Priority Sector

Guidelines

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 Why PSL?
• Impact large sections of the population

• The weaker sections and the sectors which are

employment-intensive

• Agriculture, and tiny and small enterprises

2
 Categories of Priority Sector

• Agriculture (Direct and Indirect finance)

• Micro and Small Enterprises (Direct and
Indirect Finance)
• Micro Credit
• Educational loans – Rs. 10 lakh for studies in
India and Rs. 20 lakh for studies abroad
• Housing loans - Loans up to Rs. 25 lakh to
individuals

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 Targets/Sub-Targets
Total Priority Sector advances 40 per cent of Adjusted Net Bank Credit
(ANBC) or credit equivalent amount of Off Balance
Sheet Exposure, whichever is higher.
Total agricultural 18 per cent of ANBC or credit equivalent
advances amount of Off-Balance Sheet Exposure,
whichever is higher
Indirect lending in excess of 4.5% of
ANBC will not be reckoned for computing performance
under 18 per cent target.
Micro enterprises within Micro 40 % of total advances to MSEs should go to micro
and Small Enterprises (MSE) (manufacturing) enterprises having investment <= Rs 5
sector lakh and micro (service) enterprises having investment
in equipment<=Rs. 2 lakh;
20 % of total advances to MSEs should go to micro
(manufacturing) enterprises with investment
In P&M >Rs 5 lakh & up to Rs. 25 lakh, and micro
(service) enterprises with investment in equipment
> Rs. 2 lakh and <=Rs. 10 lakh 4
 Direct Finance to Agriculture
Finance to individual farmers [including Self Help
Groups(SHGs) or Joint Liability Groups (JLGs) for
Agriculture & Allied Activities
• 1.1.1 Short-term loans for raising crops, i.e. for crop loans ( incl. plantations &
horticulture )
• 1.1.2 Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural
produce
• 1.1.3 Working capital and term loans for financing production and investment
requirements for agriculture and allied activities.
• 1.1.4 Loans to small and marginal farmers for purchase of land for agricultural
purposes.
• 1.1.5 Loans to distressed farmers indebted to non-institutional lenders, against
appropriate collateral or group security.
• 1.1.6 Loans granted for pre-harvest and post-harvest activities
• 1.1.7 Loans granted for agricultural and allied activities, irrespective of whether the
borrowing entity is engaged in export or otherwise.
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 Direct Finance to Agriculture
Finance to others [such as corporates, partnership firms
and institutions] for Agri & Allied Activities
• 1.2.1 Loans granted for pre-harvest and post harvest
activities such as spraying, weeding, harvesting,
grading, sorting and transporting.
• 1.2.2 Finance up to an aggregate amount of Rs. one
crore per borrower for the purposes listed at 1.1.1,
1.1.2, 1.1.3 and 1.2.1 above.
• 1.2.3 One-third of loans in excess of Rs. one crore in
aggregate per borrower for agriculture and allied
activities.
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 Indirect Finance to Agriculture
• 1.3.1 Two-third of loans to entities covered under 1.2 above in excess of Rs. one
crore in aggregate per borrower for agriculture and allied activities.
• 1.3.2 Loans to food and agro-based processing units with investments in plant and
machinery up to Rs. 10 crore, undertaken by those other than 1.1.6 above.
• 1.3.3
• (i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc.
• (ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for the
allied activities such as cattle feed, poultry feed, etc.
• 1.3.4 Finance for setting up of Agriclinics and Agribusiness Centres.
• 1.3.5 Finance for hire-purchase schemes for distribution of agricultural machinery
and implements.
• 1.3.6 Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers’
Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).
• 1.3.7 Loans to cooperative societies of farmers for disposing of the produce of
members.
• 1.3.8 Financing the farmers indirectly through the co-operative system (otherwise
than by subscription to bonds and debenture issues).
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 Indirect Finance to Agriculture
• 1.3.9 Loans for construction and running of storage facilities (warehouse, market
yards, godowns, and silos), including cold storage units designed to store agriculture
produce/products, irrespective of their location.
• If the storage unit is registered as SSI unit/micro or small enterprise, the loans
granted to such units may be classified under advances to Micro and Small
Enterprises sector.
• 1.3.10 Advances to Custom Service Units managed by individuals, institutions or
organisations who maintain a fleet of tractors, bulldozers, well-boring equipment,
threshers, combines, etc., and undertake work for farmers on contract basis.
• 1.3.11 Finance extended to dealers in drip irrigation/sprinkler irrigation
system/agricultural machinery, irrespective of their location, subject to the following
conditions:
• (a) The dealer 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.
• (b) A ceiling of up to Rs. 30 lakh per dealer should be observed.

