidiary of or owned or controlled by any other industrial undertaking.

Exemptions

(a) Small scale industrial units set up prior to 24.12.1999 whose investment in plant &
machinery was upto Rs. 300 lakh and were given SSI status vide Government of India
Notification No.S.O.857(E) dated 10.12.1997 or units which have got provisional registration with state authorities for their SSI status would continue to remain as SSI units, inspite of the order dated 24-12-1999 provided the provisional registration had taken place within the period of limitation of 180 days specified in the order dated 10 December 1997 and any advances to such units should be reckoned as advances to SSI sector under priority sector.

(b) The maximum investment limit in plant and machinery in respect of small scale industries engaged in the manufacture of certain hosiery, handtools, stationery, drugs and pharmaceuticals items, as per Annexure VI, has been enhanced from Rs.100 lakh to Rs.500 lakh vide Government of India Gazette notification No.S.O.1013(E) dated 9 October 2001 & No. S.O.655(E) dated 5 June, 2003.
Note: Registration of SSI units is not compulsory for including SSI units under priority sector advances

1.2.1.2 Units financed by primary (urban) co-operative banks under the 22 broad groups of Cottage and Small Scale Industries for which refinance is available from RBI under section 17(2)(bb) read with Section 17(4)(c) of RBI Act, 1934, will be covered under this category.
These include:

i) Flaying and tanning
ii) Leather goods
iii) Pottery
iv) Hand pounding of paddy and cereals
v) Rice Mills, including flour mills and bakeries
vi) Oil crushing
vii) Palm gur
viii) Cane gur and khandsari
ix) Canning of fruits and vegetables
x) Manufacturing and processing of agricultural and Marine products and
forest produce including beverage industries
xi) Other village industries such as carpentry and black-smithy, bee-keeping
and honey and honey products
xii) Handicraft Industries
xiii) General Engineering
xiv) Chemical Engineering and Chemical Industries
xv) Construction Material
xvi) Sericulture
xvii) Coir
xviii) Spinners Societies
xix) Cotton Textiles and other textiles
xx) Printing, book binding and lithography
xxi) Saw mills, wood work and furniture and fixtures, and
xxii) Miscellaneous industries such as manufacture of sports goods, bidis, buttons, card-boards and other paper products, cutting and polishing of real and artificial gems and stones, manufacture and use of equipment/systems for development of new and renewable sources of energy.

1.2.1.3 New and renewable sources of energy

In this category, the activities of small-scale industrial units engaged in manufacture
and use of equipments/systems for development of new and renewable sources of
energy as under:

i) Flat plate solar collectors
ii) Concentrating and pipe type solar collectors
iii) Solar cookers
iv) Solar water heaters and systems
v) Air/Gas/Fluid Heating Systems
vi) Solar refrigeration, cold storages and air-conditioning
systems
vii) Solar crop driers and systems
viii) Solar stills and desalination systems
ix) Solar pumps based on solar thermal and solar photo voltaic
conversion
x) Solar Power Generating systems
xi) Solar photo voltaic modules and panels, for water pumping
and other applications
xii) Wind mills and any specially designed devices which run on
wind mills
xiii) Any special devices including electric generators and pumps
running on wind energy
xiv) Bio-gas plants and bio-gas engines
xv) Electrically operated vehicles including battery operated or
fuel-cell powered vehicles
xvi) Agricultural and municipal waste conversion devices
producing energy
xvii) Equipment for utilising ocean waves and thermal energy
xviii) Machinery and plant used in the manufacturing of any of the
above sub-items.

1.2.2 Cottage Industries, Khadi & Village Industries, Artisans and Tiny Industries

1.2.2.1 Cottage industries, Khadi & Village Industries, Artisans are those units, which are engaged in manufacturing, processing, preservation or servicing activities involving utilisation of locally available natural resources and/or human skills normally undertaken by the beneficiaries in their houses.

1.2.2.2 Tiny industries are those units whose investment in plant & machinery is upto Rs. 25 lakh irrespective of location of the unit.

1.2.3 Small Scale Service & Business (Industry Related) Enterprises (SSSBEs)

1.2.3.1 Small scale service and business (Industry Related) enterprises with investment upto Rs.10.00 lakh in fixed assets, excluding land and building are categorised as Small Scale Service & Business Enterprises (SSSBEs) and are included under SSI Section in Priority Sector.

1.2.3.2 An illustrative list of activities which presently qualify as Small Scale Service & Business Enterprises and those which do not, is given in Annexure V.

1.2.4 Food and agro based processing and forestry

1.2.4.1 Loans and advances by primary (urban) co-operative banks

(a) Credit extended by the banks for food and agri-processing industries may be classified under Priority Sector.

(b) Forestry as an activity is also included under Priority Sector for the purpose of lending by banks. The banks may intensify their efforts to promote development of this sector by financing bankable schemes/activities under forestry.

(c) The primary (urban) co-operative banks may report disbursements (direct lending only) under the above two segments under "Loans and Advances to Cottage/Small Scale Industry" (item 2 of reporting formats) in the annual return to be sent to Regional Office.

