Banking and insurance.

Term paper of banking and insurance

Topic: - priority sector advances scheme of lead bank and

assist the BPL customer to finalize the proposal with
documentation and formalities.

SUBMITTED TO , SUBMITTED BY,

ABHISHEK DUTTA. PRIYANKA

Sec :-T1801(B30)

Reg no:-10805425

Acknowledgement
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‘’Success is to be measured not so much by the

position one has reached in life but by the obstacles
that he has overcome while trying to succeed’’

We express our sincere thanks to our

respected lecturer as well as our term paper
guide MR.ABHISHEK DUTTA for his guidance
and tremendous encouragement bestowed
throughout our Endeavour.

Priyanka

CONTENTS OF TERM
PAPER
1. Introduction of the topic
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2. Executive summary of below poverty line

3. Review of literature of the topic
4. Article analysis
5. Rbi guidelines
 LENDING TO PRIORITY SECTOR
 CATEGORIES OF PRIORITY SECTOR
 TARGETS/SUB-TARGETS
 AGRICULTURE DIRECT FINANCE
 INDIRECT FINANCE
 Small ENTERPRISES DIRECT FINANCE
 OTHER SMALL BUSINESS / SERVICE ENTERPRISES
 MICRO CREDIT

6.CURRENT CHANGES IN LENDING PRIORITY SECTOR

7.SUGGESTIONS

8.CONCLUSION

9.REFERENCE

Introduction of below poverty line

Below Poverty Line is an economic benchmark and poverty threshold used by the government of
India to indicated economic disadvantage and to identify individuals and households in need of

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government assistance and aid. It is determined using various parameters which vary from state
to state and within states.

International Benchmarks

Internationally, an income of less than $1 per day per head of purchasing power parity is defined
as extreme poverty. By this estimate, about 45 percent of Indians are extremely poor. If the daily
income per head is less than $2, then the family is described as poor and about 80 percent of
Indians are poor. Income-based poverty lines consider the bare minimum income to provide
basic food requirements; it does not account for other essentials such as health care and
education. That is why some times the poverty lines have been described as starvation lines.

Measurement

Criteria are different for rural and urban areas. In its tenth five-year plan, the degree of
deprivation is measured with the help of parameters with scores given from 0-4, with 13
parameters. Families with 17 marks or less (formerly 15 marks or less) out of a maximum 52
marks have been classified as BPL.

Ninth Plan

In its ninth five-year plan (1997-2002), BPL for rural areas was set at annual family income less
than Rs. 20,000, less than two hectares land, and no television or refrigerator. The number of
rural BPL families was 650,000 (6.5 lakh) during the 9th Plan. The survey based on this criteria
was again carried out in 2002 and the total number of 387,000 (3.87 lakh) families were
identified. This figure was in force until September 2006.

Tenth Plan (2002-2007)

In its tenth five-year plan (2002-2007) survey, BPL for rural areas was based on the degree of
deprivation in respect of 13 parameters, with scores from 0-4: landholding, type of

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house,clothing, food security, sanitation, consumer durables, literacy status, labour force, means
of livelihood, status of children, type of indebtedness, reasons for migrations, etc.

The Planning Commission fixed an upper limit of 3.26 lakh for rural BPL families on the basis
of simple survey. Accordingly families having less than 15 marks out of maximum 52 marks
have been classified as BPL and their number works out to 3.18 lakh. The survey was carried out
in 2002 and thereafter but could not be finalised due to a stay issued by the Supreme Court of
India. The stay was vacated in February 2006 and this survey was finalised and adopted in
September 2006. This survey formed the basis for benefits under government of India schemes.
The state governments are free to adopt any criteria/survey for state-level schemes.

Income based poverty line in India

The poverty line was originally fixed in terms of income/food requirements in 1978. It was
stipulated that the calorie standard for a typical individual in rural areas was 2400 calorie and
was 2100 calorie in urban areas. Then the cost of the grains (about 650 gms) that fulfil this
normative standard was calculated. This cost was the poverty line. In 1978, it was Rs. 61.80 per
person per month for rural areas and Rs. 71.30 for urban areas. Since then the Planning
Commission calculates the poverty line every year adjusting for inflation. The poverty line in
recent years is as follows - (Rs. per month per head)

Year India rural India urban

2000-2001 328 454

2005-2006 368 560

This income is bare minimum to support the food requirements and does not provide much for
the other basic essential items like health, education etc. That is why some times the poverty
lines have been described as starvation lines.

