JNANA VARDHINI
SIBSTC MONTHLY NEWSLETTER -COVERING CONTEMPORARY BANKING RELATED TOPICS
2ND ANNIVERSARY ISSUE
JULY 2012
SOUTHERN INDIA BANKS’ STAFF TRAINING COLLEGE
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IV Block, Jayanagar, BANGALORE-560 011
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FIRST QUARTER REVIEW OF MONETARY POLICY 2012-13 - ANNOUNCED BY RBI ON 31.07.2012
HIGHLIGHTS
The State of the Global Economy
The global economy is slowing down. In its latest update of the World Economic Outlook (WEO), the International Monetary Fund (IMF) has revised its projection for global growth in 2012 marginally downwards to 3.5 per cent, but has emphasized further downside risks to growth. In the US, output growth decelerated to 1.5 per cent in Q2 from 2.0 per cent in Q1 of 2012. In the Euro area, growth was flat in Q1 after a contraction by 1.2 per cent in the previous quarter. In the UK, growth contracted by 2.8 per cent in Q2 of 2012 and 1.3 per cent in Q1. Output in Japan expanded by 4.7 per cent in Q1 after a low growth of 0.1 per cent in the previous quarter, supported by reconstruction related demand.
In recent weeks, renewed concerns about Greece and the need for greater collective support to Spain and Italy have amplified these risks. Consequently, the potential for negative spillovers to the euro area core countries and to the rest of the world have also increased.
Among the BRICS countries, growth in China fell from 8.1 per cent in Q1 of 2012 to 7.6 per cent in Q2. Growth also moderated significantly in Brazil and South Africa in Q1. According to the IMF, growth in a number of major EDEs turned out to be lower than forecast by it earlier.
Inflationary pressures softened across advanced and emerging economies, reflecting both weaker growth prospects and moderation in commodity prices. Among the BRICS countries, inflation fell significantly in China and Russia. It also eased in Brazil and South Africa.
Domestic Economy
Gross Domestic Product (GDP) growth decelerated over four successive quarters from 9.2 per cent in Q4 of 2010-11 to 5.3 per cent in Q4 of 2011-12. Significant slowdown in industrial growth as well as deceleration in services sector activity pulled down the overall GDP growth to 6.5 per cent for 2011-12, below the RBI’s projection of 7%.
Growth in the index of industrial production (IIP) decelerated from 8.2 per cent in 2010-11 to 2.9 per cent in 2011-12. Further, IIP growth during April-May 2012, at 0.8 per cent, was significantly lower than the expansion of 5.7 per cent registered in the corresponding period of last year.
Wholesale Price Index (WPI) inflation increased from 7.5 per cent in April to 7.6 per cent in May before moderating to 7.3 per cent in June 2012. The stickiness in inflation, despite the significant growth slowdown, was largely on account of high primary food inflation, which was in double-digits during Q1 of 2012-13 due to an unusual spike in vegetable prices and sustained high inflation in protein items.
The Consumer Price Index (CPI new series) inflation remained in double-digits in Q1 of 2012-13, driven by both food and non-food prices. The divergence between WPI and CPI inflation was on account of two factors. First, there are differences in the composition and weights of commodities, especially of food items in the two indices. Second, even in respect of similar items, inflation was higher in CPI than in WPI, suggesting that besides the incidence of higher service taxes, moderation in non-food manufactured products prices has not yet been transmitted to the retail level. The rate of increase in the prices of services, which is included in CPI but not in WPI, was also high.
Domestic Outlook and Projections
GDP Growth Projections:
On the basis of the above considerations, the growth projection for 2012-13 is revised downwards from 7.3 per cent to 6.5 per cent
Inflation
Keeping in view the recent trends in food inflation, trends in global commodity prices and the likely demand scenario, the baseline projection for WPI inflation for March 2013 is now raised from 6.5 per cent, as set out in the April Policy, to 7.0 per cent.
Monetary Aggregates
For 2012-13 non-food credit growth of SCBs is placed at 17 per cent.
Monetary and Liquidity Measures:
Repo Rate – Retained at 8.0 per cent.
Reverse Repo Rate - Retained at 7.0 per cent.
Marginal Standing Facility (MSF) Rate - Retained at 9.0 per cent.
Bank Rate - Retained at 9.0 per cent.
Cash Reserve Ratio - Retained at 4.75 per cent.
Statutory Liquidity Ratio – Reduced from 24% to 23% w.e.f 11.08.2012
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PTO
PRIOROTY SECTOR LENDING- REVISED RBI GUIDELINES PURSUANT TO SRI. M V NAIR COMMITTEE RECOMMENDATIONS ISSUED ON 20.07.2012
Introduction
Reserve Bank of India in August 2011 set up a Committee to re-examine the existing classification and suggest revised guidelines with regard to Priority Sector lending classification and related issues (Chairman: M V Nair). Based on the above and with a view to simplify the norms the following guidelines are laid down.
I. Categories under Priority Sector:
(i) Agriculture
(ii) Micro and Small Enterprises
(iii) Education
(iv) Housing
(v) Export Credit
(vi) Others
II. Targets /Sub-Targets for Priority sector for Domestic Commercial banks:
Total Priority Sector / 40 percent of Adjusted Net Bank Credit [ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.Total Agriculture / 18 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Of this, indirect lending in excess of 4.5% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, will not be reckoned for computing achievement under 18 percent target. However, all agricultural loans under the categories 'direct' and 'indirect' will be reckoned in computing achievement under the overall priority sector target of 40 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Micro & Small Enterprises (MSE) / (i) Advances to Micro and Small Enterprises sector will be reckoned as priority sector.
