Commercial Banking Regulations Overview

Questions and Answers

What is the maximum loan amount that can be borrowed by an entity under farming with assured marketing of produce?

₹10 crore

₹5 crore (correct)

₹100 crore

₹50 crore

Which type of groups are eligible to receive loans directly engaged in Agriculture and Allied Activities?

Partnership Firms

Co-operative Societies

Joint Liability Groups (correct)

Public Limited Companies

What is the lending limit for Start-ups engaged in agriculture as per the Ministry of Commerce and Industry?

₹2 crore

₹50 crore (correct)

₹1 crore

₹100 crore

What type of entities are UCBs prohibited from lending to in the context of farmers?

Co-operatives of farmers Signup and view all the answers

For which category are banks allowed to extend credit up to ₹10 lakh per borrower for on-lending?

MSMEs Signup and view all the answers

What is the maximum aggregate sanctioned limit for loans for agriculture infrastructure per borrower?

₹100 crore Signup and view all the answers

Which of the following is NOT eligible for classification under priority sector lending?

Loans to RRBs Signup and view all the answers

Which category of farmers is eligible for loans up to ₹2 lakh solely engaged in allied activities?

Landless agricultural labourers Signup and view all the answers

What should banks do to avoid double financing in factoring transactions?

Obtain periodical certificates from the borrower Signup and view all the answers

Who are the recipients of the Reserve Bank of India's instructions regarding Priority Sector Lending?

All Commercial Banks including various types of banks Signup and view all the answers

What is the definition of 'On-lending' as per the provided guidelines?

Loans sanctioned to intermediaries for creating priority sector assets Signup and view all the answers

What is the permissible lending limit for loans to co-operative societies of farmers?

₹5 crore Signup and view all the answers

Which of the following groups is NOT eligible for loans for agricultural purposes?

High net worth individuals Signup and view all the answers

What condition pertains to the average maturity of priority sector assets created through on-lending?

It should coincide with the maturity of the bank loan Signup and view all the answers

How do contingent liabilities/off-balance sheet items relate to priority sector achievement?

They do not form part of priority sector achievement Signup and view all the answers

Which sector does NOT qualify for priority sector lending classification?

Corporate investments Signup and view all the answers

What is the option available for foreign banks with less than 20 branches regarding priority sector targets?

They can reckon CEOBE for priority sector activities under specific conditions Signup and view all the answers

What type of lending is allowed to be categorized as priority sector advances for registered NBFCs?

Term lending for agriculture Signup and view all the answers

What does the term 'Adjusted Net Bank Credit (ANBC)' signify in the context of the guidelines?

A specific measure for computing priority sector targets Signup and view all the answers

Which type of bank is exempt from the provisions of these Directions?

Salary Earners' Banks Signup and view all the answers

What is the importance of placing the Directions on the official website of the Reserve Bank of India?

It formalizes their implementation Signup and view all the answers

What does the term 'all-inclusive interest' encompass?

Effective annual interest, processing fees, and service charges Signup and view all the answers

What is the target percentage for UCBs regarding advances to weaker sections for FY2019-20?

40 percent Signup and view all the answers

Which of the following banks are directed to ensure that overall lending to Non-Corporate Farmers does not fall below a certain average?

All domestic banks other than UCBs and foreign banks with more than 20 branches Signup and view all the answers

From which financial year will UCBs need to comply with a target of 75 percent of ANBC or CEOBE?

FY2025-26 Signup and view all the answers

What is the weight assigned to incremental priority sector credit in low credit flow districts starting FY 2024-25?

125% Signup and view all the answers

What does ANBC stand for in the context of priority sector lending?

Outstanding Bank Credit Signup and view all the answers

Which type of farmers' loans is included within the scope of farm credit?

Loans for pre and post-harvest activities and crop loans Signup and view all the answers

What is the revised target for lending to non-corporate farmers for FY 2022-23?

13.78% Signup and view all the answers

Which of the following is exempt from adjustments of weights in PSL achievement?

Regional rural banks (RRBs) Signup and view all the answers

What will happen to investments treated as eligible for priority sector target achievement?

They will be included as Adjusted Net Bank Credit Signup and view all the answers

For which kind of entities is the loan limit set at ₹2 crore for crop loans?

