RBI Revises Priority Sector Lending Norms to Boost Credit for Cooperatives
The Reserve Bank of India has taken a significant step to expand credit access for cooperative societies across the country. The central bank has revised its priority sector lending norms, allowing lending to the National Cooperative Development Corporation to qualify as priority sector loans. This move aims to open new channels of credit for cooperatives, particularly those engaged in agriculture and allied activities.
New Credit Channel for Cooperative Societies
The revised Master Directions on Priority Sector Lending now recognise loans extended by banks to the National Cooperative Development Corporation for on-lending to cooperative societies as eligible priority sector lending. This development is expected to provide much-needed financial support to cooperative societies that play a crucial role in India's rural economy.
NCDC was established under the National Co-operative Development Corporation Act of 1962 and became operational on March 14, 1963. It serves as an apex financing and developmental institution for cooperatives throughout India. The inclusion of NCDC lending in priority sector classification represents a strategic effort to strengthen the cooperative movement through enhanced banking support.
Tightened Compliance and Reporting Requirements
While expanding credit access, the RBI has simultaneously tightened compliance norms to ensure proper implementation of priority sector lending guidelines. The central bank has introduced measures to prevent double counting of priority sector benefits, which has been a concern in the banking system.
Banks lending to NBFCs, housing finance companies, or the National Cooperative Development Corporation will now face stricter reporting requirements. They must obtain certificates from external auditors confirming that priority sector status has not been claimed by another lender for the same underlying exposure. This requirement aims to maintain transparency and prevent misuse of priority sector benefits.
Protection for Small Borrowers
The RBI has issued important clarifications to protect vulnerable borrowers. Banks are now explicitly barred from charging any loan-related charges, including guarantee fees linked to credit guarantee schemes, on priority sector loans of up to Rs 50,000. This clarification ensures that borrowing costs for small and vulnerable borrowers remain affordable and accessible.
Standardisation in Housing Finance
In the housing finance sector, the RBI has addressed classification issues for rural housing loans. For areas not covered under the relevant 2011 Census table, banks must now follow loan limits applicable to centres with a population below 10 lakh. This change standardises the treatment of housing loans in locations with ambiguous population classifications, providing clearer guidelines for banks and borrowers alike.
The comprehensive revisions to priority sector lending norms demonstrate the RBI's dual approach of expanding credit access while strengthening regulatory oversight. By including NCDC lending in priority sector classification, the central bank aims to boost financial support for cooperative societies that contribute significantly to India's agricultural and rural development. Simultaneously, the tightened compliance requirements ensure that priority sector benefits reach their intended recipients without duplication or misuse.
