Banking and insurance.

TERM PAPER OF BANKING AND INSURANCE

TOPIC: - PRIORITY SECTOR ADVANCES SCHEME OF LEAD BANK AND ASSIST THE BPL CUSTOMER TO FINALIZE THE PROPOSAL WITH DOCUMENTATION AND FORMALITIES.

SUBMITTED TO , ABHISHEK DUTTA.

SUBMITTED BY, PRIYANKA SEC :-T1801(B30) REG NO:-10805425

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Acknowledgement
~SUCCESS IS TO BE MEASURED NOT SO MUCH
BY THE POSITION ONE HAS REACHED IN LIFE BUT BY THE OBSTACLES THAT HE HAS OVERCOME WHILE TRYING TO SUCCEED

We express our sincere thanks to our respected lecturer as well

as our term paper guide MR.ABHISHEK DUTTA for his guidance and tremendous encouragement bestowed throughout our Endeavour.

Priyanka

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CONTENTS OF TERM PAPER
1. INTRODUCTION OF THE TOPIC 2. EXECUTIVE SUMMARY OF BELOW POVERTY LINE 3. REVIEW OF LITERATURE OF THE TOPIC 4. ARTICLE ANALYSIS 5. RBI GUIDELINES
y LENDING TO PRIORITY SECTOR y CATEGORIES OF PRIORITY SECTOR y TARGETS/SUB-TARGETS y AGRICULTURE DIRECT FINANCE y INDIRECT FINANCE y Small ENTERPRISES DIRECT FINANCE y OTHER SMALL BUSINESS / SERVICE ENTERPRISES

y MICRO CREDIT
6.CURRENT CHANGES IN LENDING PRIORITY SECTOR 7.SUGGESTIONS 8.CONCLUSION 9.REFERENCE

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INTRODUCTION OF BELOW POVERTY LINE
Below Poverty Line is an economic benchmark and poverty threshold used by the government of India to indicated economic disadvantage and to identify individuals and households in need of government assistance and aid. It is determined using various parameters which vary from state to state and within states.
INTERNATIONAL BENCHMARKS

Internationally, an income of less than $1 per day per head of purchasing power parity is defined as extreme poverty. By this estimate, about 45 percent of Indians are extremely poor. If the daily income per head is less than $2, then the family is described as poor and about 80 percent of Indians are poor. Income-based poverty lines consider the bare minimum income to provide basic food requirements; it does not account for other essentials such as health care and education. That is why some times the poverty lines have been described as starvation lines.

MEASUREMENT
Criteria are different for rural and urban areas. In its tenth five-year plan, the degree of deprivation is measured with the help of parameters with scores given from 0-4, with 13 parameters. Families with 17 marks or less (formerly 15 marks or less) out of a maximum 52 marks have been classified as BPL.

NINTH PLAN
In its ninth five-year plan (1997-2002), BPL for rural areas was set at annual family income less than Rs. 20,000, less than two hectares land, and no television or refrigerator. The number of rural BPL families was 650,000 (6.5 lakh) during the 9th Plan. The survey based on this criteria was again carried out in 2002 and the total number of 387,000 (3.87 lakh) families were identified. This figure was in force until September 2006.

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TENTH PLAN (2002-2007)
In its tenth five-year plan (2002-2007) survey, BPL for rural areas was based on the degree of deprivation in respect of 13 parameters, with scores from 0-4: landholding, type of house,clothing, food security, sanitation, consumer durables, literacy status, labour force, means of livelihood, status of children, type of indebtedness, reasons for migrations, etc. The Planning Commission fixed an upper limit of 3.26 lakh for rural BPL families on the basis of simple survey. Accordingly families having less than 15 marks out of maximum 52 marks have been classified as BPL and their number works out to 3.18 lakh. The survey was carried out in 2002 and thereafter but could not be finalised due to a stay issued by the Supreme Court of India. The stay was vacated in February 2006 and this survey was finalised and adopted in September 2006. This survey formed the basis for benefits under government of India schemes. The state governments are free to adopt any criteria/survey for state-level schemes.

