Primary Sector Lending

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Priority Sector Lending
Purpose:
Commercial banks play a significant role for developing and deepening financial services in the rural areas and urban markets since, late 1960s Commercial banks have been given targets for priority sector lending. This has given positive results so far in financial inclusion of different sections of people, who don’t have access earlier. The main purpose of Primary Sector Lending is to ensure, * Vulnerable sections of society get access to credit at an affordable rate, and * There is adequate flow of resources to segments of the economy, which have a higher employment potential and help in making a large impact in poverty alleviation. History of Priority Sector Lending

* May 1971 – Informal Study Group formed by RBI to study and report Statistics related to advances to Priority Sectors. * 1972 – Description of Priority Sectors formalized by RBI on the basis of the report submitted by Informal Study Group. * November 1974 – Banks were advised to raise their advances to priority sectors to 33.33% of their aggregate advances by March 1979. * March 1980 – Banks were asked to raise their proportion of advances to priority sectors to 40%. Categories of Priority Sector

* Agriculture – There are two sub-categories in this particular category :- 1. Direct Finance – It includes short, medium and long term loans given for agriculture and allied activities up to Rs. 20 lakh to the following:- a) Individual farmers

b) Self-Help Groups (SHGs)
c) Joint Liability Groups (JLGs) of individual farmers without limit d) Other corporate , partnership firms and institutions
2. Indirect Finance – It includes loans given for agriculture and allied activities like :- a) Loans in excess of Rs. 20 lakh in aggregate per borrower b) food and agro-based processing units with investments in plant and machinery up to Rs. 10 crore c) Non-Banking Financial Companies (NBFCs) to lend to individual farmers * Small Scale Industries Sector – There are two sub-categories in this particular category :- 1. Direct Finance - It includes :-

a) Small Scale Industry :- It encompasses loans given to small scale industry units whose original cost of investment in plant and machinery excluding land and building is up to Rs. 5 Crore are engaged in manufacture, processing and preservation of goods. b) Micro Enterprises :- These are small scale industries whose original cost of investment in plant and machinery excluding land and building is up to Rs. 25 lakh. 2. Indirect Finance – It includes finance to any person providing inputs or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector. * Small Business/ Service Enterprises – It includes loans provided to the following :- 1. Small Business and Service providers whose original cost of investment in equipment excluding land and building is up to Rs. 2 Crore like :- a) Small businesses

b) Retail trade
c) Professional and self-employed persons
d) Small road and water transport operators
2. Retail traders dealing in essential commodities, consumer co-operative stores and having credit limit up to Rs. 20 lakh 3. NBFCs which further lend it to small business and service enterprises * Micro Credit – It involves providing credit and other financial services and products of up to Rs. 50,000 per borrower to the poor in rural, semi-urban and urban areas. * Educational Loans – It involves providing loans and advances to individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad. * Housing Loans – It includes the following:-

1. Loans up to Rs. 15 lakh to individuals for construction of houses 2. Loans up to Rs. 1 lakh to individuals for repairs of damages houses in rural and semi-urban areas 3. Loans up to Rs. 2 lakh to individuals for repairs of damages houses in...
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