Fixing of cut-off marks at 17

The Socio Economic Survey conducted during 2002 was based on 13 Socio economic indicators
(enlisted by Government of India ) indicating the quality of life and by Score based ranking for

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all households. Each of the indicators have 0-4 marks. Thus for 13 indicators, the tentative marks
obtained by the families are from 0-52 for all the Districts. The Supreme Court of Indiain Writ
Petition No. 196/2001 filed by People's Union for Civil Liberties, the result of Below Poverty
Line census 2002 need not be finalized. Later in October, 2005 the Government of India
informed that based on the advice given by the Additional Solicitor General, it has been decided
to finalise the results of Below Poverty Line Census, 2002 without deleting the Below Poverty
Line families already existing in the Below Poverty Line list of Below Poverty Line Census 1997
and to follow the following procedure for finalisation of Below Poverty Line list.

1. Preparation of Below Poverty Line list

2. Approval in Gram Sabha

3. Appeal to Block Development Officer and Collector.

4. Display of Final List.

Example

A Bench Mark Survey conducted in Maharashtra in 1997-1998 found 91.08 %.Madia Gond
families BPL. Madia Gond are a people classified as primitive tribe, they live in
BhamragadTaluka, of Gadchiroli District, of Maharashtra.

Dilemma of the Poverty Line

Article Review

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By: ashwanimahajan Original Author: Dr. Ashwani Mahajan

Review of literature of below poverty line

Government has consistently been providing differing figures about the extent of poverty in
India. Therefore, it has been difficult to know the exact or even approximate figure about poverty
in the country. It is obvious that in the absence of uniform statistical measure of poverty,
programmes of poverty alleviation cannot be meaningful. The government to reduce poverty
adopts various measures. Through PDS kerosene and cheaper grain and other foods are made
available to poor population.Government’s proposed food security legislation is also on the same
lines, according to which all people living below the poverty line would have a right to draw
food at subsidised prices.

But ironically till date the government has not been able to identify, even approximately, people
living below the poverty line. Report of the Saxena Committee, constituted by Ministry of Rural
Development Government of India, presented recently, is most shocking. In fact, 49.1 percent
population in the country according to Saxena Committee is living below poverty line, but 23
percent of poor do not have any ration card (what to talk of BPL card).

Former Chief Economic Adviser to Prime Minister, Prof. S.D. Tendulakar submitted the Report
of the Expert Group to Review the Methodology for Estimation of Poverty in December 2009.
Submission of this report has brought the whole controversy into focus once again. Prof.
Tendulkar noted that the existing all-India rural and urban official poverty lines were originally
defined in terms of per capita total consumer expenditure at 1973-74 market prices and adjusted
over time and across states for changes in prices keeping unchanged the original 1973-74 rural
and urban underlying all-India reference poverty line baskets of goods and services. These all-
India rural and urban PLBs were derived for rural and urban areas separately, anchored in the per
capita calorie norms of 2400 (rural) and 2100 (urban) per day.

Prof. Tendulkar, finds that in 2004-05, 37 percent of Indian population was living below poverty
line. This figure is significantly high as compared to figure given by Planning Commission;
according to which 27.5 percent were living below poverty line. Prof. Tendulkar's figure of head

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count is higher largely because of larger basket of consumption, which includes expenditure on
education & health by the poor. Earlier studies on redefining poverty have also takan note of
these variables and have suggested suitable modifications in the definition of poverty line. Prof.
Tendulkar's report is significant as it gives official sanction to the same. Prof. Tendulkar has
recommended in his report that Planning Commission and also National Sample survey
organisation (NSSO) make suitable changes in their approach in defining poverty line.

