MBFI

Dr. U. K. Basu
2021
 Course Materials
GOI - New Definition of MSME
Retail & Wholesale Traders
Fresh Interest Subvention Scheme
GOI – Relief Package announced
(Fresh Loans Guaranteed by GOI +
Subordinated Debts + Fund of Funds)
RBI Press Release
RBI Circulars
SEBI Guidelines on Relaxed Norms
Text Books, Circulars, Press Releases etc.
 RBI Current Rates (06/08/2021)
CRR: 4.00% (hiked from 3% to 3.5% since 27/03/2021 and to 4.0%
w.e.f. 22/05/2021)
SLR: 18.00%

Policy Repo Rate : 4.00%

Reverse Repo Rate : 3.35%

Marginal Standing Facility Rate : 4.25%

Bank Rate : 4.25%

 List of Assignments
• 1. Journey of Commercial Bank to Universal
Bank and its impact on the field of Finance
• 2. Primary & Ancillary Activities of Banks
• 3. Primary and Collateral Securities for Bank
Loans; Creation of Charge; Search &
Registration of Charge; Its Impact
• 4. Priority Sector Lending by Banks &
Definition of MSME; SIDBI’s CGTMSE
 List of Assignments
• 5. Financial Package by GOI in 2020 &2021
Different Components including facilities
to MSME; Liquidity Support via SBI Cap
Trust for NBFCs & HFCs
6. Liquidity Ratios – CRR and SLR, Income
from these Assets & their Risk Profiles
and Risk Weights
 List of Assignments
• 7. RBI’s Liquidity Adjustment Facility –
REPO, Reverse REPO & MSF etc.
• 8. Letter of Credit (LC); Role of Banks; ICC;
UCPDC etc.
• 9. Bank Guarantee, Standby L.C., Recent Uses
• 10. Foreign Exchange Operations
• 11. IRAC Norms
• 12. Capital Adequacy Ratio – Basel Accord,
RWA, Tier I (AT I Bonds) & Tier II Capital
 List of Assignments
• 13. Investment Banking, Diverse
Activities like Corporate Restructuring
including M&A
• 14. Project Appraisal, Means of Finance,
Capital Structure DSCR & FACR etc.
• 15. Primary and Secondary Market; Private
Placement & Issue; Public & Rights Issue;
Offer Document; Period of issue; Promoter’s
Contribution; Firm Allotment & Net Offer to
Public; Green Shoe; Bonus Issue;
 List of Assignments
IPO & FPO; Fixed Price & Book built Issue;
Price Band & Cut Off Price; QIB, HNI & Retail
Investors; Discount for Retail & Employees;
ASBA; IPO Grading & Credit Rating; Due
Diligence; Roles of Merchant Bank,
Underwriter, Broker, Registrar, Banker to Issue,
Anchor Investor etc.
• 16. Insurance as a Financial Service
• 17. Buy and Lease Option, Types of Lease etc.
 List of Assignments
• 18. Credit Rating in India, When required;
Recent Cases in India of ILFS & DHFL (Dewan
Housing Finance Limited)
• 19. Bad Banks: Role and Functions
• 20. Mechanism for augmenting Capital for PSU
Banks by GOI via non-interest-bearing Bonds –
A Critical Analysis
• 21. Impact of 2nd wave of Corona on the Indian
economy and packages via the banking channel
 List of Assignments
• 22. Insolvency and Bankruptcy Code (IBC);
DHFL (Dewan Housing Finance Ltd);
National Company Law Tribunal (NCLT);
Stay by NCLAT (Appellate Tribunal)
• 23. Liability of Guarantors – Supreme Court
judgement - Concept of Limited Liability
• 24. Impact of Merger of certain PSU Banks
 Types of Finance Companies
FINANCE COMPANIES

Banks (Regulator – RBI) NBFCs

HFCs Insurance Fund based Fee based

Commercial Co-op Banks Regulator: Regulator: Activity
Activity
RBI IRDAI Regulator: RBI Regulator:
Banks SEBI
 Banks and Financial Institutions
• After the Financial Sector Reforms,
Commercial Banks have become the most
dominant players in the financial arena of
India.
• In 2020, following some unwarranted
developments, control of cooperative
banks has also been transferred to RBI, and
now RBI can draw up restructuring plans
for them.
 Banks and Financial Institutions
• Prior to the Financial Sector reforms, there
used to be a set of entities called Financial
Institutions

