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Principles & Practices of Banking

Unit – 20 : Priority Sector Advances

1. RBI has advised the banks to raise the shares of priority sector lending to 40 % of the aggregate bank advances.

2. Out of this 40 %, 18 % is for agricultural sector (no targets for foreign banks), 10 % is for weaker sections (no targets for foreign banks), and 1 % of previous year’s total advances are given under DRI (Differential Rate of Interest Scheme) (no targets for foreign banks).

3. Above mentioned limit is for domestic commercial banks. For foreign banks, 32 % of ANBC (Adjusted Net Bank Credit) is for priority sector advances.

4. Export credit is not a part of priority sector for domestic commercial banks. However foreign banks are given target of 12 % of ANBC.

5. Description of Micro, Small and Medium Sectors:
Investment in plant and machinery Investment in Equipment Type of Enterprise
(Manufacturing Sector) - (Services Sector)
Up to 25 lacs - up to 10 lacs Tiny
25 lacs to 5 crore - 10 lacs to 2 crore Small
5 crore to 10 crore - 2 crore to 5 crore Medium

6. Micro credit includes provision of very small amounts up to Rs 50,000 per borrower.

7. The government has decided that the farmers should receive short term credit at 7 % with an upper limit of 3 lakh on the principal amount. On this amount, the government provides interest subvention of 2 % p.a. to the banks.

8. This 2 % subvention will be available to banks on condition that they make short term credit available at the ground level with ROI of 7 % p.a.




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