INCOME BASED POVERTY LINE IN INDIA
The poverty line was originally fixed in terms of income/food requirements in 1978. It was stipulated that the calorie standard for a typical individual in rural areas was 2400 calorie and was 2100 calorie in urban areas. Then the cost of the grains (about 650 gms) that fulfil this normative standard was calculated. This cost was the poverty line. In 1978, it was Rs. 61.80 per person per month for rural areas and Rs. 71.30 for urban areas. Since then the Planning Commission calculates the poverty line every year adjusting for inflation. The poverty line in recent years is as follows - (Rs. per month per head) Year India rural 2000-2001 2005-2006 328 368 India urban 454 560

This income is bare minimum to support the food requirements and does not provide much for the other basic essential items like health, education etc. That is why some times the poverty lines have been described as starvation lines.
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FIXING OF CUT-OFF MARKS AT 17
The Socio Economic Survey conducted during 2002 was based on 13 Socio economic indicators (enlisted by Government of India ) indicating the quality of life and by Score based ranking for all households. Each of the indicators have 0-4 marks. Thus for 13 indicators, the tentative marks obtained by the families are from 0-52 for all the Districts. The Supreme Court of Indiain Writ Petition No. 196/2001 filed by People's Union for Civil Liberties, the result of Below Poverty Line census 2002 need not be finalized. Later in October, 2005 the Government of India informed that based on the advice given by the Additional Solicitor General, it has been decided to finalise the results of Below Poverty Line Census, 2002 without deleting the Below Poverty Line families already existing in the Below Poverty Line list of Below Poverty Line Census 1997 and to follow the following procedure for finalisation of Below Poverty Line list.

1. 2. 3. 4.

Preparation of Below Poverty Line list Approval in Gram Sabha Appeal to Block Development Officer and Collector. Display of Final List.

EXAMPLE
A Bench Mark Survey conducted in Maharashtra in 1997-1998 found 91.08 %.Madia Gond families BPL. Madia Gond are a people classified as primitive tribe, they live in BhamragadTaluka, of Gadchiroli District, of Maharashtra.

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DILEMMA OF THE POVERTY LINE ARTICLE REVIEW
By: ashwanimahajan Original Author: Dr. Ashwani Mahajan

Review of literature of below poverty line Government has consistently been providing differing figures about the extent of poverty in India. Therefore, it has been difficult to know the exact or even approximate figure about poverty in the country. It is obvious that in the absence of uniform statistical measure of poverty, programmes of poverty alleviation cannot be meaningful. The government to reduce poverty adopts various measures. Through PDS kerosene and cheaper grain and other foods are made available to poor population.Government¶s proposed food security legislation is also on the same lines, according to which all people living below the poverty line would have a right to draw food at subsidised prices. But ironically till date the government has not been able to identify, even approximately, people living below the poverty line. Report of the Saxena Committee, constituted by Ministry of Rural Development Government of India, presented recently, is most shocking. In fact, 49.1 percent population in the country according to Saxena Committee is living below poverty line, but 23 percent of poor do not have any ration card (what to talk of BPL card). Former Chief Economic Adviser to Prime Minister, Prof. S.D. Tendulakar submitted the Report of the Expert Group to Review the Methodology for Estimation of Poverty in December 2009. Submission of this report has brought the whole controversy into focus once again. Prof. Tendulkar noted that the existing all-India rural and urban official poverty lines were originally defined in terms of per capita total consumer expenditure at 1973-74 market prices and adjusted over time and across states for changes in prices keeping unchanged the original 1973-74 rural and urban underlying all-India reference poverty line baskets of goods and services. These allIndia rural and urban PLBs were derived for rural and urban areas separately, anchored in the per capita calorie norms of 2400 (rural) and 2100 (urban) per day.

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Prof. Tendulkar, finds that in 2004-05, 37 percent of Indian population was living below poverty line. This figure is significantly high as compared to figure given by Planning Commission; according to which 27.5 percent were living below poverty line. Prof. Tendulkar's figure of head count is higher largely because of larger basket of consumption, which includes expenditure on education & health by the poor. Earlier studies on redefining poverty have also takan note of these variables and have suggested suitable modifications in the definition of poverty line. Prof. Tendulkar's report is significant as it gives official sanction to the same. Prof. Tendulkar has recommended in his report that Planning Commission and also National Sample survey organisation (NSSO) make suitable changes in their approach in defining poverty line.

