Monitoring of Priority Sector Lending targets

To ensure continuous flow of credit to priority sector, there will

be more frequent monitoring of priority sector lending compliance of banks on ‘quarterly’ basis instead of annual basis as of now.

Non-achievement of Priority Sector targets

Scheduled Commercial Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the

Rural Infrastructure Development Fund (RIDF) established with NABARD and other Funds with NABARD/NHB/SIDBI, as decided by the Reserve Bank from time to time.

The interest rates on banks’ contribution to RIDF or any other Funds, tenure of deposits, etc. shall be fixed by Reserve Bank of India from time to time.

Common guidelines for priority sector loans

Banks should comply with the following common guidelines for all categories of advances under the priority sector.

1. Rate of interest

The rates of interest on bank loans will be as per directives issued by our Department of Banking Regulation from time to time.

2. Service charges

No loan related and adhoc service charges/inspection charges should be levied on priority sector loans up to Rs. 25,000.

PRIORITY SECTOR LENDING

Highlights of PSL

It means provide credit to the needy sectors of the society. The sectors are:

• Agriculture

• Micro and Small Enterprises

• Education

• Housing

• Export

• Weaker Sections

• Social Infrastructure 

• Renewable Energy

Targets under PSL

• Agriculture: 18% of ANBC. Out of this 18%, a target of 8% of ANBC is for Small and Marginal Farmers, to be achieved in a phased manner i.e., 7% by March 2016 and 8% by March 2017.

• Weaker Sections: 10% of ANBC.

• Micro Enterprises: 7.5% of ANBC has been prescribed for Micro Enterprises, to be achieved in a phased manner

i.e. 7% by March 2016 and 7.5% by March 2017.

• Overall PSL Target for Domestic Bank/Foreign Bank with more than 20 Branches: 40% of Adjusted Net Bank Credit.

• Overall PSL Target for Foreign Bank with less than 20 Branches: 40% of Adjusted Net Bank Credit to be achieved in a phased manner-

2015-16                     32

2016-17                     34

2017-18                     36

2018-19                     38

2019-20                     40

• Farmers with landholding of up to 1 hectare are considered as Marginal Farmers. Farmers with a landholding of more than 1 hectare and upto 2 hectares are considered as Small Farmers.
•  Scheduled Commercial Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD. For Renewable Energy, bank loans up to a limit of Rs.15 crore to borrowers for purposes like solar based power generators, etc. For individual households, the loan limit will be Rs.10 lakh per borrower.
• For Housing, banks can provide loans to individuals up to Rs. 28 lakh in metropolitan centres (with population of ten lakh and above) and loans up to Rs. 20 lakh in other centres for purchase/construction of a dwelling unit per family. 
•  Export credit will be allowed up to 32% of ANBC for Foreign banks with less than 20 branches in India.
• For Education, banks can provide loans to individuals for educational purposes including vocational courses upto Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad.
•  Limits under Social infrastructure Bank loans up to a limit of ₹ 5 crore per borrower for building social infrastructure for activities namely schools, health care facilities, drinking water facilities and sanitation facilities in Tier II to Tier VI centres.

Capital Market

These are the financial market for buying and selling of funds for long terms, these consists of Shares, Debentures, equities etc.

Capital market is regulated by- SEBI (Securities and Exchange Board of India)

Capital Market consists of two main blocks, they are-

 Primary Market 

 Secondary Market

Primary Market (New Issue Market)-

It is a market where new securities are issued & traded. 

Companies, governments and other groups obtain financing through debt or equity based securities.

Secondary Market

Secondary market is basically a reselling market , Here the stocks that are already sold in the primary market are resold mostly by the stockholders or companies to gain more returns.

Shares/Equities

Companies usually divide their capital into small parts of equal value. This smallest part is known as a share. Companies usually issue shares in the public to raise capital. People who buy or are allotted shares are called shareholders.

ACRONYMS CORNER SEBI

Securities and Exchange Board of India IPO- Initial Public Offerings

i.e. 7% by March 2016 and 7.5% by March 2017.

• Overall PSL Target for Domestic Bank/Foreign Bank with more than 20 Branches: 40% of Adjusted Net Bank Credit.

• Overall PSL Target for Foreign Bank with less than 20 Branches: 40% of Adjusted Net Bank Credit to be achieved in a phased manner-

Certificates of Deposit

a) CDs are negotiable money market instrument issued in demat form or as a Usance Promissory Notes.

b) CDs issued by banks should not have the maturity less than seven days and not more than one year.

c) Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.

d) CDs are like bank term deposits but unlike traditional time deposits these are freely negotiable and are often referred to

as Negotiable Certificates of Deposit.

e) CDs normally give a higher return than Bank term deposit. 

f) All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs.

g) CDs are issued in denominations of Rs. 1 Lac and in the multiples of Rs. 1 Lac thereafter.

h) Discount/Coupon rate of CD is determined by the issuing bank/FI.

i) Loans cannot be granted against CDs and Banks/FIs cannot buy back their own CDs before maturity

Treasury bills

a) Treasury Bills are short term (up to one year) borrowing instruments of the Government of India which enable investors to park their short term surplus funds while reducing their market risk.

b) They are auctioned by Reserve Bank of India at regular intervals and issued at a discount to face value.

c) Any person in India including Individuals, Firms, Companies, Corporate bodies, Trusts and Institutions can purchase

Treasury Bills.

d) Treasury Bills are eligible securities for SLR purposes.

e) Treasury Bills are available for a minimum amount of Rs. 25,000 and in multiples of Rs. 25,000 thereafter.

f) At present, RBI issues T-Bills for three different maturities: 91 days, 182 days and 364 days.

Cash Management Bills (CMBs)

a) Government of India, in consultation with the Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government.

b) The CMBs have the generic character of T-bills but are issued for maturities less than 91 days. 

c) Like T-bills, they are also issued at a discount and redeemed at face value at maturity.

d) The tenure, notified amount and date of issue of the CMBs depends upon the temporary cash requirement of the Government.

FINANCIAL MARKET

Financial Market is where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives.

MONEY MARKET

"Money Market" refers to the market for short-term requirement and deployment of funds. Money market instruments are those instruments, which have a maturity period of less than one year.

The most active part of the money market is the market for overnight call and term money between banks and institutions

and repo transactions. Money Market is regulated by RBI.

Money Market can be further divided into 3 parts. These are:

a) Call Money Market

b) Term Money Market

c) Notice Money Market

The market to get funds for 1 day only is called as Call Money Market. The market to get funds for 2 days to 14 days is called as Notice Money Market. The market to get funds for 15 days to 1 year is called as Term Money Market.

Some of the Money Market instruments are:

1) Commercial Paper

2) Certificate of Deposit

3) T-bills

4) Cash Management Bills

Commercial Papers

a)A CP is a short term security (7 days to 365 days) issued by a corporate entity (other than a bank), at a discount to the face value.

b) Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

c) CPs normally give a higher return than fixed deposits & CDs. 

d) CP can be issued in denominations of Rs. 5 lakh or multiples thereof. Amount invested by a single investor should not be less than Rs. 5 lakh (face value).

e) Only corporates who get an investment grade rating can issue CPs, as per RBI rules. It is issued at a discount to face value.

f) Bank and FI’s are prohibited from issuance and underwriting of CP’s.