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. The Reserve Bank of India (RBI) has defined different categories under priority sector and agriculture is one of that category which falls under priority sector lending. Domestic scheduled commercial banks excluding Regional Rural Banks (RRB) and Small Finance Banks (SFB) and Foreign banks with 20 branches and above have a target of 18% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. Within the 18 percent target for agriculture, a target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers. The activities covered under Agriculture are classified under three sub-categories viz. Farm credit, Agriculture infrastructure and Ancillary activities.
Bank credit extended to registered NBFC-MFIs and other Microfinance institutions (MFIs) such as societies, trusts etc. which are members of RBI recognised Self-Regulatory Organisation (SRO) for the sector, for on-lending to individuals and also to members of Self Help Groups (SHGs) / Joint Liability Group (JLGs) will be eligible for categorisation as priority sector advance under respective categories of agriculture subject to conditions specified in para 21 not applicable to RRBs, UCBs, SFBs and Local Area Banks (LABs). Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘Term lending’ component under agriculture will be allowed up to Rs. 10 lakh per borrower subject to conditions specified in para 22 and 24 (not applicable to RRBs, UCBs, SFBs and LABs).
In order to provide greater operational flexibility to banks and NBFCs for reaching out to priority sector, a revised scheme, renamed as co-lending model (CLM) was introduced, effective November 5, 2020. The primary focus of the revised scheme is to improve the flow of credit to the unserved and underserved sectors of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the comparative advantage of lower cost of funds of banks and greater reach of NBFCs.
The Government of India (GoI) fixes the agricultural credit target every year for commercial banks, RRBs and rural co-operative banks. During 2020-21, against the target of Rs. 15 lakh crore, banks achieved 75.1 per cent of the target (Rs. 11.27 lakh crore) as on December 31, 2020, of which commercial banks, RRBs and rural co-operative banks achieved 78.6 per cent, 74.2% and 59.3%, respectively, of their targets.
| RBI Targets and Achievements for Agricultural Credit | Commercial Banks | Rural Co-operative Banks | RRBs | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Target | Achievement | Target | Achievement | Target | Achievement | Target | Achievement | |
| 2019-2020 | 9,72,000 | 10,61,215 | 2,02,500 | 1,49,694 | 1,75,500 | 1,62,857 | 13,50,000 | 13,73,766 |
| 2020-2021 (April-December) | 10,81,978 | 8,50,543 | 2,25,946 | 1,33,976 | 1,92,076 | 1,42,603 | 15,00,000 | 11,27,121 |
| 20,53,978 | 19,11,758 | 4,28,446 | 2,83,670 | 3,67,576 | 3,05,460 | 28,50,000 | 25,00,887 | |
In sum, during the year, the Reserve Bank implemented the recommendations of the Expert Committee on MSME and the Internal Working Group on Agricultural Credit to improve inclusiveness and also enhance flow of credit to these sectors. Further, revised Master Directions on PSL were issued to harmonise the various instructions. Co-lending was introduced to improve the flow of credit to the unserved and underserved sectors of the economy at an affordable cost and scale up of the pilot CFL project was initiated to cover the entire country in a phased manner. Going ahead, the implementation of the recommendations laid down under the NSFI document and strengthening financial literacy will be the key areas of focus for the Reserve Bank.