According to UN, 220 million people in India suffer from hunger. Prevalence of hunger is found
in all age groups ranging from infants to old. Food production has been going down, food
imports are rising and food insecurity is on rise. Whereas per capita availability of foodgrains
was 190 kilogram per person per annum in 1979-80,it declined to only 186 kilogram in 2004-05.
Since 2004-05, fast rising prices of food products have made the things worst for poor.
According to Food and Agriculture Organisation (FAO), of United Nations about 100 million
people have already moved to the category of hungry people around the world in the three years
from 2004-05 to2007-08.

It is welcome that professor Tendulkar's Expert Group has recommended that definition of
poverty line be changed and a new methodology be adopted incorporating changes in price index
and also widening of consumption bundle including expenditure on health and education.
However, the poverty so reached would not be perfect one, but definitely, we would be moving
from a mere starvation line to a better defined poverty line. Government might be feeling uneasy
on two counts. First, that so far its policies have been based on ill-defined poverty line and
second it will be forced to spend more money on welfare activities. However, in the long run
Tendulkar's report will set a bench mark in determining the methodology for the assessment of
poverty line.

Master Circular on Priority Sector Lending-Credit facilities to Scheduled

Castes (SCs) and Scheduled Tribes (STs) RBI/2004-2005/132
RPCD.NO.SP.BC. 20 /09.09.01/2004-05, DT. 18/08/2004

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Master Circular - Priority Sector Lending-Credit facilities to Scheduled

Castes (SCs) & Scheduled Tribes (STs)

1.Flow of Credit to SCs/STs

As special emphasis is given to the welfare of the scheduled castes and scheduled tribes, banks
should take the following measures to step up their advances to SCs/STs:

Planning Process

a. At the block level, a certain weightage is to be given to scheduled castes/ scheduled tribes in
the planning process. Accordingly, the credit planning should be weighted in favour of scheduled
castes/scheduled tribes and special bankable schemes suited to members of these communities
should be drawn up to ensure their participation in such schemes and larger flow of credit to
them for self-employment. It will be necessary for the banks to consider loan proposals of these
communities with utmost sympathy and understanding.

b. The District Level Consultative Committees formed under the Lead Bank Scheme should
continue to be the principal mechanism of co-ordination between banks and development
agencies.

c. The district credit plans formulated by the lead banks should be elaborated to indicate clearly
the linkage of credit with employment and development schemes.

d. Banks will have to establish closer liaison with the District Industries Centres, which have
been set up in different districts for promoting self-employment.

e. Banks should periodically review their lending procedures and policies to see that loans are
sanctioned in time, are adequate and production-oriented and that they generate incremental
income to make them self-liquidating.

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f. Credit planning should be weighted in favour of Scheduled Castes/ Scheduled Tribes and
special bankable schemes suited to members of these communities should be drawn up to ensure
a larger flow of credit to them for self-employment. Loan proposals of these communities should
be considered sympathetically and expeditiously.

g. While ‘adopting’ villages for intensive lending, villages with sizeable population of these
communities may be specially chosen; the alternative of adopting specific localities (bastis) in
the concerned villages which have a concentration of these communities could also be
considered.

h. Special efforts should be made to evolve suitable bankable schemes for weaker sections
including members of these communities.

Role of Banks

i. Bank staff may help the poor borrowers in filling up the forms and completing other
formalities so that they are able to get credit facility within a stipulated period from the date of
receipt of applications.

j. In order to encourage SC/ST borrowers to take advantage of credit facilities, greater awareness
among them about various schemes formulated by banks will have to be created. As a majority
of the eligible borrowers would be illiterate persons, publicity through brochures, other literature,
etc. will be of limited utility. The more desirable method would be for the field staff of banks to
contact such borrowers and explain to them the salient features of the schemes as also the
advantages that will accrue. Banks should advise their branches to organize meetings more
frequently exclusively for SC/ST beneficiaries to understand their credit needs and to incorporate
the same in the credit plan.

k. Bank should keep Application Register/ Deposit Register, Complaint Register in desired order
and maintain relevant documents and pass book in local language too, besides in Hindi and
English.

