Priority Sector Lending & Doubling Farmer's Income: C.C.S National Institute of Agricultural Marketing

C.C.
S National Institute of Agricultural Marketing
Priority Sector Lending &

Doubling Farmer’s income
Presented by:
Mr. Yuvaraj H B
Mr. Anil Kumar
Mr. Prathap G M
Mr. Prahalad B
Mr. Gowtham Gedela
Ms. Shivangi Dumka
Mr. Gade Suman Kumar
Contents
 Introduction  DFI
 Why DFI
 Categories
 Sources of income
 Target and Sub  Strategies for improving
Target Share
farmer’s income
 Description of  Prospects of Doubling
categories farmer’s income
 PSL Certificate  Road map and action plan
 Penalties  Action needed in sources
of income
 References
Introduction
Priority Sector Lending is an important role given by the
(RBI) to the banks for providing a specified portion of the
bank lending to few specific sectors like agriculture and
allied activities, micro and small enterprises, poor people
for housing, students for education and other low-income
groups and weaker sections.
 The genesis of existing framework of PSL is from
1967
 National Credit Council meeting 1968
 Formulation of Priority sector lending took
place in 1972 by recommendation of Informal
Study group on Statistics. No targets imposed
 The targets for priority sector Lending made in
1974 of 33.3% of Total Lending and it should
completely adopted by March 1979
 RBI directed the banks to ensure the flow of 40%
of Net bank credit to priority sector by march
1985
Applicability
The provisions of these Directions shall apply to:
1. every Scheduled Commercial Bank
2. Regional Rural Banks (RRBs) and
3. Small Finance Banks (SFBs)
Which are licensed to operate in India by the Reserve
Bank of India.
CATEGORIES AND TARGETS UNDER
PRIORITY SECTOR
 Agriculture
 Micro, Small and Medium
Enterprises
 Export Credit
 Education
 Housing
 Social Infrastructure
 Renewable Energy
 Others
The targets and sub-targets for all scheduled commercial banks
operating in India:
Domestic scheduled commercial banks
Foreign banks with less than 20
Categories and foreign banks with 20 branches and
branches
above
Total Priority
Sector 40 per cent of Adjusted Net Bank Credit 40 percent
or Credit Equivalent Amount of Off-
Balance Sheet Exposure, whichever is
higher.
Agriculture 18 per cent Not applicable
Within the 18 per cent target for

agriculture, a target of 8 percent is
prescribed for Small and Marginal
Farmers.
Micro 7.5 per cent Not applicable

Enterprises
Advances to 10 percent Not applicable

Weaker
Sections
SOURCE:HTTPS://M.RBI.ORG.IN/SCRIPTS/FAQVIEW.ASPX?ID=87
DESCRIPTION OF ELIGIBLE CATEGORIES
UNDER PRIORITY SECTOR
1.Agriculture:
Three sub-categories are-
a)Farm credit:
i)Loans to individual farmers & proprietorship firms of farmers,
directly engaged in Agriculture & allied activities
ii)Loans to corporate farmers, farmers’ producer
organizations/companies of individual farmers, partnership firms
and cooperative of farmers directly engaged in agriculture and
allied activities
b)Agriculture infrastructure: Warehouse
c)Ancillary activities: Consultancy
2. Micro, Small and Medium Enterprises (MSMEs):
Limits for investment:
Manufacturing Sector
Enterprises Investment in plant and machinery
Micro Enterprises Does not exceed 25 lakh rupees
More than 25 lakh rupees but does not exceed 5
Small Enterprises
crore rupees
Medium More than 5 crore rupees but does not exceed 10
Enterprises crore rupees
Service Sector
Enterprises Investment in equipment
Micro Enterprises Does not exceed 10 lakh rupees
More than 10 lakh rupees but does not exceed 2
Small Enterprises
crore rupees
Medium More than 2 crore rupees but does not exceed 5
Enterprises crore rupees
3.Export Credit:
The Export Credit extended as per the details below will be

classified as priority sector.
Domestic banks Foreign banks with 20 Foreign banks with

branches and above less than 20 branches
Incremental export credit Incremental export Export credit will be
over corresponding date of credit over allowed up to 32 per
the preceding year, up to 2 corresponding date of cent of ANBC
per cent of ANBC effective the preceding year, up to
from April 1, 2015 subject 2 percent of ANBC
to a sanctioned limit of up to effective from April 1,
₹ 250 million per borrower 2017.
to units having turnover of
up to ₹ 1 billion
4.Education
Loans to individuals for educational purposes including
vocational courses up to 10 million irrespective of the
sanctioned amount will be considered as eligible for priority
sector.
5.Renewable Energy:
1. Bank loans up to a limit of 150 million to borrowers for
purposes like solar based power generators, biomass-based
power generators, windmills
2. Non-conventional energy based public utilities viz. street
lighting systems, and remote village electrification.
3. For individual households, the loan limit will be 1
million per borrower
6.Housing:
Loans to individuals up to 3.5 million in metropolitan centre
and loans up to 2.5 million in other centers
for purchase/construction of a dwelling unit per family
provided the overall cost of the dwelling unit in the
metropolitan centre and at other centers does not exceed 4.5
million and 3 million, respectively.
7.Social infrastructure
Bank loans up to a limit of 50 million per borrower for
building social infrastructure.
8.Others:
Loans not exceeding 50,000/- per borrower provided directly by
banks to individuals and their SHG/JLG, provided the individual
borrower’s household annual income in rural areas does not exceed
0.1 million and for non-rural areas it does not exceed 0.16 million
Penalty for Banks
 If Indian Banks does not follow RBI