• These entities have since perished and

here “Financial Institutions” mean all kinds
of NBFCs.
 Banks and Financial Institutions
• Before Financial Sector Reforms
• SBI allowed to sanction only W.C. facilities
• SBI Cap allowed to sanction TL & Lease as
well as managing syndication, public issue
• After Financial Sector Reforms
• SBI can sanction all facilities (TL, Lease, WC)
and offer all (fund & fee based) services
• SBI Cap cannot sanction TL & Lease. NBFCs-
either fund- based or fee- based activities
 Reforms of 1991
• India’s future economic path is tougher
than 1991: Manmohan Singh – Times of
India 24/07/21
• Over the last three decades, successive
governments have followed the path of
economic reforms to catapult the country
into a $3-trillion economy. And into the
league of the world’s largest economies.
But the road ahead is even more daunting
than during the 1991 crisis, Dr Singh stated.
 Reforms of 1991
• Industrial Licencing abolished
• MRTP replaced by CCI
• Import Licensing abolished
• Current Account Convertibility introduced
• Exchange Rate based on Demand & Supply
• SEBI, IRDAI, PFRDAI set up
• Deposit & Loan Interest Rates Liberalised
• Globalisation of Financial Markets
 Reforms of 1991
• “It is not a time to rejoice and exult but to
introspect and ponder. Our priorities as a
nation need to be recalibrated to foremost
to ensure a healthy and dignified life for
every single Indian,” Singh said in a
statement on the eve of the historic
reforms launched 30 years ago, the results
of which experts say have led to higher
growth and development.
 Reforms of 1991
• He said the country had made tremendous
economic progress in the last three decades
due to the economic reforms ushered in by
the Congress government in 1991, while
flagging education and health as areas of
concern.
• The former PM, who as finance minister in
1991 led the reforms under the then Prime
Minister P V Narasimha Rao, said nearly
 Reforms of 1991

300 million Indians have been lifted out of

poverty in this period and hundreds of
millions of new jobs provided for youth.
• He said the reforms process unleashed the
spirit of free enterprise, which has helped
produce some world class companies and
India emerge as a global power in many
sectors.
 Reforms of 1991
• “But I am also deeply saddened at the
devastation caused by the Covid-19
pandemic and the loss of millions of fellow
Indians. The social sectors of health and
education have lagged behind and not kept
pace with our economic progress. Too
many lives and livelihoods have been lost
that should not have been,” said Singh,
who is a Rajya Sabha MP.
 Reforms of 1991
• He said the liberalisation process in 1991
was triggered by an economic crisis that
confronted the country then, but it was not
limited to crisis management. “The edifice
of India’s economic reforms was built on
the desire to prosper, the belief in our
capabilities, and the confidence to
relinquish control of the economy by the
government,” said Singh, adding that he
was fortunate to play a role in the process
 Reforms of 1991
along with several of his colleagues in
Congress.
“As finance minister in 1991, I ended my
Budget speech by quoting Victor Hugo, ‘No
power on Earth can stop an idea whose time
has come’.
• Thirty years later, as a nation, we must
remember Robert Frost’s poem, ‘But I have
promises to keep, and miles to go before I
sleep’,” said Dr Singh.
 Impact of Liberalisation
• 1. Every Bank decides Interest Rates on its
Deposits and Loans (NO Role for RBI)
• 2. (a) Import Licencing abolished
• (b) Exchange Rate now depends on forces of
Demand & Supply (Rate NOT controlled)
• (c) Rupee is Convertible in the Current
Account but NOT the Capital Account.
• 3. CCI is replaced by SEBI as Capital Market
Regulator, who ushered in free pricing regime.
 Banks and NBFCs
• Finance Companies:
• Banks (primarily Commercial Banks)
• Non-Banking Finance Companies (NBFCs)
• A NBFC does not accept any demand deposit
from general public and are not a part of
payment and settlement function i.e. clearing of
cheques, making payments. A NBFC can not issue
credit or debit cards whereas banks can issue
credit and debit cards. Unlike a Bank, a NBFC
cannot draw a cheque on itself.
 Banks and NBFCs
Banks NBFCs
1. Can accept both Demand 1. Cannot accept
and Term Deposits Demand Deposits
2. A part of payment and 2. NOT a part of these
settlement systems systems
3. Can issue debit & credit 3. Cannot issue debit and
cards credit cards
4. Can draw a cheque on 4. Cannot draw a cheque
itself on itself
 NBFCs
• In February, 2019 RBI merged 3 categories of
NBFCs viz. (a) Asset
Finance Companies (AFC), (b) Loan
Companies (LCs) and (c) Investment
Companies (ICs) into a new category called NBFC
- Investment and Credit Company (NBFC-ICC).