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l. Circulars issued by RBI/NABARD should be circulated among the staff concerned for noting
the instructions for proper follow up .

m. Banks should not insist on deposits while considering loan applications under Government
sponsored poverty alleviation schemes/self-employment programmes from borrowers belonging
to SCs /STs.It should also be ensured that applicable subsidy is not held back while releasing the
loan component till the full repayment of bank dues. Non - release of subsidy upfront amounts to
under-financing and hampers asset creation/ income generation.

Role of SC/ST Development Corporations

The Ministry of Welfare, Government of India has advised all State Governments that the
Scheduled Caste Development Corporations can consider bankable schemes / proposals for bank
finance. As regards Collateral Security and / or third party guarantee for loans, guidelines issued
to banks on priority sector lending will apply.

Swarnjayanti Gram Swarozgar Yojana (SGSY)

Under Swarnjayanti Gram Swarozgar Yojana (SGSY) Scheme, which is a major poverty
alleviation scheme in rural / semi urban areas, not less than 50 percent of the families assisted
should belong to SCs/STs.

Prime Minister's Rozgar Yojana

The Prime Minister's Rozgar Yojana (PMRY) has been designed to provide credit to educated
unemployed youth for setting up of the self-employment ventures in industries, services and
business sectors. A reservation of 22.5 percent has been provided for SCs/STs in the scheme.

Swarna Jayanti Sahari Rozgar Yojana

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Under Swarna Jayanti Shahari Rozgar Yojana (SJSRY), which is a poverty alleviation scheme in
urban areas, advances should be extended to SCs/STs to the extent of their strength in the local
population.

Differential Rate of Interest Scheme

Under the DRI scheme, banks provide finance up to Rs.6,500/- at a concessional rate of interest
of 4% p.a to the weaker sections of the community for engaging in productive and gainful
activities. In order to ensure that persons belonging to SCs/STs also derive adequate benefit
under the Differential Rate of Interest (DRI) scheme, banks have been advised to grant to eligible
borrowers belonging to SCs/STs such advances to the extent of not less than 2/5th (40 percent)
of total DRI advances.

Scheme for Liberation and Rehabilitation of Scavengers

The National Scheme for Liberation and Rehabilitation of Scavengers is for liberating the
scavengers and their dependents from the existing hereditary and obnoxious occupation of
manually removing night soil and filth and to provide them with alternate dignified occupation.
The scheme covers primarily all scavengers belonging to the scheduled caste community.
Scavengers belonging to other communities are also eligible for assistance.

Monitoring and Review.

1. A special cell should be set up at the Head Office for monitoring the flow of credit to SC/ST
beneficiaries. Apart from ensuring the implementation of the RBI guidelines, the cell would also
be responsible for collection of relevant information/data from the branches, consolidation
thereof and submission of the requisite returns to RBI and Government.

2. Convenor banks (of SLBC) should invite the representative of National Commission for
SCs/STs to attend SLBC meetings. Besides, the Convener banks may also invite representatives

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from National Scheduled Castes and Scheduled Tribes Financial Development Corporation
( NSFDC ) and State Scheduled Castes and Scheduled Tribes Financial and Development
Corporation ( SCDC ) to attend SLBC meetings

3. A periodical review should be made by the Head Office of banks of the credit extended to
SCs/STs on the basis of returns and other data received from the branches.

4. The Board of Directors should review on quarterly basis, the measures taken to enhance the
flow of credit to SC/ST borrowers. The Review Notes, besides indicating the actual performance
of the bank during the relevant quarter, should also contain information about how the bank
proposes to expand the coverage of this sector in the context of potential for business and its
network of branches with particular reference to such schemes as DRI, SGSY, etc. The review
should also consider the progress made in lending to these communities directly or through the
State-level Scheduled Caste/Scheduled Tribe Corporations for various purposes based, amongst
others, on field visits of the senior officers from the Head Office/Controlling Offices. A copy
each of such review notes should be sent to Reserve Bank.

