)
Investments under Rural Infrastructure Development Fund (RIDF) and other funds made by the banks can earn a slightly higher rate of interest.
The Reserve Bank of India (RBI) has reworked the slabs as well as the interest earned under investments made in these funds. Now, if the shortfall in overall priority sector lending (PSL) targets is less than 5 percentage points, then banks will earn 7 per cent (bank rate minus 2 percentage points). Earlier, for less than the 5 per cent slab, the interest earned was bank rate minus 3 per cent.
If the arrears in PSL target is more than 5 and less than 10 per cent then the lenders will earn 6 per cent (bank rate minus three percentage points).
In a scenario where shortfall is 10 percentage points or more, then banks can earn 5 per cent (bank rate minus four percentage points).
The new regulations are effective immediately. These new guidelines will provide a breather to banks, as most of them find themselves struggling with meeting the PSL norms and as a results have to resort to investment in RIDF and other such funds.
At present, banks are mandated to lend 40 per cent of their funds to the PSL sectors which cover agriculture, micro and small enterprises, education and housing, among others.
