RBI upbraids banks on priority lending

The Reserve Bank of India (RBI) has come down heavily on the foreign and private sector banks for shying away from priority sector lending and putting the outstanding amount with the Rural Infrastructure Development Fund (RIDF).

The directive signifies the government's renewed impetus to push hard on credit to small sector industries, farm sector and others from the priority sector.

Seen in an election mode, the government, in a mid-year review has enhanced the target under the Prime Minister Rojgar Yojana (PMRY) for 2003-04 for backward states such as Orissa, Meghalaya and Arunachal Pradesh.

The RBI directive also deals a blow to the foreign and private banks lobbying for delinking priority sector lending from their business operations, banking sources said.

The basic targets for the backward states have been revised almost two to three folds under PMRY scheme. The RBI has also informed that loans up to a ceiling of Rs 7.50 lakh for studies in India and Rs 15 lakh for studies abroad will be considered as priority sector lending.

The ministry had called a meeting of all bank chiefs and expressed concern on various issues related to Swarnajayanti Gram Swarojgar Yojana (SGSY).

Banks were also pulled up for delay in sanctioning and disbursing of loans to farm and priority sector and charging high rates of interest in a regime of declining rate of interest.

Some other areas where the government had raised concern were delay caused by banks in opening accounts for rural customers, prolonged pendency of loan applications, under-financing of beneficiaries, delay in receipt of subsidy under the SGSY scheme, complex documentation process and bunching of application etc.

While interest rates have been drastically cut under RIDF, foreign and private banks have been asked to pursue priority sector credit.

They have also been asked to stop the practice of parking amount earmarked for priority sector with housing finance companies and RIDF.

With effect from November 1, the interest rates on RIDF have been cut by 200 basis points across all categories.