Reporting Requirements

It has been considered necessary to have data of banks’ advances for SCs and STs under priority
sectors and Differential Rates of Interest (DRI) Scheme separately. Accordingly banks may
submit to RBI on half-yearly basis as on the last reporting Friday of March and September a
statement showing the credit extended to SCs and STs under priority sectors (Annexure I).
Further, banks may submit to RBI on yearly basis as on the last reprting Friday of March a
statement showing the credit extended to SCs and STs under DRI Scheme (Annexure II ).The
statements should reach RBI within two months from the end of the relevant half-year/ year.

Draft Guidelines on Lending to Priority Sector

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LENDING TO PRIORITY SECTOR

At a meeting of the National Credit Council held in July 1968, it was emphasised that
commercial banks should increase their involvement in the financing of priority sectors, viz.,
agriculture and small scale industries. The description of the priority sectors was later formalised
in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to
advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of
this report, the Reserve Bank prescribed a modified return for reporting priority sector advances
and certain guidelines were issued in this connection indicating the scope of the items to be
included under the various categories of priority sector. Although initially there was no specific
target fixed in respect of priority sector lending, in November 1974 the banks were advised to
raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by
March 1979.

At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector
banks held in March 1980, it was agreed that banks should aim at raising the proportion of their
advances to priority sectors to 40 per cent by March 1985. Subsequently, on the basis of the
recommendations of the Working Group on the Modalities of Implementation of Priority Sector
Lending and the Twenty Point Economic Programme by Banks, all commercial banks were
advised to achieve the target of priority sector lending at 40 per cent of aggregate bank advances
by 1985. Sub-targets were also specified for lending to agriculture and the weaker sections
within the priority sector. Since then, there have been several changes in the scope of priority
sector lending and the targets and sub-targets applicable to various bank groups.

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PERCENTAGE OF POPULATION BELOW POVERTY LINE

Accordingly the broad categories of priority sector for all scheduled

commercial banks will be as under:

I. CATEGORIES OF PRIORITY SECTOR

(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short,
medium and long term loans given for agriculture and allied activities directly to individual
farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers
without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20
lakh, for taking up agriculture/allied activities.Indirect finance to agriculture shall include loans
given for agriculture and allied activities as specified in Section I, appended.

(ii) Small Enterprises (Direct and Indirect Finance): Direct finance to small enterprises shall
include all loans given to small (manufacturing) enterprises engaged in manufacture/ production,
processing or preservation of goods, and small (service) enterprises engaged in providing or
rendering of services, and whose investment in plant and machinery and equipment (original cost
excluding land and building and such items as mentioned therein) respectively, does not exceed
the amounts specified in Section I, appended.Indirect finance to small enterprises shall include
finance to any person providing inputs to or marketing the output of artisans, village and cottage
industries, handlooms and to cooperatives of producers in this sector.

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(iii) Other Small Business / Service Enterprises: Other Small Business / Service Enterprises
shall include small business, retail trade, professional & self-employed persons, small road &
water transport operators and all other service enterprises, as per the definition given in Section I
appended.

(iv) Micro Credit: Provision of credit and other financial services and products of very small
amounts not exceeding Rs. 50,000 per borrower to the poor, either directly or indirectly through
a SHG/JLG mechanism or any intermediary (including NBFC/NGO/MFI), or to an NBFC/NGO
engaged in provision of credit to the poor up to Rs. 50,000 per borrower will constitute micro
credit. The poor for this purpose, shall include persons below the poverty line in the respective
areas.

(v) Education loans: Education loans include loans and advances granted to only individuals for
educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad,
and do not include those granted to institutions;

(vi) Housing loans: Loans up to Rs. 15 lakh per family, for construction of houses by
individuals, (excluding loans granted by banks to their own employees) and loans given for
repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-urban areas and
up to Rs. 2 lakh in urban areas.

(2) Investments by banks in securitised assets, representing loans to agriculture (direct or

indirect), small enterprises (direct or indirect) and housing, shall be eligible for classification
under respective categories of priority sector (direct or indirect) depending on the underlying
assets, provided the securitised assets are originated by banks and financial institutions and fulfil
the Reserve Bank of India guidelines on securitisation.

