Committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues

The Reserve Bank of India has set up a Committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues.

Shri M. V. Nair, CMD, Union Bank of India will chair the Committee. Other members of the Committee include,

1. Dr.P.K.Mishra, IAS (Retd.), Former Secretary, Ministry of Agriculture and Co-operation, Government of India

2. Smt. Nupur Mitra, ED, Indian Overseas Bank

3. Smt. Sreya Guha, Director, Ministry of Finance, Department of Financial Services

4. Shri Rajiv Sabharwal, Executive Director, ICICI Bank Ltd.

5. Shri V. Ramakrishna Rao, Executive Director,  NABARD

6. Shri N.K.Maini, Deputy Managing Director, SIDBI

7. Shri J K Sinha, Chief General Manager, State Bank of India

8. Shri N C Khulbe, General Manager, Bank of India

9. Shri Pranab.K.Roy, General Manager, United Bank of India

Dr. Deepali Pant Joshi, CGM-in -Charge, RBI, Rural Planning and Credit Department will be the Member Secretary. The Committee will submit its report in four months from the date of its first meeting.

The Terms of reference of the committee are as under:-

To revisit the current eligibility criteria for classification of bank loans as priority sector with reference to

1. Nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans.

2. Limits on loan amounts.

3. Appropriate documentation and due-diligence thresholds, with a view to ensuring that loans extended by banks are indeed for the eligible categories of purposes and borrowers, which need special attention and treatment.

To comprehensively review and fine-tune the definition of direct and indirect priority sector finance/ lending, especially loans advanced to/ routed through corporate entities, cooperative societies.

To consider if bank lending via financial intermediaries like Non-Banking Finance Companies, Housing Finance Companies, etc., for eligible categories of borrowers and activities could be classified under the priority sector  and if so, to lay down  the conditions subject to which this classification would be admissible  .

To consider the desirability, or otherwise of capping interest rate on loans under the eligible categories of the priority sector

To review

1. The current allocation mechanism for RIDF and other Funds

2. The interest rates payable on RIDF and other Funds to non-compliant (defaulting) banks.

3. The interest rates to be charged on loans from these funds.

To review the existing Management Information System (MIS) prevalent in banks, and suggest ways to streamline the same in terms of frequency of compliance, data consistency and data integrity.

To consider and suggest the manner and periodicity of conducting impact evaluation studies of credit flows to different segments of priority sector and arrive at various policy options.

Any other issues and concerns germane to the subject matter.

The Committee will submit the report within four months from the date of its first meeting.

Backdrop

The sub-committee of the Central Board of Directors of the Reserve Bank to study issues and concerns in the MFI sector (Malegam Committee) recommended that the existing guidelines on bank lending to the priority sector be revisited. Requests were also received from various quarters in the recent past to relook at the definition of the priority sector, especially where bank finance was being routed through other agencies. In this backdrop, it has been proposed in Paragraph 94 of the Monetary Policy Statement 2011-12 “to appoint a committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification."

Ajit Prasad
Assistant General Manager

Press Release : 2011-2012/299