Page 184 - DMGT303_BANKING_AND_INSURANCE

Unit 9: Priority Sector Lending

17. How is priority sector lending monitored by the Reserve Bank? Notes
Ans.
(i) Priority sector lending by commercial banks is monitored by Reserve Bank of India
through periodical returns received from them. Performance of banks is also reviewed
in the various set up under the Lead Bank Scheme (at State, District and Block levels).
(ii) All loan applications for SSI up to a credit limit of Rs. 25000 should be disposed off
within 2 weeks and those up to Rs. 5 lakh within 4 weeks provided the loan
applications are complete in all respects and accompanied by a check list.

18. What is the rate of interest for loans under priority sector?
Ans. As per the current interest rate policy, in the case of loans up to Rs. 2 lakh, the interest rate
should not exceed the prime lending rate (PLR) of the bank, while in the case of loans
above Rs. 2 lakh, banks are free to determine the interest rate.
19. What are the guidelines for charging of penal interest on PS advances?
Ans. The issue of charging of penal interest that should be levied for reasons such as defaults in
repayment, non-submission of financial statements etc. has been left to the board of each
bank. However, no penal interest is to be levied on PS advances up to Rs. 25000/-.

20. Apprise the guidelines about the service charges and insurance in PS advances.
Ans. No service charges/inspection charges to be levied on PS advances up to Rs. 25000 and for
loans above Rs. 25000 banks are free to levy service charges.

Regarding insurance, banks may waive insurance of assets financed in:
(a) All type of PS advances up to and inclusive of Rs. 10000 for fire and other risks.
(b) Advances to SSI sector up to and inclusive of Rs. 25000 by way of:
(i) Composite loans to artisans, village and cottage industries,

(ii) All term loans,
(iii) Working capital where these are against non-hazardous goods.
21. How is priority sector lending monitored by the Reserve Bank?
Ans. Priority sector lending by commercial banks is monitored by Reserve Bank of India
through periodical Returns received from them. Performance of banks is also reviewed in
the various set up under the Lead Bank Scheme (at State, District and Block levels).

9.3 Small Scale and Ancillary Industries – RBI Guidlines

Small scale industrial units are those engaged in the manufacture, processing or preservation of
goods and whose investment in plant and machinery (original cost) does not exceed Rs. 1 crore.
These would, inter alia, include units engaged in mining or quarrying, servicing and repairing
of machinery. In the case of ancillary units, the investment in plant and machinery (Original
cost) should also not exceed Rs. 1 crore to be classified under small-scale industry. The investment
limit of Rs. 1 crore for classification as SSI has been enhanced to Rs. 5 crore in respect of certain
specified items under hosiery, hand tools, drugs pharmaceuticals and stationery items and
sports goods by the Government of India.

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