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AGRICULTURE

DIRECT FINANCE
Finance to individual farmers [including Self Help Groups (SHGs) or Joint Liability
Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on
such finance] for Agriculture and Allied Activitie.Short-term loans for raising crops, i.e. for crop
loans. This will include traditional/non-traditional plantations and horticulture.Advances up to
Rs. 10 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts)
for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans
for raising the produce or not.Short-term loans under tie-up arrangements with sugar mills, agro-
processing units and agri-exporters.

Working capital and term loans for financing production and investment requirements for
agriculture and allied activities. Loans to small and marginal farmers for purchase of land
for agricultural purposes. Loans to distressed farmers indebted to non-institutional lenders,
against appropriate collateral or group security.Loans granted for pre-harvest and post-harvest
activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting
undertaken by households or groups/cooperatives of households.

INDIRECT FINANCE
Finance for Agriculture and Allied Activities

Loans to entities covered under 1.2 above in excess of Rs. 20 lakh in aggregate per borrower for
agriculture and allied activities. In such cases, the entire amount outstanding shall be treated as
indirect finance for agriculture. Loans to food and agro-based processing units with investments
in plant and machinery up to Rs. 10 crore, undertaken by other than households.Loans to Non-
Banking Financial Companies (NBFCs) for on lending to individual farmers.

(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.

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Finance for setting up of Agriclinics and Agribusiness Centres.Finance for hire-purchase

schemes for distribution of agricultural machinery and implements.Loans to farmers through
Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized
Adivasi Multi Purpose Societies (LAMPS).Loans to cooperative societies of farmers for
disposing of the produce of members.Financing the farmers indirectly through the co-operative
system (otherwise than by subscription to bonds and debenture issues) provided a certificate
from the State Co-operative Bank/State Cooperative Agriculture and Rural Development Bank
(SCARDB), as the case may be, is produced, certifying the end use of such loans.

Small ENTERPRISES
DIRECT FINANCE
Direct Finance in the small enterprises sector will include credit to:
Small (manufacturing) Enterprises
Enterprises engaged in the manufacture, processing or preservation of goods and whose
investment in plant and machinery [original cost excluding land and building and the items
specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E) dated
October 5, 2006] does not exceed Rs. 5 crore.

Micro (manufacturing) Enterprises

Enterprises engaged in the manufacture, processing or preservation of goods and whose

investment in plant and machinery [original cost excluding land and building and such items as
in 2.1.1] does not exceed Rs. 25 lakh, irrespective of the location of the unit.

Small (service) Enterprises

Enterprises engaged in providing/rendering of industry related services and whose 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 Rs. 2 crore.

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Micro (service) Enterprises

Enterprises engaged in providing/rendering of industry related services and whose investment in

equipment (original cost excluding land and building and furniture, fittings and such items as in
2.1.3) does not exceed Rs. 10 lakh.

Khadi and Village Industries Sector (KVI)

All advances granted to units in the KVI sector, irrespective of their size of operations, location
and amount of original investment in plant and machinery. Such advances will be eligible for
consideration under the sub-target (60 per cent) of the small enterprises segment within the
priority sector.

INDIRECT FINANCE
Indirect finance to the small (manufacturing as well as service) enterprises sector
will include credit to:

persons involved in assisting the decentralised sector in the supply of inputs to and marketing
of outputs of artisans, village and cottage industries. Advances to cooperatives of producers in
the decentralised sector viz. artisans village and cottage industries.Subscription to bonds issued
by NABARD with the objective of financing exclusively non-farm sector (not eligible for
classification under priority sector lending with effect from April 1, 2007).Loans granted by
banks to NBFCs for on lending to small (manufacturing as well as service) enterprises sector.

OTHER SMALL BUSINESS / SERVICE ENTERPRISES

Loans granted to other small business and service enterprises such as, small road and water
transport operators, small business, professional & self-employed persons, and other enterprises,
engaged in providing/rendering of services and whose investment in equipment (original cost
and excluding land and building) does not exceed Rs. 2 crore.

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(i) Advances granted to retail traders dealing in essential commodities (fair price shops),
consumer co-operative stores, and;

(ii) Advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh.