According to UN, 220 million people in India suffer from hunger. Prevalence of hunger is found in all age groups ranging from infants to old. Food production has been going down, food imports are rising and food insecurity is on rise. Whereas per capita availability of foodgrains was 190 kilogram per person per annum in 1979-80,it declined to only 186 kilogram in 2004-05. Since 2004-05, fast rising prices of food products have made the things worst for poor. According to Food and Agriculture Organisation (FAO), of United Nations about 100 million people have already moved to the category of hungry people around the world in the three years from 2004-05 to2007-08. It is welcome that professor Tendulkar's Expert Group has recommended that definition of poverty line be changed and a new methodology be adopted incorporating changes in price index and also widening of consumption bundle including expenditure on health and education. However, the poverty so reached would not be perfect one, but definitely, we would be moving from a mere starvation line to a better defined poverty line. Government might be feeling uneasy on two counts. First, that so far its policies have been based on ill-defined poverty line and second it will be forced to spend more money on welfare activities. However, in the long run Tendulkar's report will set a bench mark in determining the methodology for the assessment of poverty line.

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MASTER CIRCULAR ON PRIORITY SECTOR LENDING-CREDIT FACILITIES TO SCHEDULED CASTES (SCS) AND SCHEDULED TRIBES (STS) RBI/20042005/132 RPCD.NO.SP.BC. 20 /09.09.01/2004-05, DT. 18/08/2004 MASTER CIRCULAR - PRIORITY SECTOR LENDING-CREDIT FACILITIES TO SCHEDULED CASTES (SCS) & SCHEDULED TRIBES (STS)
1.Flow of Credit to SCs/STs As special emphasis is given to the welfare of the scheduled castes and scheduled tribes, banks should take the following measures to step up their advances to SCs/STs: Planning Process a. At the block level, a certain weightage is to be given to scheduled castes/ scheduled tribes in the planning process. Accordingly, the credit planning should be weighted in favour of scheduled castes/scheduled tribes and special bankable schemes suited to members of these communities should be drawn up to ensure their participation in such schemes and larger flow of credit to them for self-employment. It will be necessary for the banks to consider loan proposals of these communities with utmost sympathy and understanding. b. The District Level Consultative Committees formed under the Lead Bank Scheme should continue to be the principal mechanism of co-ordination between banks and development agencies. c. The district credit plans formulated by the lead banks should be elaborated to indicate clearly the linkage of credit with employment and development schemes.

d. Banks will have to establish closer liaison with the District Industries Centres, which have been set up in different districts for promoting self-employment.

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e. Banks should periodically review their lending procedures and policies to see that loans are sanctioned in time, are adequate and production-oriented and that they generate incremental income to make them self-liquidating. f. Credit planning should be weighted in favour of Scheduled Castes/ Scheduled Tribes and special bankable schemes suited to members of these communities should be drawn up to ensure a larger flow of credit to them for self-employment. Loan proposals of these communities should be considered sympathetically and expeditiously. g. While µadopting¶ villages for intensive lending, villages with sizeable population of these communities may be specially chosen; the alternative of adopting specific localities (bastis) in the concerned villages which have a concentration of these communities could also be considered. h. Special efforts should be made to evolve suitable bankable schemes for weaker sections including members of these communities.

ROLE OF BANKS
i. Bank staff may help the poor borrowers in filling up the forms and completing other formalities so that they are able to get credit facility within a stipulated period from the date of receipt of applications. j. In order to encourage SC/ST borrowers to take advantage of credit facilities, greater awareness among them about various schemes formulated by banks will have to be created. As a majority of the eligible borrowers would be illiterate persons, publicity through brochures, other literature, etc. will be of limited utility. The more desirable method would be for the field staff of banks to contact such borrowers and explain to them the salient features of the schemes as also the advantages that will accrue. Banks should advise their branches to organize meetings more frequently exclusively for SC/ST beneficiaries to understand their credit needs and to incorporate the same in the credit plan.

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k. Bank should keep Application Register/ Deposit Register, Complaint Register in desired order and maintain relevant documents and pass book in local language too, besides in Hindi and English. l. Circulars issued by RBI/NABARD should be circulated among the staff concerned for noting the instructions for proper follow up . m. Banks should not insist on deposits while considering loan applications under Government sponsored poverty alleviation schemes/self-employment programmes from borrowers belonging to SCs /STs.It should also be ensured that applicable subsidy is not held back while releasing the loan component till the full repayment of bank dues. Non - release of subsidy upfront amounts to under-financing and hampers asset creation/ income generation.

