RBI widens priority sector lending window of rural banks

The Reserve Bank of India (RBI) has widened the priority sector lending norms for regional rural banks (RRBs) by including loans provided for a host of services in respect of select activities under micro and small (service) enterprises.

To be eligible to be classified under priority sector lending, such enterprises should satisfy the definition of micro and small (service) enterprises in respect of investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006), ie, not exceeding Rs10 lakh and Rs2 crore respectively, RBI said in a release.

Under the revised guidelines loans issued to the following categories of micro and small (service) enterprises by RRBs will become eligible to be classified as priority sector lending: 

(a) Consultancy services including management services
(b) Composite broker services in risk and insurance management
(c) Third party administration (TPA) services for medical insurance claims of policyholders
(d) Seed grading services
(e)Training-cum-incubator centre
(f) Educational institutions
(g) Training institutes
(h) Retail trade
(i) Practice of law, ie, legal services
(j) Trading in medical instruments (brand new)
(k) Placement and management consultancy services and
(l) Advertising agency and training centres.

Accordingly, RBI said, there will be no separate category for `retail trade' under priority sector. Loans granted by RRBs for retail trade (ie, advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores and advances granted to private retail traders with credit limits not exceeding Rs20 lakh) would henceforth be part of the small (service) enterprise, the release added.

The guidelines on lending to priority sector issued on 22 August 2007, had included loans granted to micro and small (manufacturing and service) enterprises, provided investment in plant and machinery (original cost excluding land and building and the items specified by the ministry of small scale industries) does not exceed Rs5 crore in respect of manufacturing enterprises and investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs2 crore in respect of service enterprises.

Retail trade now forms a separate category under priority sector for lending purposes.