Regulations
RBI amends priority sector lending norms

RBI said banks should ensure that loans extended under priority sector are for approved purposes and the end use is continuously monitored

 
Mumbai: The Reserve Bank of India (RBI) has expanded the priority sector lending in agriculture, housing and small and medium enterprises (SME) to widen the scope loans to these sectors, reports PTI.
 
"...discussions were held with CMD/CEOs of select banks and also with priority sector heads of select banks. Based on the feedback received, it has been decided to make certain additions and amendments in the guidelines on priority sector," RBI said in a notification today.
 
RBI said lending by banks to corporates, including farmers' producer companies of individual farmers, partnership firms and co-operatives of farmers in agriculture and allied activities -- dairy, fishery, animal husbandry, poultry, bee-keeping, and sericulture -- up to an aggregate limit of Rs2 crore would qualify for priority sector lending.
 
This kind of lending could be for the purpose of raising crops, pre-harvest and post-harvest activities (spraying, weeding, harvesting, grading, sorting) and export credit for exporting their own farm produce, it said.
 
In case the loan limit per borrower is more than Rs2 crore, the entire loan should be treated as indirect finance to agriculture, it added.
 
Also, bank loans to (MSE) engaged in providing or rendering of services would be eligible for direct finance under priority sector up to an aggregate limit of Rs2 crore per borrower/unit.
 
Loans to governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers up to Rs10 lakh per dwelling unit would come under priority sector.
 
Loans to economically weaker sections and low-income groups, loans to housing finance companies for refinance, on-lending for purchase or construction or reconstruction up to a ceiling of Rs10 lakh per dwelling would also be eligible for priority sector lending.
 
RBI further clarified "banks should ensure that loans extended under priority sector are for approved purposes and the end use is continuously monitored. The banks should put in place proper internal controls and systems in this regard." 
 
The central bank has mandated targets for priority sector lending to meet credit needs of large sections of population who had no access to institutional finance.
 

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Bank credit, deposits grow by 14-16% in past 12 months: RBI

According to RBI data, bank deposits rose 13.8% to Rs64.1 lakh crore while credit grew 15.8% to Rs48.1 lakh crore in the past 12 months

 
Mumbai: Bank credit and deposits grew by 14-16% in the past 12 months, data from the Reserve Bank of India (RBI) showed, reports PTI.
 
RBI releases banks' statement of position data fortnightly and data released yesterday stated the position till 5 October 2012.
 
According to the data, banks' deposits were at Rs64.1 lakh crore as of 5th October 5, up 13.8% from Rs56.3 lakh crore a year ago.
 
Bank credit grew to Rs48.1 lakh crore, up 15.8% from Rs41.5 lakh crore as of 7 October 2011.
 
The investment by the banks in government securities and other approved securities rose to Rs20 lak crore, up from Rs17.4 lakh crore a year earlier.
 
Also, the food credit outstanding by banks (including state co-operative banks) stood at Rs99,915 crore from Rs69,640 crore.
 

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Rangarajan bats for new banks

The PMEAC chairman also said that as new banks take at least two decades to achieve scale, the decision to allow new entrants must depend on what the economy needs over the next several decades

 
Mumbai: The Reserve Bank of India (RBI) should come up with entry norms for issuing new banking licences, says C Rangarajan, chairman of Prime Minister's Economic Advisory Council (PMEAC), reports PTI.
 
"If the domestic banking system is to remain competitive over time, there should be periodic entry of new banks. A closed system can only become oligopolistic (one with few players).
 
"Such a threat should now be eliminated and the central bank should lay down entry norms and also decide on who satisfies the criterion," Rangarajan said at banking award function organised by commodity bourse MCX.
 
The comments come amidst reports of the Finance Ministry nudging the Mint Road to go ahead with the licensing process as soon as possible.
 
The former RBI governor also said that as new banks take at least two decades to achieve scale, the decision (to allow new entrants) must depend on what the economy needs not today but over the next several decades.
 
The central bank, which issued draft guidelines for new banks last year, is yet to come up with the final guidelines as it seeks statutory powers to supersede the boards of erring banks, which can happen only through an amendment to the Banking Regulations Act, pending before Parliament.
 
Talking about new capital adequacy regulations such as Basel III, Rangarajan said it doesn't pose an immediate challenge but in the long-term, there is need of capital for our banks.
 
He also said the RBI's projection in its annual report about the capital requirement for Basel-III is an underestimate.
 
"The estimates for common equity capital in my view may turn out to be underestimate as the required non-equity capital may be difficult to achieve...while the private sector banks will have to meet these requirements by accessing the capital markets, public sector banks will require in addition budgetary support," he said.
 
The RBI Governor in the financial stability report released in August had pegged the capital need of banks at about Rs1.75 lakh crore by March 2018 to conform to Basel III.
 
Referring to rise in NPAs, Rangarajan said though the trend is disturbing, it is the fallout of the slowing economy.
 

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