Farmer Producer Organizations and Co-operatives Signup and view all the answers

What categories are considered when calculating Net Bank Credit?

Total outstanding loans and prudential write-offs Signup and view all the answers

What type of groups can be included in loans to individual farmers?

Self Help Groups (SHGs) and Joint Liability Groups (JLGs) Signup and view all the answers

What must banks record in the Receipt, Sanction/Rejection/Disbursement Register?

Date of receipt, sanction/rejection/disbursement Signup and view all the answers

What is the maximum service charge that can be levied on priority sector loans up to ₹25,000?

No service charges Signup and view all the answers

How does misclassification affect future fund allocations?

It is adjusted/reduced from the current year’s achievement Signup and view all the answers

Which processing methods are included for Fruits and Vegetables preservation?

Sun Drying and Mechanical Drying Signup and view all the answers

What must banks provide to applicants of priority sector loans?

Acknowledgement of loan applications Signup and view all the answers

What should be taken into account while granting regulatory clearances for banks?

Non-achievement of priority sector targets Signup and view all the answers

What is the significance of using ANBC or Credit Equivalent Amount in PSL targets achievement calculation?

To calculate priority sector target achievement based on the higher figure Signup and view all the answers

What aspect of loan applications should bank boards regulate?

Time limit for communicating decisions Signup and view all the answers

What is one of the methods used in the processing of grains and pulses?

Hydrogenation Signup and view all the answers

What is a responsibility of banks regarding priority sector loans per member of SHGs/JLGs?

To maintain service charge limits applicable per member Signup and view all the answers

What is the maximum loan amount for educational purposes to be considered eligible for priority sector classification?

₹20 lakh Signup and view all the answers

For housing loans in metropolitan centres, what is the maximum amount eligible for priority sector classification when the overall cost does not exceed ₹45 lakh?

₹35 lakh Signup and view all the answers

What loans are not eligible for priority sector classification under Housing loans?

Housing loans to banks' own employees Signup and view all the answers

Which of the following loan limits applies to bank loans for setting up drinking water facilities?

₹5 crore per borrower Signup and view all the answers

Which loan amounts for repairs to damaged dwelling units align with the requirements for priority sector classification?

Both B and C Signup and view all the answers

Which of the following criteria do not apply to loans classified under the Weaker Sections category?

Loans to distressed farmers Signup and view all the answers

What is the maximum loan amount for individual borrowers for affordable housing projects with continuous carpet area limitation?

₹20 lakh Signup and view all the answers

What is the loan limit for individual households for non-conventional energy based public utilities?

₹10 lakh per borrower Signup and view all the answers

Which bank loans to governmental agencies are aligned with priority sector classification?

Loans for slum clearance and rehabilitation with area limits Signup and view all the answers

Which loans are provided by banks to SHG/JLG for development projects classified under priority sector?

For any viable common activity Signup and view all the answers

Loans for activities other than agriculture or MSME by Start-ups can go up to what limit for priority sector classification?

₹50 crore Signup and view all the answers

Which sector is excluded from priority sector classification for export credit?

Non-agricultural services Signup and view all the answers

What is the maximum loan amount for repairs to damaged dwelling units in other centres?

₹6 lakh Signup and view all the answers

What is the maximum interest rate that can be charged to the ultimate borrower by the originating entity for loans eligible for priority sector status?

MCLR + 10% Signup and view all the answers

Which of the following loans does not qualify for priority sector status when securitized?

Loans against gold jewellery Signup and view all the answers

What is the role of the Reserve Bank of India in relation to priority sector lending guidelines?

Issuing and updating guidelines on priority sector lending Signup and view all the answers

Under what condition can banks classify loans to MFIs as priority sector advances?

If banks comply with RBI guidelines and MFI conditions Signup and view all the answers

For which category of loans is the overall limit for bank credit set at 10% of an individual bank's total priority sector lending?

Loans to registered MFIs Signup and view all the answers

What is true regarding IBPCs bought by banks under priority sector classification?

They must be bought on a risk-sharing basis. Signup and view all the answers

Which of the following statements about loans from banks to NBFCs is accurate?

Loans to NBFCs for on-lending must meet specific guidelines for prioritization. Signup and view all the answers

What type of loans are exempt from the interest rate cap set by the Reserve Bank of India?