• HFC (Housing Finance Company); Example:

HDFC, LIC Housing Finance, PNB Housing
Finance, DHFL etc.
 Insurance Services (Regulator – IRDAI)

Life Insurance Non Life/General Insurance

Endowment Policy Term Policy Property Health Transport

Mediclaim Marine, Airways,

Fixed Car, Truck, 2wheeler
ULIP
Return Theft/Burglary Fire Flood Earth
Quake
 Insurance Policies
• Term Insurance Policy – (taken for Housing
Loan also)
• Endowment Policy & Annuity
• Unit Linked Policy (ULIP)

• Health Insurance – Mediclaim Policy

• Transport Insurance - Marine, Vehicle, Air
• Insurance of Property – Fire, Theft,
Burglary etc.
 Fund Based Activities
• Loan and Investment Companies
• Lease & Hire Purchase Companies
• Broad Difference between Buy & Lease
Options
• Types of Leases – Financial Lease &
Operating Lease; Dry and Wet Lease
• Housing Finance Companies
• Primary Dealers (PDs)
• Regulator: RBI
 Non – Fund Based Activities

• Merchant Bank, Underwriter, Broker, Sub –

Broker, Registrar & Transfer Agent, Banker
to Issue, Credit Rating Agency etc.
• Activities: Project Appraisal, Debt
Syndication, Issue Management,
Garnering Private Equity, M&A,
Valuation, Consultancy/Advisory Services
• Regulator: SEBI
 NBFCs
• Loan & Investment, Lease & Hire Purchase,
Housing Finance, Merchant Bank,
Underwriter, Stock Exchange, Broker/ Sub-
Broker, Registrar, Banker to Issue, Venture
Capital, Insurance Company, Nidhi and Chit
Fund Company are all NBFCs.
• But some have been exempted from need
of registration under Section 45-IA of the
RBI Act, 1934 subject to certain conditions.
 NBFCs - Regulators
• Companies that do financial business but
are regulated by other regulators are given
specific exemption by the Reserve Bank
from its regulatory requirements to avoid
duality of regulation.
• RBI regulates Banks, Loan & Investment
companies, Lease and Hire Purchase
companies as well as Housing Finance
Companies.
 NBFCs - Regulators
• Housing Finance Companies were earlier
regulated by National Housing Bank (NHB).
Budget of 2019 (presented on 05/07/2019)
has passed on this responsibility to RBI.
• Merchant Bank, Credit Rating Agency,
Stock-Exchange, Broker/Sub-Broker,
Registrar, Banker to Issue, Venture Capital
Fund are all regulated by Securities and
Exchange Board of India (SEBI).
 NBFCs - Regulators
• Insurance companies are regulated by
Insurance Regulatory and Development
Authority of India (IRDAI).
• Chit Fund Companies are regulated by the
respective State Governments
• Nidhi Companies are regulated by Ministry
of Corporate Affairs (MCA), Government of
India.
 Position of Co-operative Banks
• An ordinance was issued on 27th June, 2020
to bring 1,482 urban and 58 multi-state
cooperative banks under the supervision of
the Reserve Bank of India, a move that will
strengthen oversight of the lenders and
prevent a Punjab and Maharashtra Co-
operative (PMC) Bank-like fraud.
• However, Primary Agricultural Cooperative
Societies or any other Cooperative Society
 Position of Co-operative Banks
engaged in extending long term Agriculture
Loans will be outside the purview of this
ordinance.
• Cooperative banks were earlier under the dual
control of cooperative societies as well as RBI.
While the role of the cooperative society
includes incorporation, registration,
management, audit, supersession of board of
directors and liquidation, RBI is now
responsible for regulatory functions.
 Position of Co-operative Banks
• It will give an assurance to 8.6 crore
depositors in these banks that their money
worth Rs 4.85 lakh crore will stay safe.
• The government’s move follows the
collapse of PMC Bank, which had allegedly
created fictitious accounts to hide
over ₹4,355 crore of loans extended to the
now bankrupt Housing Development and
Infrastructure Ltd (HDIL). The fraud was
 Position of Co-operative Banks
discovered by the Reserve Bank of India
in September, 2019.
• In March, 2020 Finance Minister Nirmala
Sitharaman tabled in the Lok Sabha the
amendments to the Banking Regulation
Act, 1949, to give the RBI more power over
cooperative banks. However, due to the
outbreak of the covid-19, the Parliament
could not approve the changes.
 Position of Co-operative Banks
• Through an amendment of clause 45 of the
Banking Regulation Act, RBI is now allowed
to draw up a plan to restructure a
cooperative bank or merge it with another
bank.
 Liquidation of Cooperative Bank
• Reserve Bank of India (RBI) has, vide order
dated July 27, 2021 cancelled the licence of
The Madgaum Urban Co-operative Bank
Limited, Margao, Goa. Consequently, the
bank ceases to carry on banking business,
with effect from the close of business on
July 29, 2021," RBI stated in an order on
29/07/2021.
 Liquidation of Cooperative Bank
• The Office of Registrar of Cooperative
Societies, Goa has also been requested to
issue an order for winding up the bank
and appoint a liquidator for the bank, the
central bank further added.
• Consequent to the cancellation of its
licence, The Madgaum Urban Co-operative
Bank Limited, Margao, Goa is prohibited
from conducting the business of banking
 Liquidation of Cooperative Bank
which includes acceptance of deposits and
repayment of deposits as defined in Section
5(b) read with Section 56 of the Banking
Regulation Act, 1949 with immediate effect,"
the RBI statement read.
• With this, the bank will not be able to
accept deposits or make payments.
 Liquidation of Cooperative Bank
• On liquidation, every depositor would be
entitled to receive deposit insurance claim
amount of his/her deposits up to a
monetary ceiling of Rs 5 lakh from the DICGC
subject to the provisions of the DICGC Act,
1961.
• According to the RBI, as per the data
submitted by the bank, about 99 % of the
depositors will receive full amounts of their
deposits from the Deposit Insurance
 Liquidation of Cooperative Bank
and Role of DICGCI

