The Indian economy has undergone tremendous changes over the years and that has compelled the Reserve Bank of India to change its lending guidelines for the priority sector.
As the Budget 2015 has factored in the needs to make the recommendations inclusive and growth-oriented, the Reserve Bank of India (RBI) has set some new lending guidelines to suit the changing economy. And, it has sought public opinions on the same. Those interested in posting their views can do so at email@example.com.
The objectives also included suggesting ways on how to achieve the priority sector targets in the most effective way as well as measures to be taken in case of under-achievement of the priority sector targets.
That also includes the small and medium industries. In addition to micro and small enterprises, medium enterprises are included within the ambit of priority sector lending. To ensure that the micro enterprises are not crowded out, a sub-target of 7.5 per cent for micro enterprises has been recommended, which is to be achieved in a phased manner.
Other than MSME, the Working Group has focused on channelling credit to segments like small and marginal farmers and the weaker sections while broadening the scope to include other underserved categories of national priority, such as agriculture infrastructure, social infrastructure, renewable energy, exports and medium sized enterprises.
As far as micro, small and medium enterprises are concerned, the Working Group has recommended extending PSL status to Medium Enterprises (MEs) in addition to the Micro and Small Enterprises (MSEs). While all MEs (Manufacturing) may be included under PSL, MEs (Service) with credit limit up to Rs.10 crore may be eligible to qualify for PSL.
To ensure that the smallest segment within the MSME sector i.e . micro enterprises, is not crowded out with the inclusion of the medium enterprises, the Working Group recommends a target of 7.5 per cent of ANBC for lending to micro enterprises to be achieved in stages i.e.achieve 7 per cent by March 2016 and 7.5 per cent by March 2017.
To ensure that MSMEs do not remain small and medium units merely to be eligible for priority sector status, the Working Group recommends that the priority sector lending status may stay with them for up to three years after they grow out of the category of MSMEs.
Given the importance of exports in the economy and to give focused attention to export finance with in the priority sector lending, the Working Group recommends carving out a separate category of export credit under priority sector.
(Some aprts of this article were chosen from the RBI website)