1.2.4.2 Loans and advances by scheduled primary (urban) co-operative banks

(a) Lending by scheduled primary (urban) co-operative banks to NBFCs or other financial intermediaries for on-lending to the tiny sector may be classified under Priority Sector lending.

(b) The bank's finance to HUDCO, as a line of credit, for on lending to artisans, handloom weavers etc. under tiny sector, may be classified as indirect lending to SSI (Tiny) sector.
While providing credit to tiny sector through NBFCs/Financial intermediaries/HUDCO,
banks may devise suitable mechanism to ensure that the bank credit is appropriately
classified under Priority Sector after satisfying that the relevant norms at the ultimate
borrower level are complied with and the bank observe strict financial discipline and
ensure end use of funds.

(c) Disbursements under above items by the scheduled primary (urban) co-operative banks may be reported under "Loans and Advances to Cottage/Small Scale Industry" (item 2 of reporting formats) under a separate sub-head so that information regarding on lending to these institutions is readily available at Central/Regional Offices.

1.2.5 Leasing & Hire Purchase Finance by Scheduled PCBs

Leasing and Hire purchase finance extended by scheduled primary (urban) co-op. banks
to SSI sector at the select branches departmentally, may be classified under SSI sector,
provided the beneficiary satisfies the criteria laid down by RBI for treating the advances
as advances to Priority Sector and subject to other norms on the subject.

1.3 Advances to Small Road and Water Transport Operators

1.3.1 Loans to Small Road & Water Transport Operators (SRWTO) owning not more than six vehicles (including the one proposed to be financed) in respect of primary (urban) cooperative banks having Demand and Time Liabilities (DTL) upto and inclusive of Rs. 25 crore be reckoned as priority sector advances.

1.3.2 Loans to SRWTO owning not more than ten vehicles (including the one proposed to be financed) in respect of primary (urban) co-operative banks having Demand and Time Liabilities (DTL) of more than Rs. 25 crore be reckoned as Priority Sector advances.

1.3.3 The bank credit by scheduled primary (urban) co-operative banks to NBFCs for
financing of trucks for the purpose of on lending to SRWTOs, will be treated as priority
sector lending, provided the ultimate borrowers (SRWTOs) satisfy the eligibility
requirements for being classified under the priority sector. The bank should strictly
observe financial discipline and ensure end use of funds. Such loans to NBFCs may be
reported under a separate sub-head against Sr. No. 3 (ii) of Annexure 4, Parts I & II in
the Annual Return sent to RBI. The instructions contained in RBI circulars No.UBD.DS.PCB.25/13.05.00/94-95 dated 21 October 1994, DS.PCB.CIR.60/13.05.00/94-95 dated 30 May 1995 and UBD.DS.PCB.Cir.63/13.05.00/95-96 dated 24 May 1996, regarding lending to NBFCs
remain unchanged.

1.4 Retail Traders

1.4.1 Advances to private retail traders dealing in essential commodities (Fair Price Shops) be reckoned as Priority Sector advances.

1.4.2 Other private retail traders with credit limits not exceeding Rs. 10 lakh may also be
reckoned as priority sector advances.

1.5 Small Business Enterprises

1.5.1 Small business enterprises include individuals and firms managing business enterprises established mainly for the purpose of providing services other than professional services, whose original cost price of equipment does not exceed Rs.20 lakh without any ceiling on working capital. The banks are free to fix individual limit for working capital depending upon the requirements of different activities undertaken. An
illustrative list of small business enterprises, is indicated below:

1.5.1.1 Agents selling goods on commission basis
1.5.1.2 Booking, clearing and forwarding agents
1.5.1.3 Estate agents
1.5.1.4 Press cum publishing houses, etc.
1.5.1.5 Hair dressing saloons
1.5.1.6 Restaurants, hotels, canteens, etc.
1.5.1.7 Servicing and repairing of various types of machinery such as automobile, airconditioning and refrigeration equipment etc. This segment does not include SSSBEs mentioned in paragraph 1.2.3 above.

1.6 Professionals and Self-Employed Persons

1.6.1 Professionals and self-employed persons are those whose borrowings (limits) do not exceed Rs. 10.00 lakh of which not more than Rs. 2.00 lakh should be for working
capital requirements. Activities involving the use of skill and labour of the individual or
that of his/her family members alone will be covered under this category or persons.
Loans to these persons include advances for the purpose of purchasing equipment,
repairing or renovating existing equipment and/or acquiring and repairing business
premises or for purchasing tools and/or for working capital requirements to medical
practioners including Dentists, Chartered Accountants, Architects, Surveyors,
Construction Contractors or Management Consultants, Lawyers or Solicitors, Engineers,
Architects, Consultants or to a person trained in any other and/or craft who holds either
a degree or diploma from any institution established, aided or recognised by
Government or to a person who is considered by the bank as technically qualified or
skilled in the field in which he is employed. However, in the case of qualified medical
practitioners setting up practice in the semi-urban and rural areas, the aggregate
borrowing limits should not exceed Rs. 15.00 lakh, of which not more than Rs. 3.00 lakh
should be for working capital requirements. Further, advances granted to a qualified
medical practitioner for purchase of one motor vehicle within the above mentioned
ceiling may be considered as eligible to be reckoned towards priority sector.