instructions regarding PSL banks have to
deposit shortfall amount with NABARD under
RIDF
 If Foreign banks not follow PSL limits they
have deposited shortfall in SIDBI under IDF
Priority Sector Lending Certificates
(PSLCs)
are tradable certificates issued against priority sector
loans of banks so as to enable banks to achieve their
specified target and sub-targets for priority sector
lending through purchase of these instruments in the
event of a shortfall and at the same time incentivizing
the surplus banks to lend more to these sectors
Sl.
Type of PSLCs Representing Counting for
No.
1. PSLC - Agriculture All eligible Agriculture loans except Achievement of agriculture target
loans to Small and marginal and overall PSL target
farmers (SF/MF) for which separate
certificates are available
2. PSLC - SF/MF All eligible loans to small/marginal Achievement of SF/MF sub-target,

 a farmers agriculture target and overall PSL
target
3. PSLC - Micro All eligible Loans to Micro Achievement of micro-enterprise

Enterprises Enterprises sub-target and overall PSL target
4. PSLC - General The residual priority sector loans Achievement of overall PSL target
i.e. other than loans to agriculture
and micro enterprises for which
separate certificates are available
SOURCE: http://www.arthapedia.in/index.php?title=Priority_Sector_Lending_Certificates_(PSLC)
Present scenario of PSL
PSBs met target of 18% to agriculture
Almost half of the NPAs of PSBs are

attributed to Priority sectors
Private and foreign banks met targets

only by 16.2% and 16.7%
Banking sector failed to meet overall

target to PSL
Banks can achieve their 18% target to

agriculture sector by lending to indirect
agriculture sectors
DFI
About
 Doubling Farmer’s Income at least twice the
current scenario
 Launched by PM Narendra Modi on Feb,
2016
 To address Agrarian Distress and promote
Farmer’s welfare
 Targeted annual growth 10.4%
 To reduce income gap of agriculture and non-
agriculture workers
Why DFI
 India became self sufficient in food production

but not in farmers income
 One fifth of rural households is under poverty
line
 Farmer’s income remained low in relation to
those who works in non-farm sector
Source- CSO and NSSO data
7 Sources of income
1. Increase in crop production

2. Resource use efficiency/savings in cost of
production
3. Reducing of post harvest losses
4. Value addition
5. Reforms in agricultural marketing
6. Risk security and assistance
7. Allied activities
Itarsi model- Gates foundation
 Invested for agricultural development

 Made partnership with central government and
state governments of Bihar, Odisha and UP
 Invested specifically in two priority areas-
diversification and market reform
Strategies for improving farmer’s income
 Develop initiatives
-PMKSY
-PMVY
-PMFBY
-PMKSY
 Technology and innovations
-change of GM to GMT
-use of machineries
-agricultural practices
 Policies
-Removal of excessive control on private sector
(Change in Marketing Model)
 Institutions : increase in FPO

-SFAC
-NABARD
Role of banks in DFI
 The biggest concern for the banks should be if food inflation
is not controlled, all other economic activities will suffer
 Money without backing of knowledge creates liability.
Current approach of banking system is creating more liability
than assets in rural economy, this need to be concerned
 Banks must relook into their rural operations-rural branches
must be develop as knowledge center rather than lending
shops
 There must be coordination and correlation between Trade
policy, industrial policy, today they are in separate
compartments
 Under lead bank scheme, lead banks are advised to work
closely with NABARD
Role of private sector
 About 80% of the agriculture sector is driven by private
companies
 Play major role from providing best seeds to buying the
output
 Provide technology on the field and best cultivation
practices to farmers
 Promotes organic farming
 They procure products directly from farmers, weeding
out the middlemen
 Ensure remunerative prices
 Ex- Adani Group, ITC, Hindustan Unilever, Godrej group
Prospects of Doubling farmer’s income

Road map and action plan

Action needed in sources of income
1) Development initiatives
2) Livestock productivity
3) Generation and dissemination of
improved technologies
4) Policies and reforms
Challenges for DFI
 Farming not the only source of income
 Non concerted effort-
Policies on farming animals, rural non-
farm activities and wages-salary
employment like MGNREGA are not
synchronized and harmonized
 Lack of infrastructure
References
 NITI policy paper No.1/2017
 m.economictimes.com – Article
 http://www.arthapedia.in/index.php?
title=Priority_Sector_Lending_Certificates_(PSL
C
 https://m.rbi.org.in/Scripts/FAQView.aspx?Id=87

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C.C.

S National Institute of Agricultural Marketing

Priority Sector Lending &

Within the 18 per cent target for

Micro 7.5 per cent Not applicable

Advances to 10 percent Not applicable

The Export Credit extended as per the details below will be

Domestic banks Foreign banks with 20 Foreign banks with

 If Indian Banks does not follow RBI

2. PSLC - SF/MF All eligible loans to small/marginal Achievement of SF/MF sub-target,

3. PSLC - Micro All eligible Loans to Micro Achievement of micro-enterprise

PSBs met target of 18% to agriculture

Almost half of the NPAs of PSBs are

Private and foreign banks met targets

Banking sector failed to meet overall

Banks can achieve their 18% target to

 India became self sufficient in food production

1. Increase in crop production

 Invested for agricultural development

 Institutions : increase in FPO

Source- CSO and NSSO data

Source- CSO and NSSO data

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