• RBI said the decision was taken as the

bank doesn't have adequate capital and
earning prospects, and it would be unable
to pay its present depositors in full in its
present financial position.
 Liquidation of Cooperative Bank
• The continuance of the bank is prejudicial
to the interests of its depositors, the central
bank noted.
• With the cancellation of licence and
commencement of liquidation proceedings,
the process of paying the depositors of the
bank as per the DICGC Act, 1961 will be set
in motion.
 Cooperative Bank & DICGC
• An article on 02/08/2021 in The Telegraph
says:
• (a) As per DICGC, an RBI subsidiary, 2053 banks
are insured, including 89 PSU, Pvt, Foreign &
Small Finance banks.
• (b) Over 1900 insured banks are Cooperative
Banks that are more vulnerable. As per DICGC, 7
such banks were settled in 2020 and in 2021, so
far, 6 Cooperative Banks are settled. Therefore,
Cooperative Banks going under is routine.
 DICGC Insurance Cover Rs 5 Lakh
•Bank depositors to get up to Rs 5 lakh refund within
90 days under DICGC insurance
•This move is expected to cover around 98.3% of total
number of accounts and 50.9% of the value of total
deposits held with the banks
•The union cabinet has cleared an amendment that
allows customers of failed or stressed banks which
are placed under moratorium to get their deposits
(upto Rs 5 lakh) back within 90 days of start of
 DICGC Insurance Cover Rs 5 Lakh
moratorium. They would be able to get the
deposits up to Rs 5 lakh back under the
deposit insurance scheme of the Deposit
Insurance and Credit Guarantee Corporation
(DICGC).
• This is a big relief for customers and this
step will increase the confidence of the
depositors even further," says market
players.
 DICGC Insurance Cover Rs 5 Lakh
• The overall insurance amount of Rs 5 lakh
includes both principal and interest held
with the bank in the same right and
capacity. “This move is expected to cover
around 98.3% of total number of accounts
and 50.9% of the value of total deposits
held with the banks,” said Sitharaman. 
 DICGC Insurance Cover Rs 5 Lakh
• Deposits with all banks are covered under
DICGC insurance cover of Rs 5 lakh; earlier
many cooperative banks were not included
in this coverage. However, in 2020 the
government introduced an amendment in
Banking Regulation Act where RBI was
given complete regulatory control over
cooperative banks and all banks were put
under deposit insurance coverage.
 DICGC Insurance Cover Rs 5 Lakh
• On 04/08/2021 the Rajya Sabha passed the
Deposit Insurance and Credit Guarantee
Corporation (Amendment) Bill.
• On 09/08/2021 Lok Sabha passed the bill.
• The law will help depositors, including
those of the stressed PMC Bank, to receive
up to Rs 5 lakh within 90 days from date of
moratorium.
 DICGC Insurance Cover Rs 5 Lakh
• The Bill proposes that even if a bank is
temporarily unable to fulfil its obligations due
to restrictions such as moratorium, depositors
can access their deposits to the extent of the
deposit insurance cover through interim
payments by the Deposit Insurance and Credit
Guarantee Corporation (DICGC).
• For this, the Bill seeks to insert a new Section in
the DICGC Act, 1961.
 