ROLE OF SC/ST DEVELOPMENT CORPORATIONS
The Ministry of Welfare, Government of India has advised all State Governments that the Scheduled Caste Development Corporations can consider bankable schemes / proposals for bank finance. As regards Collateral Security and / or third party guarantee for loans, guidelines issued to banks on priority sector lending will apply.

SWARNJAYANTI GRAM SWAROZGAR YOJANA (SGSY)

Under Swarnjayanti Gram Swarozgar Yojana (SGSY) Scheme, which is a major poverty alleviation scheme in rural / semi urban areas, not less than 50 percent of the families assisted should belong to SCs/STs.

PRIME MINISTER'S ROZGAR YOJANA
The Prime Minister's Rozgar Yojana (PMRY) has been designed to provide credit to educated unemployed youth for setting up of the self-employment ventures in industries, services and business sectors. A reservation of 22.5 percent has been provided for SCs/STs in the scheme.

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SWARNA JAYANTI SAHARI ROZGAR YOJANA
Under Swarna Jayanti Shahari Rozgar Yojana (SJSRY), which is a poverty alleviation scheme in urban areas, advances should be extended to SCs/STs to the extent of their strength in the local population.

Differential Rate of Interest Scheme
Under the DRI scheme, banks provide finance up to Rs.6,500/- at a concessional rate of interest of 4% p.a to the weaker sections of the community for engaging in productive and gainful activities. In order to ensure that persons belonging to SCs/STs also derive adequate benefit under the Differential Rate of Interest (DRI) scheme, banks have been advised to grant to eligible borrowers belonging to SCs/STs such advances to the extent of not less than 2/5th (40 percent) of total DRI advances.

Scheme for Liberation and Rehabilitation of Scavengers
The National Scheme for Liberation and Rehabilitation of Scavengers is for liberating the scavengers and their dependents from the existing hereditary and obnoxious occupation of manually removing night soil and filth and to provide them with alternate dignified occupation. The scheme covers primarily all scavengers belonging to the scheduled caste community. Scavengers belonging to other communities are also eligible for assistance.

MONITORING AND REVIEW.

1. A special cell should be set up at the Head Office for monitoring the flow of credit to SC/ST beneficiaries. Apart from ensuring the implementation of the RBI guidelines, the cell would also be responsible for collection of relevant information/data from the branches, consolidation thereof and submission of the requisite returns to RBI and Government.

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2. Convenor banks (of SLBC) should invite the representative of National Commission for SCs/STs to attend SLBC meetings. Besides, the Convener banks may also invite representatives from National Scheduled Castes and Scheduled Tribes Financial Development Corporation ( NSFDC ) and State Scheduled Castes and Scheduled Tribes Financial and Development Corporation ( SCDC ) to attend SLBC meetings

3. A periodical review should be made by the Head Office of banks of the credit extended to SCs/STs on the basis of returns and other data received from the branches.

4. The Board of Directors should review on quarterly basis, the measures taken to enhance the flow of credit to SC/ST borrowers. The Review Notes, besides indicating the actual performance of the bank during the relevant quarter, should also contain information about how the bank proposes to expand the coverage of this sector in the context of potential for business and its network of branches with particular reference to such schemes as DRI, SGSY, etc. The review should also consider the progress made in lending to these communities directly or through the State-level Scheduled Caste/Scheduled Tribe Corporations for various purposes based, amongst others, on field visits of the senior officers from the Head Office/Controlling Offices. A copy each of such review notes should be sent to Reserve Bank.

REPORTING REQUIREMENTS
It has been considered necessary to have data of banks¶ advances for SCs and STs under priority sectors and Differential Rates of Interest (DRI) Scheme separately. Accordingly banks may submit to RBI on half-yearly basis as on the last reporting Friday of March and September a statement showing the credit extended to SCs and STs under priority sectors (Annexure I). Further, banks may submit to RBI on yearly basis as on the last reprting Friday of March a statement showing the credit extended to SCs and STs under DRI Scheme (Annexure II ).The statements should reach RBI within two months from the end of the relevant half-year/ year.

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DRAFT GUIDELINES ON LENDING TO PRIORITY SECTOR
LENDING TO PRIORITY SECTOR
At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority sector advances and certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector. Although initially there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by March 1979. At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector banks held in March 1980, it was agreed that banks should aim at raising the proportion of their advances to priority sectors to 40 per cent by March 1985. Subsequently, on the basis of the recommendations of the Working Group on the Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programme by Banks, all commercial banks were advised to achieve the target of priority sector lending at 40 per cent of aggregate bank advances by 1985. Sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. Since then, there have been several changes in the scope of priority sector lending and the targets and sub-targets applicable to various bank groups.