MICRO CREDIT

Loans of very small amount not exceeding Rs. 50,000 per borrower provided by banks to
the poor, either directly or through a group mechanism or through any intermediary (as approved
by Department of Banking Operations and Development of Reserve Bank of India for the
Banking Correspondent model), or to an NBFC/NGO for providing credit to the poor up to Rs.
50,000 per borrower.

Loans to poor indebted to informal sector

Loans to distressed poor to prepay their debt to lenders in the informal sector would be eligible
for classification under priority sector.

Poor for this purpose may include those families who are below the poverty line in the
respective areas. Such loans to poor may also be classified under weaker sections within the
priority sector.

State Sponsored Organizations for Scheduled Castes/Scheduled Tribes

Advances sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled

Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the
outputs of the beneficiaries of these organisations.

Education

Educational loans granted to individuals for educational purposes up to Rs. 10

lakh for studies in India and Rs. 20 lakh for studies abroad. Loans granted to institutions will not
be eligible to be classified as priority sector advances.

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Housing

Loans up to Rs. 15 lakh, irrespective of location, for construction of houses by

individuals, excluding loans granted by banks to their own employees. Loans given for
repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-urban areas and
up to Rs. 2 lakh in urban and metropolitan areas.

Assistance up to Rs. 1.25 lakh per housing unit given to any governmental agency/ non-
governmental agency (other than Housing Finance Companies) for construction/ reconstruction
of houses or for slum clearance and rehabilitation of slum dwellers.Assistance up to Rs. 5 lakh
per housing unit given to Housing Finance Companies for construction/ reconstruction of houses
or for slum clearance and rehabilitation of slum dwellers.

Weaker Sections

The weaker sections under priority sector shall include the following:

(a) Small and marginal farmers with land holding of 5 acres and less, and landless
labourers, tenant farmers and share croppers;

(b) Artisans, village and cottage industries where individual credit limits do not exceed
Rs. 50,000;

(c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY);

(d) Scheduled Castes and Scheduled Tribes;

(e) Beneficiaries of Differential Rate of Interest (DRI) scheme;

(f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY);

(g) Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavangers .

(h) Advances to Self Help Groups;

(i) Loans to distressed poor to prepay their debt to informal sector, against appropriate
collateral or group security.

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Export Credit

This category will form part of priority sector for foreign banks only.

Common guidelines for priority sector advances

Banks should follow the following common guidelines prescribed by the Reserve Bank
for all categories of advances under the priority sector.

(a) Processing of Applications

(b) Completion of Application Forms

In case of Government sponsored schemes such as SGSY, the concerned project

authorities like DRDAs, DICs, etc. should arrange for completion of application forms received
from borrowers. In other areas, the bank staff should help the borrowers for this purpose.

Issue of Acknowledgement of Loan Applications

Banks should give acknowledgement for loan applications received from weaker
sections. Towards this purpose, it may be ensured that all loan application forms have perforated
portion for acknowledgement to be completed and issued by the receiving branch. Each branch
may affix on the main application form as well as the corresponding portion for
acknowledgement, a running serial number. While using the existing stock of application forms
which do not have a perforated portion for acknowledgement is separately given, care should be
taken to ensure that the serial number given on the acknowledgement is also recorded on the
main application. The loan applications should have a check list of documents required for
guidance of the prospective borrowers.

Disposal of Applications

(i) All loan applications up to a credit limit of Rs. 25,000 should be disposed of within a
fortnight and those for over Rs. 25,000, within 4 weeks.

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(ii) All loan applications for SSI up to a credit limit of Rs. 25,000 should be disposed of within 2
weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete in
all respects and are accompanied by a 'check list'.

Rejection of Proposals

Branch Managers may reject applications (except in respect of SC/ST) provided the cases
of rejection are verified subsequently by the Divisional/Regional Managers. In the case of
proposals from SC/ST, rejection should be at a level higher than that of Branch Manager.

Register of Rejected Applications

A register should be maintained at the branch, wherein the date of receipt,

sanction/rejection/disbursement with reasons therefor, etc., should be recorded. The register
should be made available to all inspecting agencies.