 Financial Sector Scenario
• Regulators – RBI, SEBI, (NHB- since changed to
RBI), IRDA

• Financial Sector Reforms

• Commercial Banks become Universal Banks

• NBFCs face restrictions – FIs are abolished

• Dominant Roles of Commercial Banks

 MCQs
• 1. All NBFCs are allowed to accept both
Demand and Term Deposits – True/False
• 2. Tamilnad Mercantile Bank is a: (a) PSU
Bank (b) Private sector Bank (c) Foreign
Bank (d) None of these
• 3. In the wake of the budget presented in
July, 2019, HFCs are now regulated by NHB
– True/ False
 MCQs
• 4. Banking transactions can be conducted:
(a) at bank’s counter (b) via net
banking (c) via phone banking
(d) any one of these
• 5. Commercial Banks in India have since
been converted to Universal Banks -
True/False
• 6. Companies regularly maintain S.B. A/Cs
– True/ False
 MCQs
• 7. In 2020 Cooperative Banks have also
been brought under regulation of RBI –
True /False
• 8. Regulator for the Insurance Sector in
India is: (a) SEBI (b) RBI (c) NHB
(d) None of these
• 9. Both Commercial Banks and Merchant
Banks are regulated by RBI – True/False
 MCQs
• 10. A life insurance policy that pays only on
death of the policy holder is called a Term
Insurance policy – True/False
• 11. General/Non- Life Insurance does not
include marine insurance – True/False
• 12. Quantum of DICGC Cover for Bank
Deposits per depositor is currently Rs
(a) 1 lakh (b) 3 lakh (c) 5 lakh
(d) none of these
 MCQs
• 13. DICGCI currently provides the service of
(a) Deposit Insurance (b) Credit
Guarantee (c) Both of these (d) None
of these
• 14. Each Bank can now freely decide rate of
interest on its deposits and advances –
True/False
 MCQs
• 15. Lessee of an equipment debits the
entire lease rental to its Profit & Loss
Account – True/False
• 16. Cooperative Banks are now covered
fully under DICGCI – True / False
• 17. Exchange Rates in India are now (a)
regulated (b) market driven (c) both
(d) none of these
 Commercial Banks - Issues
• Types of Banks (Public, Private, Foreign)
• Principal activities of Commercial Banks
• Accepting Deposits & Sanctioning Loans
• Types of Deposits & Loans
• Priority Sector Lending Norms
• MSME – New Definition, Additions
• Ancillary Activities of Banks – LC, Bank
Guarantee, Remittance, Cash Management
 Commercial Banks - Issues
• Foreign Exchange Operations – Rates,
Quotes, Transactions, Premium & Discount
• Liquidity Ratios: CRR and SLR
• RBI’s Liquidity Adjustment Facility (LAF):
REPO, Reverse REPO, MSF etc.
• IRAC (Income Recognition & Asset
Classification) Norms; NPAs etc.
• Basel Accord – Capital Adequacy Norms
• Assessment of Working Capital Requirement
 Commercial Banking
• Principal Activities of Banks
• (A) Accepting Deposits
• Demand and Time/Term Deposits
• CASA – Can every one maintain S.B. A/C?
• NDTL (Net Demand & Time Liability)
• DICGC – Limit of cover for Bank Deposits Rs 5 lac