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PERCENTAGE OF POPULATION BELOW POVERTY LINE

ACCORDINGLY THE BROAD CATEGORIES OF PRIORITY SECTOR FOR ALL SCHEDULED COMMERCIAL BANKS WILL BE AS UNDER:
I. CATEGORIES OF PRIORITY SECTOR (i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short, medium and long term loans given for agriculture and allied activities directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities.Indirect finance to agriculture shall include loans given for agriculture and allied activities as specified in Section I, appended. (ii) Small Enterprises (Direct and Indirect Finance): Direct finance to small enterprises shall include all loans given to small (manufacturing) enterprises engaged in manufacture/ production, processing or preservation of goods, and small (service) enterprises engaged in providing or rendering of services, and whose investment in plant and machinery and equipment (original cost excluding land and building and such items as mentioned therein) respectively, does not exceed the amounts specified in Section I, appended.Indirect finance to small enterprises shall include finance to any person providing inputs to or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.
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(iii) Other Small Business / Service Enterprises: Other Small Business / Service Enterprises shall include small business, retail trade, professional & self-employed persons, small road & water transport operators and all other service enterprises, as per the definition given in Section I appended. (iv) Micro Credit: Provision of credit and other financial services and products of very small amounts not exceeding Rs. 50,000 per borrower to the poor, either directly or indirectly through a SHG/JLG mechanism or any intermediary (including NBFC/NGO/MFI), or to an NBFC/NGO engaged in provision of credit to the poor up to Rs. 50,000 per borrower will constitute micro credit. The poor for this purpose, shall include persons below the poverty line in the respective areas. (v) Education loans: Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions; (vi) Housing loans: Loans up to Rs. 15 lakh per family, for construction of houses by individuals, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-urban areas and up to Rs. 2 lakh in urban areas. (2) Investments by banks in securitised assets, representing loans to agriculture (direct or indirect), small enterprises (direct or indirect) and housing, shall be eligible for classification under respective categories of priority sector (direct or indirect) depending on the underlying assets, provided the securitised assets are originated by banks and financial institutions and fulfil the Reserve Bank of India guidelines on securitisation.

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AGRICULTURE DIRECT FINANCE
Finance to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on such finance] for Agriculture and Allied Activitie.Short-term loans for raising crops, i.e. for crop loans. This will include traditional/non-traditional plantations and horticulture.Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.Short-term loans under tie-up arrangements with sugar mills, agroprocessing units and agri-exporters. Working capital and term loans for financing production and investment requirements for agriculture and allied activities. for agricultural purposes. Loans to small and marginal farmers for purchase of land

Loans to distressed farmers indebted to non-institutional lenders,

against appropriate collateral or group security.Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by households or groups/cooperatives of households.

INDIRECT FINANCE
Finance for Agriculture and Allied Activities Loans to entities covered under 1.2 above in excess of Rs. 20 lakh in aggregate per borrower for agriculture and allied activities. In such cases, the entire amount outstanding shall be treated as indirect finance for agriculture. Loans to food and agro-based processing units with investments in plant and machinery up to Rs. 10 crore, undertaken by other than households.Loans to NonBanking Financial Companies (NBFCs) for on lending to individual farmers. (i) (ii) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc. Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for

the allied activities such as cattle feed, poultry feed, etc.
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Finance for setting up of Agriclinics and Agribusiness Centres.Finance for hire-purchase schemes for distribution of agricultural machinery and implements. Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers¶ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).Loans to cooperative societies of farmers for disposing of the produce of members.Financing the farmers indirectly through the co-operative system (otherwise than by subscription to bonds and debenture issues) provided a certificate from the State Co-operative Bank/State Cooperative Agriculture and Rural Development Bank (SCARDB), as the case may be, is produced, certifying the end use of such loans. Small ENTERPRISES DIRECT FINANCE Direct Finance in the small enterprises sector will include credit to: Small (manufacturing) Enterprises Enterprises engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E) dated October 5, 2006] does not exceed Rs. 5 crore.

Micro (manufacturing) Enterprises
Enterprises engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery [original cost excluding land and building and such items as in 2.1.1] does not exceed Rs. 25 lakh, irrespective of the location of the unit.