Investments in securitisation notes originated by MFIs Signup and view all the answers

When banks process outright purchase of loan assets, what must they report?

The amount disbursed to priority sector borrowers Signup and view all the answers

Which of the following assets is ineligible for classification under priority sector?

Loans against gold jewellery from NBFCs Signup and view all the answers

What is the purpose of the guidelines set forth by the Reserve Bank of India for banks?

To establish a uniform approach to priority sector lending Signup and view all the answers

What will happen to priority sector loans created by MFIs if their gross loan portfolio exceeds ₹500 crore?

They will continue to be classified as PSL until repayment/maturity. Signup and view all the answers

Which type of banks are strictly not allowed to engage in securitization of priority sector loans?

Regional Rural Banks Signup and view all the answers

What is necessary for the classification of outstanding Priority Sector Lending Certificates (PSLCs) bought by banks?

The underlying assets must be eligible as priority sector advances. Signup and view all the answers

What is the maximum amount that can be lent to a borrower for micro and small enterprises by NBFCs?

₹ 20 lakh Signup and view all the answers

Which financial institutions are excluded from the bank credit for HFCs for on-lending?

All of the above Signup and view all the answers

What is the overall limit for bank credit to NBFCs for on-lending in relation to priority sector lending?

5% of total priority sector lending Signup and view all the answers

What is the primary purpose of the COVID loan book created under the special liquidity window?

To ramp up COVID-related healthcare infrastructure Signup and view all the answers

When are banks expected to submit data on priority sector advances to FIDD?

Quarterly Signup and view all the answers

How will banks manage their compliance to the priority sector lending targets?

Quarterly monitoring Signup and view all the answers

Which of the following sectors is eligible for the separate liquidity window created during the pandemic?

Tourism Signup and view all the answers

What is the caps on individual loans for the construction or purchase of dwelling units under HFCs?

₹ 20 lakh Signup and view all the answers

What happens to banks with a shortfall in their lending to the priority sector?

They must contribute to RIDF. Signup and view all the answers

How often is the data on priority sector advances monitored for UCBs?

Quarterly Signup and view all the answers

What is required of banks during the transitional period for co-lending arrangements?

Continue existing arrangements Signup and view all the answers

What is the maximum tenor for the liquidity window opened for COVID-related sectors?

Up to three years Signup and view all the answers

What is a factor in determining the eligible portfolio for on-lending by banks?

Average across four quarters Signup and view all the answers

What must banks do if they do not meet the prescribed priority sector targets?

Participate in RIDF contributions Signup and view all the answers

What distinguishes HFC-related bank credit from other loans?

Specifically for individual dwelling units Signup and view all the answers

Study Notes

Priority Sector Lending Guidelines

The Reserve Bank of India (RBI) regulates Priority Sector Lending (PSL) for banks, updating guidelines periodically.
These directions apply to all commercial banks, including Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Local Area Banks, and Primary Co-operative Banks (UCBs).

Definitions and Metrics

On-lending: Refers to loans given by banks to eligible intermediaries for subsequent lending to create priority sector assets.
Adjusted Net Bank Credit (ANBC): Represents the outstanding bank credit relevant for calculating priority sector achievements.
Credit Equivalent of Off-Balance Sheet Exposures (CEOBE): Foreign banks with fewer than 20 branches can include CEOBE in achieving PSL targets, given specific conditions.

PSL Targets

UCBs must reach 40% of ANBC or CEOBE by FY2019-20, increasing to 75% by FY2025-26.
Domestic banks (excluding UCBs) and foreign banks must ensure lending to Non-Corporate Farmers does not fall below the system-wide three-year average.
For FY2022-23, the NCF target is set at 13.78% of ANBC or CEOBE.

Adjustments and Weighting for PSL Achievement

To address regional disparities, districts with low per capita credit flow (< ₹9,000) receive higher weight (125%) for incremental PSL credit while districts with high flow (> ₹42,000) get lower weight (90%).
RRBs, UCBs, LABs, and foreign banks are exempt from weight adjustments due to limited operational areas.

Lending Categories Under PSL

Loans for agriculture and allied activities include:
- Crop loans and loans for farm-related machinery.
- Medium and long-term loans for agricultural development.
- Loans for installation of solar agriculture pumps.
Corporate farmers and Farmer Producer Organizations can borrow up to ₹2 crore for specific agricultural needs.

