Page 192 - DMGT303_BANKING_AND_INSURANCE

Unit 9: Priority Sector Lending

the PLR and that beyond Rs.2 lakh is left to the discretion of the banks subject to PLR and the Notes
maximum bands. The banks have been advised to accord SSI units with a good track record the
benefit of lower spreads over the PLR. Banks have been advised to set the interest rate on
advances keeping in view prevailing general southward movement in interest rates. The banks
have been further advised to fix at least 3 slabs for advances to SSI sector.

Penal Interest

The issue of charging penal interests that should be levied for reasons such as default in
repayment, non-submission of financial statements etc. has been left to the Board of each
bank. Banks have been advised to formulate policy for charging such penal interest with
the approval of their Boards, to be governed by well accepted principles of transparency,
fairness, incentive to service the debt and due regard to difficulties of customers.
No penal interest should be charged for loans up to Rs. 25,000.
For limits over Rs. 25,000 the aggregate penal/additional interest should not exceed 2 per
cent over and above the rate of interest applicable/normally charged to the borrowers.

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Caution The banks have been advised to accord SSI units with a good track record the
benefit of lower spreads over the PLR.

9.10 Insurance against Fire and Other Risks

Banks may waive insurance of assets financed by bank credit in the following cases:

No. Category Type of Risk Type of Assets
(a) All categories of priority sector advances Fire and other risks Equipment and current assets
upto and inclusive of Rs. 10,000
(b) Advances to SSI sector upto and inclusive
of Rs. 25,000 by way of -
• Composite loans to artisans, village Fire Equipment and current assets
and cottage industries
• All term loans Fire Equipment
• Working capital where these are Fire Current Assets
against non-hazardous goods
Where, however, insurance of vehicle or machinery or other equipment/assets is compulsory
under the provisions of any law or where such a requirement is stipulated in the refinance
scheme of any refinancing agency or as part of a Government-sponsored programmes such as,
IRDP (since replaced by SGSY), insurance should not be waived even if the relative credit facility
does not exceed Rs. 10,000 or Rs. 25,000, as the case may be.

Other Charges

Banks should not levy any other service charges except by way of reimbursement of reasonable
out of pocket expenses.

9.11 Self Help Groups

Rural indebtedness is one of the serious deficiencies which any developing economy suffers.
Money lenders exploit, the rural masses, lend money at unbelievable rate of interest and assure

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