RBI restructures interest payable to banks under RIDF & other funds
Updated: Dec 11, 2014 12:30:19pm
Mumbai, Dec 11 (KNN) The Reserve Bank of India has restructured the slabs and the interest earned for investments made under Rural Infrastructure Development Fund (RIDF) and other funds.
According to a notification issued yesterday, the apex bank said, “it has been decided to restructure the classification of shortfall and interest payable to banks falling in these categories on deposits placed by them in the above funds (RIDF and other funds), prospectively with immediate effect.”
As per this notification, if the shortfall in overall priority sector lending (PSL) targets is less than 5 percentage points, then banks will earn 7 per cent (bank rate minus 2 percentage points).
On the other hand, if the shortfall in overall PSL is 5 and above, but less than 10 percentage points, the banks can earn 6 per cent (bank rate minus 3 percentage points); and if the shortfall is 10 percentage points and above, the banks will earn 5 per cent (bank rate minus 4 percentage points), it said.
Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections, as per official data.
The concept of the ‘priority sector’ emerged mainly to encourage banks to lend more to neglected areas of the economy. These sectors contribute significantly to the GDP, but do not receive adequate institutional finance.
Indian banks are mandated to allocate 40 per cent of their loans for Priority Sector Lending. (KNN/ES)
According to a notification issued yesterday, the apex bank said, “it has been decided to restructure the classification of shortfall and interest payable to banks falling in these categories on deposits placed by them in the above funds (RIDF and other funds), prospectively with immediate effect.”
As per this notification, if the shortfall in overall priority sector lending (PSL) targets is less than 5 percentage points, then banks will earn 7 per cent (bank rate minus 2 percentage points).
On the other hand, if the shortfall in overall PSL is 5 and above, but less than 10 percentage points, the banks can earn 6 per cent (bank rate minus 3 percentage points); and if the shortfall is 10 percentage points and above, the banks will earn 5 per cent (bank rate minus 4 percentage points), it said.
Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections, as per official data.
The concept of the ‘priority sector’ emerged mainly to encourage banks to lend more to neglected areas of the economy. These sectors contribute significantly to the GDP, but do not receive adequate institutional finance.
Indian banks are mandated to allocate 40 per cent of their loans for Priority Sector Lending. (KNN/ES)
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