Treat advances to medium units as priority sector loans: RBI

MUMBAI: The Reserve Bank of India (RBI) said that banks could classify their incremental advances to medium enterprises, after November 13, as priority sector loans and also double the credit limit to micro and small units to Rs 10 crore until March-end.

"It has been decided to include incremental bank loans to medium manufacturing enterprises (as defined in the MSMED Act of 2006), extended after November 13, 2013, as priority sector advances," the central bank said in a notification.

Both the facilities will remain in force till March 31, 2014, the RBI said.

Under the statute, a medium manufacturing enterprise is one with investments over Rs 5 crore and under Rs 10 crore in plant and machinery.

Similarly, incremental advances up to a credit limit of Rs 10 crore to medium service enterprises, (between Rs 2 crore to Rs 5 crore investment in equipment) after November 13 will also be treated as priority sector advances, the RBI said.

For an advance to be treated as a priority sector loan, the credit limit of Rs 5 crore to small and micro enterprises has been doubled to Rs 10 crore, it said.

Priority sector lending, which constitutes as much as 42 per cent of total advances of all commercial banks, is a system under which banks are mandated to lend to the marginal sectors including agriculture, women's self-help groups, fisheries and small businesses, among others.

Strict penalties, like putting shortfall in the low yielding rural infrastructure development fund, are imposed on banks failing to meet targets.

Due to the ongoing slowdown, micro, small and medium enterprises are feared to be facing a liquidity crunch.

The move by RBI would also incentivise banks, many of whom do not meet their priority sector lending targets every year, to lend to this sector and make their funds more productive.