• E or S, F or S, A or S, Joint Operations, Nominee

• Features of a Cheque and NI Act

 Liberalisation of Interest Rates
• As a part of liberalisation of Financial
Market, Banks can now decide their own
deposit and loan interest rates (earlier it was
decided by RBI – uniform rates for all Banks)
• In April 2020, SBI set interest rate for Savings
Bank Deposit accounts even on Floating Rate
basis.
• The S.B. rates set by SBI are as under:
 Fixed & Floating Rates for S.B. Deposits
• (i) For accounts having balance up to Rs 1
lakh, a Fixed Rate of Interest of 2.75% p.a.
• (ii) For accounts having balance above Rs1
lakh, a Floating Rate of Interest with an
external bench mark @ [RBI’s REPO Rate
less 2.75%] subject to a Floor of 2.75% p.a.
(Floor is like a series of Put Options which,
in this case, is exercisable whenever RBI
revises its REPO Rate).
 Commercial Banking
• (B) Sanction of Loans

• Tenure based Classification of Loans

• Term Loan (Long Term) and Working Capital Loan

• Purpose of Long Term & Short Term Loans

• How much Long Term & Short Term Loans?

 Commercial Banking
• Beneficiary wise Classification of Loans

• Agriculture & Allied Agriculture

• Direct and Indirect Agricultural Loans
• Small Industry and Business
• MSME & SIDBI Loan Guarantee
• Retail & Wholesale Traders
• Commercial & Institutional Loans
• Personal Segment Loans
 Classification of Bank Loans
Beneficiary based Classification
Bank Loan

Agriculture & Allied

Agriculture
MSME
Direct & Indirect Commercial & Institutional

Personal
Definition of MSME Segment as per Decision of
Union Cabinet on 1st June, 2020
 Priority Sector Loans
• Priority Sector Loans

• Goals and Sub – Goals

• All loans to Micro Small and Medium

Enterprises (MSME- Definition in next slide)
now qualify as Priority Sector Lending.
 Priority Sector Loans
• (1) All Loans to Agriculture & Allied
Agriculture are Priority Sector Loans.
(i) Farm Credit (which will include Short-
Term Crop Loans and Medium/Long-Term
Credit to farmers (ii) Agriculture
Infrastructure and (iii) Ancillary Activities.
• (2) All bank loans sanctioned to MSMEs
engaged in the manufacture or production
of goods or rendering of services as well as
retail & wholesale trades (since 2021) are
 Priority Sector Loans
eligible for classification under priority
sector.
• (3) Loans to individuals for educational
purposes including vocational courses up
to ₹ 10 lakh irrespective of the sanctioned
amount are eligible for classification under
priority sector.
 Priority Sector Loans
• (4) Following Loans to individuals for purchase/
construction of a dwelling unit per family, are
eligible to be considered as priority sector:
• (a) For metropolitan centres (with population
of 10 lakh and above): Loans up to ₹35 lakh
provided the overall cost of the dwelling unit is
up to ₹ 45 lakh
• (b) For other centres: Loans up to ₹ 25 lakh
provided the overall cost of the dwelling unit is
up to ₹ 30 lakh.
 Priority Sector Loans
• (5) Incremental export credit over
corresponding date of the preceding year,
up to 2 per cent of ANBC or Credit
Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher, effective
from April 1, 2015 subject to a sanctioned
limit of up to ₹ 40 crore per borrower.
 Priority Sector Loans
• 6. Start Ups (already included in MSME –
to get more attention now: since August,
2020)
• 7. Retail and Wholesale Traders (since July,
2021)
Priority Sector Loans – Addition2020
• On 06/08/2020 RBI brought start-ups under
the purview of priority sector lending (PSL), a
move that will make it easier for start-ups to
raise funds from banks.
• Sectors that are already under PSL are
Agriculture, MSMEs, Education, Housing,
Social Infrastructure among others.
• Analysts and start-ups say start-ups were
always considered under the MSME category,
but felt somewhat stymied by
Priority Sector Loans – Addition2020
traditional lender metric of creditworthiness.
Start-ups have relied on expensive venture
debt. Early start-ups are mostly bootstrapped
or friends-and-family funded, though of late
more early-stage start-ups have had access to
seed or angel funding".
RBI’s current move will help Start-Ups free up
their equity and raise low cost debt. Banks
will now see start-ups more seriously while
providing them loans.
 Priority Sector Loans – Addition2021
• Telegraph – 03/07/2021:
• Traders in MSME fold:
• 2.5 crore Retail and Wholesale Traders are
included within the category of MSME and
the benefit of Priority Sector Lending
under RBI guidelines is extended to them.
 Priorities for Priority Sector Clients
• 1. (a) Assured Flow of Bank Credit to Priority
Sector: Targets and sub – targets set for Priority
Sector Lendings
• 1 (b). Special Assessment Methods: Area based
Quantum for ACC, Nayak Committee (20%)
• 2. Smaller Margins on Loans
• 3. Lower Rate of Interest & Intt Subvention
• 4. Non Insistence on Collateral Securities
• 5. Credit Guarantee on Loans (SIDBI - CGTMSE)
 Priority Sector Target & Sub-targets
• (1) Priority Sector Target: 40% of Adjusted
Net Bank Credit (ANBC) or Credit
Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher

• (2) Agriculture Sub Goal: 18% of ANBC or

Credit Equivalent Amount of Off-Balance
Sheet Exposure, whichever is higher
 Priority Sector Target & Sub-targets
• (3) Within the 18% target for Agriculture, a
sub target of 9% (for FY 2021-2022) of ANBC
or Credit Equivalent Amount of Off-Balance
Sheet Exposure, whichever is higher is
prescribed for Small and Marginal Farmers.
Priority Sector Target & Sub-targets
• Farmers with landholding of up to 1
hectare are Marginal Farmers.
• Farmers with a landholding of more than 1
hectare and up to 2 hectares are Small
Farmers.
• 1 hectare = 10,000 m2 (100m*100m)
= 2.47105 acres
Priority Sector Target & Sub-targets
• (4) Micro Enterprises: The sub-target
for bank lending to the micro
enterprises is 7.50% of ANBC or credit
equivalent amount of off-balance sheet
exposure, whichever is higher.
 Priority Sector Target & Sub-targets
•(5) Advances to Weaker Sections: The sub-target for
bank lending to the Weaker Sections is 11% (for FY
2021-22)of Adjusted Net Bank Credit or credit
equivalent amount of off-balance sheet exposure,
whichever is higher.

•Priority sector loans to the following borrowers are

eligible to be considered under Weaker Sections
category:-
No. Category – Weaker Section of Society

1. Small and Marginal Farmers

2. Artisans, village and cottage industries where individual credit limits do not exceed ₹ 0.1 million
3.

Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods Mission (NRLM), National
Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)

4. Scheduled Castes and Scheduled Tribes

5. Beneficiaries of Differential Rate of Interest (DRI) scheme

6. Self Help Groups

7. Distressed farmers indebted to non-institutional lenders

Distressed persons other than farmers, with loan amount not exceeding ₹ 0.1 million per borrower to prepay their debt
8.
to non-institutional lenders

9. Individual women beneficiaries up to ₹ 0.1 million per borrower

10. Persons with disabilities

11.
Overdraft limit to PMJDY account holder upto ₹ 10,000/- with age limit of 18-65 years.

12. Minority communities as may be notified by Government of India from time to time
 RBI - New Targets for SMF & WS
• Targets for Small & Marginal Farmers
(SMF) and Weaker Sections (WS) will be
revised upward from FY2021-22 as under
(RBI Circular dated 04/09/2020):
• FY SMF Weaker Section
• 2020-21 8% 10%
• 2021-22 9% 11%
• 2022-23 9.5% 11.5%
• 2023-24 10% 12%
 ANBC
• For calculating ANBC, Net Bank Credit and
Investments in Non-SLR categories are
added.
• Net Bank Credit is calculated as Bank
Credit minus Bills Rediscounted.
• Other than the SLR investments,
investments in various capital market
instruments such as stocks and bonds
issued by public and private sector
 ANBC
companies and commercial papers,
investment in mutual fund schemes, etc.
come under the Non-SLR investments.