Repayment Schedule

Repayment programme should be fixed taking into account the sustenance requirements,
surplus generating capacity, the break-even point, the life of the asset, etc., and not in an 'ad hoc'
manner. In respect of composite loans, repayment schedule may be fixed for term loan
component only.

As the repaying capacity of the people affected by natural calamities gets severely impaired due
to the damage to the economic pursuits and loss of economic assets, the benefits such as
restructuring of existing loans, etc. as envisaged under our circular RPCD.CO.PLFS.NO. BC
16/05.04.02/2006-07 dated August 9, 2006 may be extended to the affected borrowers.

Rates of InterestThe rates of interest on various categories of priority sector advances will be as
per RBI directives issued from time to time.

(a) In respect of direct agricultural advances, banks should not compound the interest in
the case of current dues, i.e. crop loans and instalments not fallen due in respect of term loans, as
the agriculturists do not have any regular source of income other than sale proceeds of their
crops.

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(b) When crop loans or instalments under term loans become overdue, banks can add
interest to the principal.

(c) Where the default is due to genuine reasons banks should extend the period of loan or
reschedule the instalments under term loan. Once such a relief has been extended, the overdues
become current dues and banks should not compound interest.

(d) Banks should charge interest on agricultural advances in respect of long duration
crops, at annual rests instead of quarterly or longer rests, and could compound the interest, if the
loan/instalment becomes overdue.

Penal Interest

The issue of charging penal interests that should be levied for reasons such as default in
repayment, non-submission of financial statements, etc. has been left to the Board of each bank.
Banks have been advised to formulate policy for charging such penal interest with the approval
of their Boards, to be governed by well accepted principles of transparency, fairness, incentive to
service the debt and due regard to difficulties of customers. No penal interest should be charged
by banks for loans under priority sector up to Rs 25,000 as hitherto. However, banks will be free
to levy penal interest for loans exceeding Rs 25,000, in terms of the above guidelines.

SERVICE CHARGES / INSPECTION CHARGES

No service charges/inspection charges should be levied on priority sector loans up to Rs.

25,000/-.

For loans above Rs. 25,000/- banks will be free to prescribe service charges with the prior
approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000 dated
September 7, 1999.

Photographs of Borrowers

While there is no objection to taking photographs of the borrowers for purposes of

identification, banks themselves should make arrangements for the photographs and also bear the
cost of photographs of borrowers falling in the category of Weaker Sections.

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It should also be ensured that the procedure does not involve any delay in loan disbursement.

Discretionary Powers

All Branch Managers of banks should be vested with discretionary powers to sanction
proposals from weaker sections without reference to any higher authority. If there are difficulties
in extending such discretionary powers to all the Branch Managers, such powers should exist at
least at the district level and arrangements be ensured that credit proposals on weaker sections
are cleared promptly.

CAPACITY BUILDING

Banks may ensure appropriate training of personnel to specifically cater to the needs of
priority sector.

Machinery to look into Complaints

There should be machinery at the regional offices to entertain complaints from the
borrowers if the branches do not follow these guidelines, and to verify periodically that these
guidelines are scrupulously implemented by the branches.

Amendments

These guidelines are subject to any instructions that may be issued by the RBI from time
to time.

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RECOMMENDATION:-

 Government should be raise the loan upto 15 lacs to 20 lacs.

 Fixing cutoff mark should be redefined till now it is 17.
 Documentation should be easy for Below poverty line people, they can easily understand.
 RBI should be regular follow up and supervision the all lending system of banks.

Conclusion:-
 Here the conclusion of the BPL customer to finalize the proposal with documentation and
formalities.
 RBI play the very good role for the below poverty line customers.
 They done a very good job to improve the Indian poor people.
 Now the rate of poor people is less in India because the poor people are aware of
everything like the rule and regulation of the bank and how to get the lone for education
and agriculture.
 The government also giving 100% for the betterment of the below poverty line customer.

Reference

 http://www.rbi.org.in/scripts/PublicationDraftReports.aspx?ID=493
 www.wikipidia.com
 http://www.pide.org.pk/pdf/PDR/2001/Volume4/723-750.pdf
 http://www.eximkey.com

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