Priority Sector Lending Essay Example

concessional rate. Indian Banks, therefore, contribute towards economic development of the country by subsidizing the business activities undertaken by entrepreneurs in the areas which are considering "priority sector" by RBI. The Reserve Bank of India (RBI) has issued revised guidelines on priority sector lending by the commercial banks in which it has revised the eligibility criteria.

In the revised guideline, RBI has decided to include those sectors as a part of the priority sector, that impact large section of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and tiny and small enterprises. It has maintained the overall priority sector lending limit at 40% of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposure (whichever is higher) for domestic commercial banks and 32% for foreign banks.

Other types of direct finance to farmers includes loans to plantations, development of allied activities such as fishery, poultry etc and also establishment of bio-gas plants, purchase of land for agricultural purposes by small and marginal farmers and loans to agri-clinics and agri-business centres. What constitutes ‘Indirect Finance’ to Agriculture? Indirect finance denotes to finance provided by banks to farmers indirectly, i. e. , through other agencies. Important items included under indirect finance to agriculture are as under :

• Credit for financing the distribution of fertilisers, pesticides, seeds, etc.
• Loans upto Rs. 25 lakhs granted for financing distribution of inputs for the allied activities such as, cattle feed, poultry feed, etc.
• Loans to Electricity Boards for reimbursing the expenditure already incurred by them for providing low tension connection from step-down point to individual farmers for energising their wells.
• Loans to State Electricity Boards
  

for Systems Improvement Scheme under Special Project Agriculture (SI-SPA).

Finance extended to dealers in drip irrigation/sprinkler irrigation system/agricultural machinery, subject to the following conditions:

• The dealer should be located in the rural/semi-urban areas.
• He should be dealing exclusively in such items or if dealing in other products, should be maintaining separate and distinct records in respect of such items.
• A ceiling of upto Rs. 20 lakhs per dealer should be observed.

Small scale industrial units are those engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) does not exceed Rs. 1 crore. These would, inter alia, include units engaged in mining or quarrying, servicing and repairing of machinery. In the case of ancillary units, the investment in plant and machinery (original cost) should also not exceed Rs. 1 crore to be classified under small-scale industry.