MSME and Start-Up Loans

Loans to Micro, Small, and Medium Enterprises (MSMEs) are classified under PSL.
"With Recourse" factoring transactions for MSMEs are also eligible for PSL classification.
Start-ups can receive up to ₹50 crore under PSL guidelines.

Housing Loans

Loans up to ₹35 lakh in metropolitan centers and ₹25 lakh in other areas for purchasing or constructing homes qualify for PSL classification.
Housing loans for government agencies focused on slum clearance or affordable housing projects are included.

Loans up to ₹5 crore per borrower for setting up educational, sanitation, and healthcare facilities fulfill PSL requirements.
Bank loans to renewable energy initiatives also qualify, with specific limits defined for both individual households and corporate entities.

Guidelines for Agricultural and Microfinance Lending

Loans to Self Help Groups (SHGs) and Joint Liability Groups (JLGs) catering to distressed individuals (not exceeding ₹1 lakh) are eligible under PSL.
UCBs are restricted from lending to farmer co-operatives under the current RBI guidelines.

Reporting and Compliance

Banks must consistently report outstanding amounts in Quarterly Priority Sector Returns while adjustments for weights will be monitored by the RBI.
All lending practices must align with the stipulations outlined in the Master Directions issued by RBI.### Overview of Priority Sector Lending in India
Priority Sector Lending (PSL) aims to enhance credit accessibility for weaker sections of society and support economic activities beyond agriculture and MSME sectors.
Borrowers may qualify under the Weaker Sections category, including overdrafts from Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts.

Minority Communities in Lending

In states where minorities such as Punjab, Meghalaya, Mizoram, Nagaland, Lakshadweep, and Jammu & Kashmir are predominantly represented, lending considerations apply only to other notified minority groups.

Securitisation Notes and Asset Transfer

Banks can invest in securitisation notes for loans categorized as priority sector advances, provided they meet RBI guidelines, with an interest cap linked to the investing bank's MCLR or EBLR.
Direct assignment of asset pools for priority sector loans is allowed, adhering to similar interest rate conditions and RBI guidelines.

Bank Loans to Microfinance Institutions (MFIs)

Banks may extend credit to registered MFIs for on-lending purposes, classified under various priority sectors including agriculture and social infrastructure.
A limit of 10% of a bank's total PSL is imposed on the amount of credit extended to MFIs.

Bank Loans to Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs)

Credit to registered NBFCs for agriculture lending is capped at ₹10 lakh per borrower; for micro and small enterprises, up to ₹20 lakh per borrower.
Loans to HFCs focused on individual dwelling units or slum rehabilitation are limited to ₹20 lakh per borrower, with oversight required for borrower data.

Co-Lending Arrangements

Scheduled Commercial Banks can co-lend with registered NBFCs for priority sector lending, ensuring business continuity and adherence to regulatory guidelines.
Existing co-origination agreements may continue until formal policies are established.

Compliance and Reporting

Banks must maintain comprehensive records on priority sector advances and submit quarterly reports to regulatory bodies alongside compliance checks.
Non-achievement in PSL targets incurs obligations to contribute to the Rural Infrastructure Development Fund (RIDF).

Interest Rates and Service Charges

Interest rates on priority sector loans must adhere to RBI regulations, with specific no-charge limits for loans up to ₹25,000.
Banks are required to record all loan application processes, providing applicants with formal acknowledgments.

Processing and Preservation Methods

Support provided for various agricultural processing methods includes cold storage, traditional and modern preservation techniques, and the production of value-added products.

Measurement of PSL Achievement

The calculation of achievement against PSL targets relies on adjusted net bank credit (ANBC). Reported shortfalls or excesses are monitored quarterly, influencing future lending strategies.

Conclusion

RBI's guidelines regarding PSL target compliance are dynamic and frequently updated, vital for increasing lending efficiency and promoting economic inclusivity across diverse sectors.

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Description

This quiz explores the various regulations and updates affecting commercial banks, including Regional Rural Banks and Small Finance Banks, as detailed by the Reserve Bank. Gain insights into the governance and compliance measures that banks must adhere to, focusing on recent updates and standard practices.