>BANKING SECTOR: Recommendations on Priority Sector lending by Nair Committee

The Reserve Bank of India (RBI) on 21 February 2012 released the report of the Committee headed by Mr. M V Nair which was constituted to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending and related issues. The RBI has sought recommendations from various stakeholders by March 31, 2012.


We believe that the recommendations are broadly towards directing the credit flow to the economically weaker sections of the society and can be fairly achievable in a phased manner on overall basis given the timeline for implementation. The overall targets for PSL have been retained with certain new sub-segment targets introduced, which intend to improve the lending towards agriculture segment, ensure appropriate monitoring mechanism and change of methodology for calculation of shortfall to make it more effective and transparent. We believe that the recommendations are neutral for public sector banks and more on the negative side for private banks since they may fall short in meeting many new sub-targets given that the current lending towards such segments is already at the lower end. While the introduction of the guarantee scheme for SFMF, removal of DRI scheme, increasing housing and educational limits under PSL, change in calculation of shortfall and loans to NBFC’s for on-lending, buy-out & securitization classified as priority sector are positives amongst the recommendations, cap of 5% of ANBC for NBFC lending and introduction of sub-segments for meeting PSL targets are some of the negatives.


To read full report: BANKING SECTOR
RISH TRADER