The finance ministry is opposing a Reserve Bank of India suggestion to widen the list of sectors eligible for priority sector lending.
The Reserve Bank's draft report submitted to the ministry for its comments last week has also recommended that some infrastructure segments should be classified as priority.
But a finance ministry official said there is no point in diluting the existing list of priority sectors. "And if banks are too keen then we should also raise the limit from current 40% to 50% or above."
RBI guidelines require banks to lend 40% of their adjusted net credit to the priority sector, which includes agriculture, small-scale industries and other weaker sections. If banks fail to meet the priority sector lending target they can buy loans of regional rural banks or micro-finance institutions.
The finance ministry will now send its comments to RBI before the draft report is finalised. "If required, certain sectors can be added. We will also hold discussions with state-run banks as it has been observed that it is mostly private banks that fail to meet the set targets," the official said.
Last year, RBI had set up a 10-member committee to examine the existing classification and suggest new guidelines. The committee, headed by Union Bank of India chairman MV Nair, reviewed the eligibility criteria for priority sector loans in relation to the nature of activities, types of borrowers, limits on loan amounts and controls on end-use of funds.
RBI Deputy Governor H R Khan said last week that the bank is considering classifying housing finance for weaker sections as priority lending.
Public sector banks, however, feel that adding more sectors will only add to the burden. "In this fiscal we are finding it difficult to meet the targets because of the low credit growth. But it remains to be seen what new sectors are we talking about," said a senior official with Central Bank of India.
Lending to the priority sector grew by just 5% on an annualised basis in December because of lower offtake of agriculture and MSME loans. Credit offtake by the priority sector had grown by as much as 29.2% during the same month of 2010.
Source: economictimes.indiatimes.com