Sectoral Distribution
Advances are required to be classified, inter alia, into those in India and those outside India, with further sub-classification under each category. One such sub-classification that merits discussion from an auditor’s perspective is advances in India to priority sectors.
Priority sector advances include:
Advances for agriculture and other allied activities – However, RBI, vide its circular no. RPCD.CO.Plan.BC. 51 /04.09.01/2010-11 dated February 2, 2011 on “Classification of loans against gold jewellery” clarifies that loans sanctioned to NBFCs for on-lending to individuals or other entities against gold jewellery, are not eligible for classification under agriculture sector. Similarly, investments made by banks in securitised assets originated by NBFCs, where the underlying assets are loans against gold jewellery, and purchase/assignment of gold loan portfolio from NBFCs are also not eligible for classification under agriculture sector. RBI vide its master circular no FIDD.FID.BC.No. 02/12.01.033/2015-16dated July 1, 2015 has provided details on SHG- Bank linkage Programme. In order to enable the banks to report their SHG lending without difficulty, it
was decided that the banks should report their lending to SHGs and/or to NGOs for on-lending to SHGs/members of SHGs under the new segment, viz. ‘Advances to SHGs’ irrespective of the purposes for which the members of SHGs have been disbursed loans. Lending to SHGs should be included by the banks as part of their lending to the weaker sections(under priority section).
Advances to minority communities.
Advances to micro/small/medium scale enterprises5.
Advances to small road transport operators.
Advances to retail traders and small business enterprises.
Advances to professionals and self-employed.
Advances sanctioned to State sponsored organisations for scheduled castes/scheduled tribes.
Educational loans upto the prescribed limit – RBI, vide its circular no. RPCD.SME & NFS.BC.No. 69/06.12.05 /2009-10 dated April 12, 2010 on“Collateral Free Loans – Educational Loan Scheme”, clarified that banks must not, mandatorily, obtain collateral security in the case of educational loans upto Rs. 4 lakh.
Housing loans upto prescribed limits6.
Funds provided to RRBs.
Micro credit7.
Any other priority sector advances, such as SEPUP (Self-Employment Programme for Urban Poor), PMRY (Prime Minister’s Rozgar Yojana), SEEUY (Self-Employment Scheme for Educated Unemployed Youth) SGSY (Swarna jayanti Gram swaraj Swarojgar Yojana)8, SJSRY (Swarna jayanti Sahakari Rozgar Yojana).
Priority sector advances generally carry an interest rate, which is lower than the normal rate of interest on lending to other sectors. These advances are also known as DRI advances, i.e., advances on which differential rate of interest is applicable. Under the Reserve Bank of India’s guidelines, a specified proportion of the total advances of banks are to be made to priority sectors necessarily. Depending upon the nature and type of facilities extended, the bank may get subsidy from the Government to fully or partly offset the shortfall in interest rate and/or get indemnified for bad debts for the whole or a portion of such advances.
RBI has issued a guidelines for the targets and sub-targets set under priority sector lending for all scheduled commercial banks operating in India. For detailed information on the guidelines, refer RBI circular FIDD.CO.Plan.BC.54/04.09.01/2014-15 on “Priority Sector Lending – Targets and Classification”.
Government of India vide Notification dated February 04, 2016 has specified “Dealing in Priority Sector Lending Certificates (PSLCs) in accordance with the Guidelines issued by Reserve Bank of India” as a form of business under Section 6 (1)(o) of the Banking Regulation Act, 1949. The purpose of PSLCs is to enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall and at the same time incentivize the surplus banks; thereby enhancing lending to the categories under priority sector. Refer RBI circular FIDD.CO.Plan.BC.23/04.09.01/2015-16 for detailed guidelines on PSLCs.