Reserve Bank of India: Revised Compliance Framework for Priority Sector Lending
The Reserve Bank of India (RBI) has introduced a stricter compliance framework concerning priority sector lending (PSL) to enhance accountability and prevent over-classification of loans.
Key Measures Instituted
- External Auditor Certification:
- All intermediary lenders, including microfinance institutions, non-bank lenders, and home financiers, are required to submit certificates from external auditors.
- The certificates must confirm that no loan is simultaneously claimed as a priority sector asset by more than one bank.
- Addressing Over-Classification:
- This measure was implemented following instances of over-classification by banks such as ICICI Bank and HDFC Bank, where agricultural loans were used for non-farm purposes.
Instructions to Scheduled Banks
- Verification Requirement:
- Banks must procure external auditors’ certificates from non-banking finance companies (NBFC), NBFC-MFIs, and housing finance companies.
- The certificates should confirm that on-lending benefits for loans have not been claimed by other banks.
- End-Use Monitoring:
- Banks should ensure that the loans categorized under PSL are used for approved purposes.
- Proper internal systems and controls should be implemented to monitor the end use.
Priority Sector Lending Limits
- Bank loans to intermediaries like NBFCs for on-lending to agriculture and micro & small enterprises are classified as priority sector up to a 5% limit of a bank's total PSL of the previous financial year.
- Bank loans to NBFC-MFIs for on-lending to individuals and groups for farming and small businesses are considered priority sectors, up to a 10% limit of the preceding financial year’s PSL.
Inclusion of Cooperative Lending
- Bank credit to the National Cooperative Development Corporation (NCDC) for on-lending to cooperative societies for specific purposes is eligible for classification as priority sector lending.
