The Finance Ministry may ask government-owned banks to set internal targets within the overall priority sector lending to ensure a smooth flow of funds to segments such as agriculture, small industries and the marginalized sections of the society.
According to a senior finance ministry official the proposal seeks to ensure that banks meet specific targets in terms of lending to each of the mentioned priority segments. These banks will be held responsible for meeting these targets.
The existing RBI guidelines mandate the banks to lend at least 40 percent of their adjusted net bank credit to such specified segments.
During the previous financial year, only three public sector banks- Central Bank of India, State Bank of Mysore and State Bank of Patiala- had not achieved the overall priority lending target. 13 banks missed lending targets for agriculture and 12 missed the targets for weaker sections.
This target is calculated by adjusting for some exemptions, which also includes certain investments. It is calculated with reference to the outstanding amount at March 31 of the previous year.
Out of the mandated 40 percent, banks are required to lend at least 18 percent of their net bank credit to the agriculture sector and the balance to other specified sectors.
Banks are also required to lend 10 percent of adjusted net bank credit to weaker sections. Presently most banks fall short of this target.
The ministry's move is in line with RBI's attempts to move loans to housing finance companies by banks out of the priority sector lending targets so that the deserving segments get the benefits.
"It has been brought to our notice that certain banks are extending short-term loans of tenures ranging from six months to one year to housing finance institutions, and classifying them as priority sector advances," the RBI said in a circular.