1.6.2 Loans for purchase of cars, motor vehicle to professional and self-employed persons other than qualified medical practitioners to the extent and in the manner indicated above are not considered as priority sector advances.

1.6.3 Loans upto Rs. 10 lakh given to software professionals are to be covered under this category.

1.6.4 Besides, all advances to the following categories of persons will also be classified under advances to Self-employed persons:
•Xerox operators •Handloom Weavers
•Small tea-stall Owners •Milk Procurers
•Carpenters •Bamboo Workers
•Plumbers •Quilt makers
•Launderers •Lace artisans
•Vegetable/Fruit/Eggs/
. Fish vendors
•Hand-block printers
•Hawkers •New Garment makers
•Hand-craft pullers •Old and used garment sellers etc.

1.6.5 This segment does not include Small Scale Service and Business industry related
enterprises (SSSBEs) mentioned in paragraph 1.2.3.

1.7 Educational Loans

1.7.1 Educational loans include loans and advances granted to individuals for educational purposes and not those granted to institutions and would also include all advances granted by banks under special schemes, if any, introduced for the purpose.

1.8 Housing Loans

1.8.1 Loans granted for construction, additions, alterations, repairs, etc. granted as under would be categorised as housing loans:

1.8.1.1 Direct housing loans to individuals by banks upto Rs.10 lakh for construction of houses in urban and metropolitan areas will be eligible for inclusion under Priority Sector. Further, banks with the approval of their Boards may also extend direct housing loans upto Rs.10 lakh in the rural and semi urban areas and cost be considered as part of Priority Sector advances.

1.8.1.2 Loans granted by banks upto Rs.1 lakh in rural and semi urban areas and Rs.2 lakh in urban
areas for repairs, additions and alterations etc. to individual borrowers, would be reckoned as Priority Sector advances.

1.8.1.3 Assistance granted to any governmental agency for the purpose of construction of houses exclusively for the benefit of SC/STs, where the loan component does not exceed Rs. 5.00 lakh per unit and all advances for slum clearance and rehabilitation of slum dwellers would be classified as priority sector advances as well as weaker section advances.

1.8.1.4 Besides the governmental agencies, assistance given to non-governmental agencies approved by National Housing Bank (NHB) for the purpose of refinance, will also be eligible for all the categories of borrowers as applicable to governmental agencies as priority sector advances.

1.8.2 All investments in bonds issued by NHB/HUDCO exclusively for financing of housing, irrespective of the loan size, per dwelling unit, will be reckoned for inclusion under Priority Sector advances.

1.9 Consumption Loans

1.9.1 Consumption loans include loans for general consumption, medical expenses, marriage ceremonies, funerals, births, religious ceremonies etc. not exceeding Rs. 1,000/- per individual.

1.10 Loans and Advances to Software Industry

1.10.1 The loans to the software industry having credit limit upto Rs. one crore from the banking system, will be eligible for inclusion under Priority Sector.

1.10.2 Loans given to software professionals upto Rs. 10 lakh will be covered and reported under the category of "loans to professionals and self employed" as indicated in paragraph

1.6.3 above. Advances to Software Industry may be reported under a separate head "Software Industry" in the annual statement of Priority Sector advances.

About the Author

 

Office:                                                                            Resi: Flat No.202,

M.V. Satyanaryana                                                        Govind Palace,

CEO/General Manager,                                               Opp: Jyothi Apartments,

Jagruti Cooperative Urban Bank Ltd.,                       Alwal, Secunderabad-10.

Vayupuri, Sainikpuri(Po),

Secunderabad,

Andhra Pradesh-500 094.

Cell: 9000314166                                                  Email id: satyamullapati@gmail.com

9652114711                                                                  mullapati_satya@yahoo.co.in

 

Have 14 Years experience in banking industry with 9 years experience of managerial cadre out of 14 years banking experience. I am having experience in the areas of Retail Banking, Credit Management, Funds Management, Recovery Management, Auditing, Administration etc. Further worked as ADMINISTRATIVE OFFICER for one year particularly in Engineering college.

Professional snapshot

Over 9 years of experience as a Manager, Branch Manager, Chief Manager and in various departments & branches in Co Operative Banking Sector as business development, sales and client servicing in diversified industry segments. Proficiency in generating business from virgin segments by giving sales presentations and achieving business targets. Qualitative experience in designing and implementing marketing plans to accelerate sales and business growth. Recipient of several awards for exceptional performance. Excellent skills in communication, presentation with abilities in training and driving motivated teams to achieve organizational goals.

 

PRESENT DESIGNATION: CHIEF EXCUTIVE OFFICER in JAGRUTHI COOPERATIVE URBAN BANK, Vayupri, Neredmet, Secunderabad, Andhra Pradesh.

Aug, 2010 to till date

 

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