Held To Maturity means the investments

which remain for a specified time period i.e.
till the maturity and also the investments
which have fixed or determinable payments.
 Priority Sector Loans

• Foreign Banks with 20 or more branches

to adhere to the priority sector sub-
targets for farm loans and loans to micro
enterprises to make the rule equal with
other banking entities. This has become
applicable from 2018-19.
 Priority Sector – Problem
• The following data pertain to “Good Bank”
as on 31/03/2021:
(Rs/Billlion)
• Total Loan Assets: 23000
• Non – SLR Investments: 3000
• Refinance Availed: 2000
• Off-Balance Sheet Exposure: 12000
 Priority Sector – Problem
• Answer the questions given below:
• (1) ANBC for Good Bank (in Rs/Billion) is : (a)
23000 (b) 26000 (c) 24000 (d) none of
these
• (2) The Priority Sector Norm for Good Bank
will be computed based on its: (a) ANBC (b)
Off-Balance Sheet Exposure (c) None of these
• (3) Minimum amount of Priority Sector Loan
for Good Bank should be (in Rs/Billion)
 Priority Sector – Problem
(a) 5000 (b) 8000 (c) 9600 (d) none of
these
(4) Minimum amount of Loan to
Agriculture Segment for Good Bank should
be (in Rs/Billion): (a) 4320 (b) 5000 (c) 3000
(d) none of these
(5) Minimum Loan to Small & Marginal
Farmers for Good Bank should be (in
Rs/Billion): (a) 5000 (b) 2160 (c) 1500
(d) none of these
 Priority Sector – Problem 2
• (6) Minimum Loan to Micro Enterprises for
Good Bank should be (in Rs/Billion): (a)
5000 (b) 1800 (c) 3000 (d) none of
these
• (7) Minimum Loan to Weaker Section for
Good Bank should be (in Rs/Billion):
(a) 2000 (b) 3000 (c) 5000
(d) none of these
 Priority Sector – Solution 2
• List of Correct Answers
• (1) (c)
• (2) (a)
• (3) (c)
• (4) (a)
• (5) (b)
• (6) (b)
• (7) (d)
 MCQs
• (1)The target for priority sector loans, as a
fraction of total loans, for a Commercial
Bank in India is at least: (a) 18% (b) 25%
(c) 40% (d) none of these
• (2) The target for loan to Agriculture and
Allied Agriculture sector, as a fraction of
total loans, for a Commercial Bank in India
is at least: (a) 40% (b) 18%
(c) 10% (d) none of these
 MCQs
• (3) The 2021-2022 target for loan to Small
and Marginal farmers, as a fraction of total
loans, for a Commercial Bank in India is at
least: (a) 9% (b) 18% (c)
40% (d) none of these
• (4) Farmers holding land up to 1 hectare
are called: (a) Small Farmers (b)
Marginal Farmers (c) Large Farmers
(d) None of these
 MCQs
• (5) The sub-target for bank lending to the
micro enterprises is (a) 10% (b) 8%
(c) 7.50% (d) none of these
• (6) The sub-target for bank lending to the
Weaker Sections is (a) 8% (b) 7.5% (c)
11% (d) none of these
• (7) All Educational Loans qualify as Priority
Sector Loans – True/False
 MCQs
• (8) Not all loans to the MSME sector is a
part of Priority Sector Lending – True/False
• (9) Start Ups have now been specifically
included under the Priority Sector –
True/False
• (10) Only manufacturing/processing units
and not trading units are under the Priority
Sector – True/False
 MCQs
• (11) Land Holding for Small Farmers is:
(a) ≤ 1 hectare (b) > 2 hectares
(c) > 1 hectare but ≤ 2 hectares
(d) None of these
(12) Following liberalisation, each Bank can
now set the interest rates on its own
deposits and loans – True/ False
 MCQs
• (13) Retail and Wholesale Traders have
also been brought under the purview of
Priority Sector Lending – True/ False
(14) Maximum investment to qualify
under the MSME sector is Rs (a) 1 cr
(b) 10 cr (c) 50 cr (d) None of these