(ii) 40 percent of total advances to Micro and Small enterprises sector should go to Micro (Manufacturing) enterprises having investment in plant and machinery up to Rs 5 lakh and Micro (service) enterprises having investment in equipment up to Rs 2 lakh.
(ii) 20 percent of total advances to Micro and Small enterprises sector should go to Micro (manufacturing) enterprises with investment in plant and machinery above Rs 5 lakh and up to Rs 25 lakh, and Micro (service) enterprises with investment in equipment above Rs 2 lakh and up to Rs 10 lakh
Export Credit / Export credit is not a separate category. Export credit to eligible activities under Agriculture and MSE will be reckoned for priority sector lending under respective categories.
Advances to Weaker Sections / 10 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Computation of 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. / A
Bills Rediscounted with RBI and other approved Financial Institutions / B
Net Bank Credit (NBC)* / C (A-B)
Investments in Non-SLR categories under HTM category + other investments eligible to be treated as priority sector. / D
ANBC / C+D
III. The Eligible Activities under the above categories are as under:
01. Agriculture
A. Direct Agriculture
Loans to individual farmers including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage).
(i) Short-term loans to farmers for raising crops, i.e. for Crop Loans. This will include traditional/non-traditional plantations, horticulture and allied activities.
(ii) Medium & Long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and development loans for allied activities).
(iii) Loans to farmers for pre-harvest and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce.
(iv) Loans to farmers up to Rs 25 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.
(v) Loans to small and marginal farmers for purchase of land for agricultural purposes.
(vi) Loans to distressed farmers indebted to non-institutional lenders.
(vii) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS) ceded to or managed/ controlled by such banks for on lending to farmers for agricultural and allied activities.
(viii) Loans to farmers under Kisan Credit Card Scheme.
(ix) Export credit to farmers for exporting their own farm produce.
B. Indirect Agriculture
Loans to corporates, partnership firms and institutions engaged in Agriculture and Allied Activities [dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage)]
(i) Short-term loans for raising crops, i.e. for crop loans. This will include traditional/non-traditional plantations, horticulture and allied activities.
(ii) Medium & long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and development loans for allied activities).
(iii) Loans for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading and sorting.
(iv) Loans up to Rs 25 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.
(v) Export credit to corporates, partnership firms and institutions for exporting their own farm produce.
(vi) Loans upto ` 5 crore to Producer Companies set up exclusively by only small and marginal farmers under Part IXA of Companies Act, 1956 for agricultural and allied activities.
(vii) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).
C. Other Indirect Agriculture Loans
(i) Loans up to Rs 1 crore per borrower to dealers /sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs.
(ii) Loans for setting up of Agriclinics and Agribusiness Centres.
(iii) Loans up to Rs 5 crore to cooperative societies of farmers for disposing of the produce of members.
(iv) Loans to Custom Service Units managed by individuals, institutions or organisations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis.
(v) Loans for construction and running of storage facilities (warehouse, market yards, godowns and silos), including cold storage units designed to store agriculture produce/products, irrespective of their location.
If the storage unit is a micro or small enterprise, such loans will be classified under loans to Micro and Small Enterprises sector.
(vi) Loans to MFIs for on-lending to farmers for agricultural and allied activities as per the conditions specified.
(vii) Loans sanctioned to NGOs, which are SHG Promoting Institutions, for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural and allied activities. The all inclusive interest charged by the NGO/SHG promoting entity should not exceed the Base Rate of the lending bank plus eight percent per annum.
(viii) Loans sanctioned to RRBs for on-lending to agriculture and allied activities.
2. Micro and Small enterprises
Manufacturing sectorEnterprises / Investment in plant and machinery
Micro Enterprises / Do not exceed Rs 25 lakhs
Small Enterprises / More than Rs 25 lakh but does not exceed Rs 5 crore
Service Sector-Loans upto Rs 1 crore
Enterprises / Investment in equipment
Micro Enterprises / Does not exceed Rs 10 lakh
Small Enterprises / More than Rs 10 lakh but does not exceed Rs 2 crore
Bank loans to micro and small enterprises both manufacturing and service are eligible to be classified under priority sector as per the following:
Direct Finance
Manufacturing Enterprises: The Micro and Small enterprises engaged in the manufacture or production of goods to any industry specified in the first schedule to the Industries (Development and regulation) Act, 1951. The manufacturing enterprises are defined in terms of investment in plant and machinery.
Loans for food and agro processing: Loans for food and agro processing will be classified under Micro and Small Enterprises, provided the units satisfy investments criteria prescribed for Micro and Small Enterprises, as provided in MSMED Act, 2006.
Service Enterprises: Bank loans up to Rs 1 crore per unit to Micro and Small Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006.
Export credit to MSE units (both manufacturing and services) for exporting of goods/services produced by them.
Khadi and Village Industries Sector (KVI): All loans sanctioned to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such loans will be eligible for classification under the sub-target of 60 percent prescribed for micro enterprises within the micro and small enterprises segment under priority sector.
Indirect Finance
(i) Loans to persons involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.
(ii) Loans to cooperatives of producers in the decentralized sector viz. artisans village and cottage industries.
(iii) Loans sanctioned by banks to MFIs for on-lending to MSE sector as per the conditions specified in paragraph VIII of this circular.
3. Education
Loans to individuals for educational purposes including vocational courses upto Rs 10 lakh for studies in India and Rs. 20 lakh for studies abroad.
4. Housing
(i) Loans to individuals up to Rs 25 lakh in metropolitan centers with population above 10 lakh and Rs 15 lakh in other centers for purchase/construction of a dwelling unit per family excluding loans sanctioned to bank’s own employees.
(ii) Loans for repairs to the damaged dwelling units of families up to Rs2 lakh in rural and semi- urban areas and up to Rs 5 lakh in urban and metropolitan areas.