Small (service) Enterprises
Enterprises engaged in providing/rendering of industry related services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs. 2 crore.

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Micro (service) Enterprises
Enterprises engaged in providing/rendering of industry related services and whose investment in equipment (original cost excluding land and building and furniture, fittings and such items as in 2.1.3) does not exceed Rs. 10 lakh.

Khadi and Village Industries Sector (KVI)
All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60 per cent) of the small enterprises segment within the priority sector.

INDIRECT FINANCE
Indirect finance to the small (manufacturing as well as service) enterprises sector will include credit to: persons involved in assisting the decentralised sector in the supply of inputs to and marketing

of outputs of artisans, village and cottage industries. Advances to cooperatives of producers in the decentralised sector viz. artisans village and cottage industries.Subscription to bonds issued by NABARD with the objective of financing exclusively non-farm sector (not eligible for classification under priority sector lending with effect from April 1, 2007).Loans granted by banks to NBFCs for on lending to small (manufacturing as well as service) enterprises sector.

OTHER SMALL BUSINESS / SERVICE ENTERPRISES
Loans granted to other small business and service enterprises such as, small road and water transport operators, small business, professional & self-employed persons, and other enterprises, engaged in providing/rendering of services and whose investment in equipment (original cost and excluding land and building) does not exceed Rs. 2 crore.

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(i) Advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores, and; (ii) Advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh.

MICRO CREDIT
Loans of very small amount not exceeding Rs. 50,000 per borrower provided by banks to the poor, either directly or through a group mechanism or through any intermediary (as approved by Department of Banking Operations and Development of Reserve Bank of India for the Banking Correspondent model), or to an NBFC/NGO for providing credit to the poor up to Rs. 50,000 per borrower.

Loans to poor indebted to informal sector
Loans to distressed poor to prepay their debt to lenders in the informal sector would be eligible for classification under priority sector. Poor for this purpose may include those families who are below the poverty line in the respective areas. Such loans to poor may also be classified under weaker sections within the priority sector.

State Sponsored Organizations for Scheduled Castes/Scheduled Tribes
Advances sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of these organisations.

Education
Educational loans granted to individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad. Loans granted to institutions will not be eligible to be classified as priority sector advances.

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Housing
Loans up to Rs. 15 lakh, irrespective of location, for construction of houses by individuals, excluding loans granted by banks to their own employees. up to Rs. 2 lakh in urban and metropolitan areas. Assistance up to Rs. 1.25 lakh per housing unit given to any governmental agency/ nongovernmental agency (other than Housing Finance Companies) for construction/ reconstruction of houses or for slum clearance and rehabilitation of slum dwellers. Assistance up to Rs. 5 lakh per housing unit given to Housing Finance Companies for construction/ reconstruction of houses or for slum clearance and rehabilitation of slum dwellers. Loans given for

repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-urban areas and

Weaker Sections
The weaker sections under priority sector shall include the following: (a) Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers; (b) Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000; (c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY); (d) Scheduled Castes and Scheduled Tribes; (e) Beneficiaries of Differential Rate of Interest (DRI) scheme; (f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY); (g) Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavangers . (h) Advances to Self Help Groups; (i) Loans to distressed poor to prepay their debt to informal sector, against appropriate collateral or group security.
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Export Credit
This category will form part of priority sector for foreign banks only.

Common guidelines for priority sector advances
Banks should follow the following common guidelines prescribed by the Reserve Bank for all categories of advances under the priority sector. (a) Processing of Applications (b) Completion of Application Forms In case of Government sponsored schemes such as SGSY, the concerned project authorities like DRDAs, DICs, etc. should arrange for completion of application forms received from borrowers. In other areas, the bank staff should help the borrowers for this purpose. Issue of Acknowledgement of Loan Applications Banks should give acknowledgement for loan applications received from weaker sections. Towards this purpose, it may be ensured that all loan application forms have perforated portion for acknowledgement to be completed and issued by the receiving branch. Each branch may affix on the main application form as well as the corresponding portion for acknowledgement, a running serial number. While using the existing stock of application forms which do not have a perforated portion for acknowledgement is separately given, care should be taken to ensure that the serial number given on the acknowledgement is also recorded on the main application. The loan applications should have a check list of documents required for guidance of the prospective borrowers. Disposal of Applications (i) All loan applications up to a credit limit of Rs. 25,000 should be disposed of within a fortnight and those for over Rs. 25,000, within 4 weeks.