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 Indirect Finance to Agriculture
• 1.3.12 Loans to Arthias (commission agents in rural/semi-urban areas functioning in
markets/mandies) for extending credit to farmers, for supply of inputs as also for
buying the output from the individual farmers/ SHGs/ JLGs.
• 1.3.13 Credit outstanding under loans for general purposes under General Credit
Cards (GCC).
• 1.3.14 Loans to MFIs for on-lending to agriculture
• 1.3.15 Loans sanctioned to NGOs which are SHG Promoting Institutions, for on-
lending to members of SHGs under SHG-Bank Linkage Programme for agricultural
purposes.
• 1.3.16 Loans granted to RRBs for on-lending to agriculture and allied activities
sector.
• 1.3.17 Overdrafts, up to Rs. 25,000 (per account), granted against 'no-frills' accounts
in rural and semi-urban areas.

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 Loans not eligible for classification as direct/indirect finance to agriculture
• Loans sanctioned w.e.f. April 1, 2011 to NBFCs (other than MFIs which
adhere to the criteria specified in paragraph 3.2) for on-lending. The bank
loans extended prior to April 1, 2011 to NBFCs, and classified under Priority
Sector will continue to be reckoned under Priority Sector till maturity of
such loans.
• Loans sanctioned to NBFCs for on-lending to individuals or other entities
against gold jewellery, investments made by banks in securitised assets
originated by NBFCs, where the underlying assets are loans against gold
jewellery, and purchase/ assignment of gold loan portfolio from NBFCs.
• Loans sanctioned to Central/ State Co-operative Marketing Federations and
State Civil Supplies Corporations.
• Loans sanctioned to corporate/ private companies/ sugar companies for
financing of receivables of farmers/vendors/traders against their supplies
of agricultural produce to such corporate/ private companies/sugar
companies.

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 NAIR COMMITTEE
• Considering that availability of credit rather than the
channel or mode of delivery of credit is important and
that credit to entire sector rather than the individual
activities within the individual sector is important,
concepts of ‘Direct’ & ‘Indirect’ lending to agriculture
sector may be integrated in order to have all
encompassing approach towards agriculture sector.
• The Committee, therefore, recommends the inclusion
of all agriculture and allied activities, encompassing
entire value chain and supply chain, under ‘Agriculture
and Allied Activities’.
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 NAIR COMMITTEE
Details of activities covered under agriculture & allied activities
No Type of Details of Activities
Activity
1 Production Crop loans including traditional/non-traditional plantations
and horticulture, allied activities, animal husbandry
2 Investment Medium & long-term credit that leads to capital formation
through asset creation and those that induces technological
upgradation resulting in increased production, productivity
and incremental income to farmers
3 Purchase of Loans extended to SF&MF for purchase of land for
Land agricultural purposes only.
4 Debt-Swap Loans granted to distressed farmers indebted to non-
institutional lenders
5 Pre-harvest Loans granted for pre-harvest activities such as land
development, spraying, weeding etc.
6 Post-harvest Loans granted for post-harvest activities such as grading,
sorting packaging, labeling and transporting
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No Type of
NAIR COMMITTEE
Details of Activities
Activity
7 Processing Activities pertaining to food and agro-based processing with
Initial investment in plant &machinery upto ` 20 crore.
8 Pledge/Hypo Advances against pledge/hypothecation of agricultural
thecation of produce (including warehouse receipts and cold storage)
Produce
9 Allied Activities (A limit of ` 3 lakh may be fixed for SFMF)
10 Distributors/
Credit for purchase and distribution of inputs for agriculture
hirers of Agro
& allied activities such as fertilizers, pesticides, seeds,
Inputs/Implecattle/poultry feed, upto a credit limit of `70 lakh. AND
ments Finance extended to dealers in agricultural machinery like
drip/sprinkler irrigation system and to those who undertake
work with tractors, bulldozers, well-boring equipment,
threshers, etc., for farmers on contract basis, upto a credit
limit of ` 70 lakh.
11 Creation of Loans for construction and running of storage facilities,
Warehouse & warehouse, market-yards, godowns, and silos, cold chains
Supply Chain & cold storage units for storing agri produce
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 Target groups under Agriculture and allied activities
• In order to have focused approach for meeting the credit needs
of different groups under agriculture sector, target groups are
classified as under:
• a. ‘Small & Marginal farmers including SHGs, JLGs and other
aggregators exclusively of SFMF;
• b. Other individuals, aggregators and proprietorship firms;
• c. Others such as corporates, partnership firms & institutions.
Sub-target for small and marginal farmers
• The definition of Small and Marginal farmer is given below:
• Small Farmer: A farmer with a landholding of more than 1
hectare but less than 2 hectares
• Marginal Farmer: A farmer with a landholding of up to 1
hectare.
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 NAIR COMMITTEE
• With a view to making credit available to large number of eligible and
willing small & marginal farmers, the Committee has recommended a sub-
target for lending to SFMF, equivalent to 9 per cent of ANBC to be achieved
in stages latest by 2015-16. This sub-segment will be within the 18 per cent
target set for agriculture and allied activities.
• As the objective is to extend credit to all eligible and willing SFMF within a
defined timeframe, the Committee also proposes that all banks must
endeavor to achieve a minimum increase of 15 per cent in number of
accounts every year.
Roadmap for achievement of SFMF target
Year Target for SFMF as
percentage of ANBC
2012-13 6
2013-14 7
2014-15 8
2015-16 9
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