What Is Priority Sector Lending Explain Principles Of Lending?

by | Last updated on January 24, 2024

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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. …

What is priority sector lending RBI?

The following loans as per the prescribed limits are eligible for priority sector classification: …

Loans to distressed persons

[other than distressed farmers indebted to non-institutional lenders] not exceeding ₹1.00 lakh per borrower to prepay their debt to non-institutional lenders.

What are principles of lending?


Liquidity

:

Liquidity is an important principle of bank lending. Bank lend for short periods only because they lend public money which can be withdrawn at any time by depositors. They, therefore, advance loans on the security of such assets which are easily marketable and convertible into cash at a short notice.

What are the essential features of priority sector lending?

Priority sector lending (PSL) was formalized in 1972, and RBI advised PSL targets to banks in 1974, which ensures that the lenders compulsorily lend 40% of their total credit to specific sectors. These include

agriculture, small businesses, export credit, education, housing, social infrastructure, and renewable energy

.

Which of the following are priority sector for lending?


Bank credit to MFIs

(NBFC-MFIs, societies, trusts, etc) extended for on-lending to individuals and also to members of SHGs/JLGs is eligible for categorisation as priority sector advance under respective categories viz., Agriculture, Micro, Small and Medium Enterprises, Social Infrastructure and Others subject to the …

What are the 3 types of risk in principle of lending?

  • Credit Default Risk.
  • Concentration Risk.
  • Country Risk.

Which is the most important principle of lending?


“Safety first”

is the most important principle of good lending. When a banker lends, he must feel certain that the advance is safe; that is, the money will definitely come back.

How much percentage is priority sector lending?

Priority Sector Lending – Small Finance Banks and RRBs – Target.

18 per cent of ANBC

. Within the 18 per cent target for agriculture, a target of 8 percent of ANBC is prescribed for Small and Marginal Farmers.

Is MSME a priority sector?

A. 2.

Bank’s lending

to the Micro ,Small and Medium enterprises as under is eligible to be reckoned for priority sector advances: … b) MSMEs engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006.

What is non priority sector lending in banks?

Non-Priority Sector lending is

the sector towards which financial institutions are always ready to lend credit

. … It attracts finance every time. It covers all the remaining sectors which are other than PSL.

What do you mean by priority sectors?

Priority Sector means

those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country

and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.

Why priority sector lending is introduced?

Objective of Priority Sector Lending


To ensure that adequate institutional credit flows into some of the vulnerable sectors of the economy

, which may not be attractive for the banks from the point of view of profitability.

What is MSME in banking sector?

The

Micro Small and Medium enterprises

(MSMEs) have been accepted as the engine of economic growth and play an important role in the equitable economic development of country. The major advantage of the sector is its employment potential at low capital cost.

What are the benefits of priority sector lending?

  • Increase in industries and allied activities at grass root level.
  • Improved living standards of rural people.
  • Poverty eradication.
  • Development of infrastructure in rural areas.
  • Increase in production of agriculture and allied goods.
  • Support to gross domestic product.

How many types of PSL C are there?


Four kinds

of PSLCs, namely, PSLC – Agriculture, PSLC – Small & Marginal Farmers, PSLC – Micro Enterprises and PSLC – General can be bought and sold via the platform. Thus, a bank having shortfall in achievement of any sub-target (e.g. SF/MF, Micro), will have to buy the specific PSLC to achieve the target.

How many categories are there in priority sector lending?

As per the RBI circular released in 2016, there are

eight

broad categories of the Priority Sector Lending. They are: (1) Agriculture (2) Micro, Small and Medium Enterprises (3) Export Credit (4) Education (5) Housing (6) Social Infrastructure (7) Renewable Energy (8) Others.

Ahmed Ali
Author
Ahmed Ali
Ahmed Ali is a financial analyst with over 15 years of experience in the finance industry. He has worked for major banks and investment firms, and has a wealth of knowledge on investing, real estate, and tax planning. Ahmed is also an advocate for financial literacy and education.