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(ii) All loan applications for SSI up to a credit limit of Rs. 25,000 should be disposed of within 2 weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete in all respects and are accompanied by a 'check list'. Rejection of Proposals Branch Managers may reject applications (except in respect of SC/ST) provided the cases of rejection are verified subsequently by the Divisional/Regional Managers. In the case of proposals from SC/ST, rejection should be at a level higher than that of Branch Manager. Register of Rejected Applications A register should be maintained at the branch, wherein the date of receipt, sanction/rejection/disbursement with reasons therefor, etc., should be recorded. The register should be made available to all inspecting agencies. Repayment Schedule Repayment programme should be fixed taking into account the sustenance requirements, surplus generating capacity, the break-even point, the life of the asset, etc., and not in an 'ad hoc' manner. In respect of composite loans, repayment schedule may be fixed for term loan component only. As the repaying capacity of the people affected by natural calamities gets severely impaired due to the damage to the economic pursuits and loss of economic assets, the benefits such as restructuring of existing loans, etc. as envisaged under our circular RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated August 9, 2006 may be extended to the affected borrowers. Rates of InterestThe rates of interest on various categories of priority sector advances will be as per RBI directives issued from time to time. (a) In respect of direct agricultural advances, banks should not compound the interest in the case of current dues, i.e. crop loans and instalments not fallen due in respect of term loans, as the agriculturists do not have any regular source of income other than sale proceeds of their crops.

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(b) When crop loans or instalments under term loans become overdue, banks can add interest to the principal. (c) Where the default is due to genuine reasons banks should extend the period of loan or reschedule the instalments under term loan. Once such a relief has been extended, the overdues become current dues and banks should not compound interest. (d) Banks should charge interest on agricultural advances in respect of long duration crops, at annual rests instead of quarterly or longer rests, and could compound the interest, if the loan/instalment becomes overdue. 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 by banks for loans under priority sector up to Rs 25,000 as hitherto. However, banks will be free to levy penal interest for loans exceeding Rs 25,000, in terms of the above guidelines. SERVICE CHARGES / INSPECTION CHARGES No service charges/inspection charges should be levied on priority sector loans up to Rs. 25,000/-. For loans above Rs. 25,000/- banks will be free to prescribe service charges with the prior approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000 dated September 7, 1999. Photographs of Borrowers While there is no objection to taking photographs of the borrowers for purposes of identification, banks themselves should make arrangements for the photographs and also bear the cost of photographs of borrowers falling in the category of Weaker Sections.

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It should also be ensured that the procedure does not involve any delay in loan disbursement.

Discretionary Powers All Branch Managers of banks should be vested with discretionary powers to sanction proposals from weaker sections without reference to any higher authority. If there are difficulties in extending such discretionary powers to all the Branch Managers, such powers should exist at least at the district level and arrangements be ensured that credit proposals on weaker sections are cleared promptly. CAPACITY BUILDING Banks may ensure appropriate training of personnel to specifically cater to the needs of priority sector. Machinery to look into Complaints There should be machinery at the regional offices to entertain complaints from the borrowers if the branches do not follow these guidelines, and to verify periodically that these guidelines are scrupulously implemented by the branches. Amendments These guidelines are subject to any instructions that may be issued by the RBI from time to time.

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RECOMMENDATION:y y y y Government should be raise the loan upto 15 lacs to 20 lacs. Fixing cutoff mark should be redefined till now it is 17. Documentation should be easy for Below poverty line people, they can easily understand. RBI should be regular follow up and supervision the all lending system of banks.

CONCLUSION:y Here the conclusion of the BPL customer to finalize the proposal with documentation and formalities. y y y RBI play the very good role for the below poverty line customers. They done a very good job to improve the Indian poor people. Now the rate of poor people is less in India because the poor people are aware of everything like the rule and regulation of the bank and how to get the lone for education and agriculture. y The government also giving 100% for the betterment of the below poverty line customer.

REFERENCE

y y y y

http://www.rbi.org.in/scripts/PublicationDraftReports.aspx?ID=493 www.wikipidia.com http://www.pide.org.pk/pdf/PDR/2001/Volume4/723-750.pdf http://www.eximkey.com

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