RBI’s Monetary Policy Review
- RBI said in its ‘Statement on Developmental and Regulatory Policies’ to cover all repetitive bill payments under the Bharat Bill Payment System (BBPS) that includes 5 segments- electricity, telecom, gas, direct-to-home, and water bills.
- RBI has extended the working hour of retail payment system National Electronic Funds Transfer (NEFT), which is used for fund transfer up to Rs 2 lakh, from 8 am to 7 pm to 24x7 round-the-clock fund transfers to promote digital transactions.
- The MPC lowered its growth forecast (GDP) to 6.9% now from 7% of June policy owning to demand and investment slowdown.
RBI made Jana Small Finance Bank a Scheduled Bank
- RBI gave the Bengaluru-headquartered Jana Small Finance Bank Ltd, the status of a scheduled bank on 8th August 2019.
- The Jana Bank was established in 2009 as a financial services company and opened its banking operations in 2018.
- The government has put the bank on the list of banks included in the second schedule of RBI Act 1934.
Computation of Adjusted Net Bank Credit
Method to calculate Adjusted Net Bank Credit:-
| Bank Credit in India (As prescribed in item No.VI of Form ‘A’(Special Return as on March 31st) under Section 42 (2) of the RBI Act, 1934. |
I |
| Bills Rediscounted with RBI and other approved Financial Institutions |
II |
| Net Bank Credit (NBC) | III (I – II) |
| Investments in Non-SLR categories under HTM category + other investments eligible to be treated as a priority sector. |
IV |
| Adjusted Net Bank Credit | III + IV |
I. BANK CREDIT IN INDIA
- Bank credit includes all loans, advances, overdrafts provided by a bank or financial institution to its customers. It includes bills discounted.
II. BILLS REDISCOUNTED WITH RBI AND OTHER APPROVED FINANCIAL INSTITUTIONS
- Banks discount the bill of exchange for some margin, It acts as a short term loan for its customer.
- In case a bank is facing a liquidity crunch, it may want to encash the bills that it has discounted. The bank will rediscount the bill with other financial institution to fulfil its liquidity requirements.
IV. Investments in non-SLR categories
- Banks need to maintain a certain percentage of funds for Cash Reserve Ratio and Statutory Liquidity Ratio.
Following investments are considered non-SLR category investment:
- Bonds/debentures in Non-SLR categories under HTM(Held to maturity) category+ other investments eligible to be treated as priority sector + Outstanding Deposits under RIDF and other eligible funds with NABARD, NHB, SIDBI and MUDRA Ltd on account of priority sector shortfall + outstanding PSLCs.
CLASSIFICATION OF MICRO, SMALL AND MEDIUM ENTERPRISES
| Enterprises | Annual Turnover |
| Micro Enterprises | Does not exceed 5 crore rupees |
| Small Enterprises | More than 5 crore rupees but does not exceed 75 crore rupees |
| Medium Enterprises | More than 75 crore rupees but does not exceed 250 crore rupees |
PRIORITY SECTOR LENDING FOR MICRO-ENTERPRISES
- For Micro Enterprises, there is a 7.5 per cent lending target of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher for banks.
Off-Balance Sheet Exposure
- Exposure means ‘your assets which you've lent to others’.
- Off-Balance sheet exposure refers to activities that are assets or liabilities of an entity which doesn't appear on the balance sheet. Example: Letter of the undertaking, Letter of credit etc.
- A real-life example of off-balance sheet exposure is Nirav Modi case. Letters of undertaking issued by Punjab National Bank were not mentioned as liabilities in the balance sheet of PNB. When Nirav Modi didn't pay his debts and creditors exercised the LOUs and PNB had to pay for the debts taken by Nirav Modi. Although this liability wasn't mentioned in the balance sheet of PNB, they had to pay for it.
Priority Sector Lending
- A large portion of the population in India doesn't have access to funds. Therefore RBI has adopted Priority Sector Lending norms which relaxes the lending norms for poor and small businesses.
- Priority Sector includes the following categories:
-
- Agriculture
- Micro, Small and Medium Enterprises
- Export Credit
- Education
- Housing
- Social Infrastructure
- Renewable Energy
- Others
| Categories | Domestic scheduled commercial banks and Foreign banks with more than 20 branches in India |
| Total Priority Sector | 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. |
| Agriculture | 18 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. Within the 18 per cent target for agriculture, a target of 8 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers. |
| Micro Enterprises | 7.5 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. |
| Advances to Weaker Sections | 10 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher |
FOREIGN BANKS WITH LESS THAN 20 BRANCHES
| Total Priority Sector | 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, to be achieved in a phased manner by 2020. |
UPDATE: Small Finance Banks
| Categories | Target |
| Total Priority Sector | 75 per cent of Adjusted Net Bank Credit |
| Agriculture | 18 per cent of ANBC. Within the 18 per cent target for agriculture, a target of 8 per cent of ANBC is prescribed for Small and Marginal Farmers. |
| Micro Enterprises | 7.5 per cent of ANBC |
| Advances to Weaker Sections | 10 per cent of ANBC |
LIMITS ON PRIORITY SECTOR LENDING
| Sector | Limit for Priority sector lending |
| Social infrastructure | Rs.50 million |
| Education | Rs. 1 million |
| Renewable energy | Rs.150 million |
| Housing loans | Metropolitan: Rs.3.5 million (Maximum house value Rs.4.5 million) Other cities: Rs.2.5 million (Maximum house value Rs.3 million) |
WEAKER SECTION CATEGORIES
- Small and Marginal Farmers
- Artisans, village and cottage industries where individual credit limits do not exceed Rs. 0.1 million.
- Beneficiaries under Government Sponsored Schemes such as the National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS).
- Scheduled Castes and Scheduled Tribes
- Beneficiaries of the Differential Rate of Interest (DRI) scheme
- Self Help Groups
- Distressed farmers indebted to non-institutional lenders.
- Distressed persons other than farmers, with loan amount not exceeding Rs. 0.1 million per borrower to prepay their debt to non-institutional lenders.
- Individual women beneficiaries up to Rs. 0.1 million per borrower.
- Persons with disabilities
- Overdraft limit to PMJDY account holder up to Rs.10,000/- with age limit of 18-65 years.
- Minority communities as may be notified by Government of India from time to time.
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