RBI/2007-2008/84
BPD(PCB)MC. No.11./09.09.001/2007-08

July 4, 2007

The Chief Executive Officers of
All Primary (Urban) Co-operative Banks 

Dear Sir/Madam,

Master Circular on Priority Sector Lending – UCBs

Please refer to our Master Circular UBD.BPD(PCB)MC.No.10/09.09.01/2006-07 dated August 8, 2006 on the captioned subject (available on RBI website www.rbi.org.in).
The enclosed Master Circular consolidates and updates all the instructions/ guidelines on the subject issued upto June 30, 2007.

Yours faithfully,

(N.S.Vishwanathan)
Chief General Manager-in-Charge

Master Circular
 on
Priority Sector Lending

Master Circular
on
Priority Sector Lending

The need for primary (urban) co-operative bank (PCBs) for providing credit to priority sectors had been examined by the Standing Advisory Committee for PCBs constituted by Reserve Bank of India in May 1983.  The recommendations of the Committee were accepted by Reserve Bank of India and accordingly the targets for lending to priority sector and weaker section by the PCBs were stipulated.    

1 Lending Targets

1.1 Based on the recommendations made by the Standing Advisory Committee for PCBs, the targets for lending to Priority Sector and weaker sections have been prescribed for the PCBs as given below:

1.1.1 60% of total loans and advances to priority sector and

1.1.2 Of the stipulated target for priority sector advances, at least 25% (or 15% of the total loans and advances) to weaker sections.

1.2 In order to ensure that credit is available to all segments of Small Scale Industries (SSI) sector, (classified on the basis of investment in plant and machinery), the following sub-targets should be achieved:

1.3 The stipulation regarding priority sector lending is not applicable to the Salary Earners' Banks.

1.4 The banks should make concerted efforts to achieve the targets and, if necessary, suitably simplify the systems and procedures keeping in view the types of beneficiaries to be financed.

2.  Classification of Priority Sector and Weaker Section Advances

2.1  The types of advances to be reckoned as priority sector advances and those of it to be considered as advances to weaker sections are indicated in  Annex I.

The definition of weaker section in priority sectors broadly corresponds to the beneficiaries under the 20-Point Economic Programme aimed at improving the standard of living of the weaker sections of the society.

2.3  For classifying priority sector advances under various categories, it may be noted that the banks should not merely take into account the purpose of the loan mentioned in the borrower’s loan application but also the amount involved and should satisfy themselves that the amount borrowed would be utilised for the purpose for which it was sanctioned, by calling for documentary evidence in support thereof, wherever considered necessary. For example, loans to small traders or small businessmen are essentially in the nature of working capital loans and they have to be given primarily against the hypothecation or pledge of the goods in which they are dealing and therefore loans to small traders or small businessmen against gold or jewellery may not necessarily be the loans for undertaking trade or business. Similarly, in the case of a loan for construction of a house, it would have to be satisfied that the borrower has the land and his construction plans bear the approval of the competent authority or he has joined some co-operative society to construct the house. Mere security of jewels coupled with indication of "housing" as purpose in the loan application should not satisfy the bank for classification of priority sector advances.

2.4 Therefore, loans against gold ornaments (jewel loans) which are in a majority of cases availed of by the weaker sections of the society, the purpose of the loan and the loan amount actually sanctioned to each borrower and not the security therefor, should be adopted as the criteria for classification of the priority sector advances and advances given to weaker sections of the society.

3. FLOW OF CREDIT TO SS INDUSTRIES

3.1 The banks should step up the credit flow to meet the legitimate requirements of tiny and SSI.  The credit requirements of the tiny industries should be given preferential treatment while providing credit to this sector. Besides, preferential treatment in providing credit to tiny industries, full working capital limits determined on the basis of “need” related to the rated capacity of the unit should be sanctioned at the commencement itself.  The bank’s decision regarding credit assistance should be communicated to the applicant as early as possible. Requests for increase in the limits should be considered expeditiously and decisions may be taken and conveyed promptly.

3.2 The bank’s officials/branch managers should be made aware of the importance of the SSI Sector  from the  point of view of creation of additional  employment opportunities, exports etc.  A healthy growth of the sector will facilitate smooth loan recovery in the SSI borrowal accounts and timely assistance will prevent the accounts from becoming sticky.  Banks’ staff should be imparted proper training and the aforesaid aspects should form part of inputs in the training provided.  There should be an interaction between the banks’ staff and the SSI borrowers as part of the training programme.

3.3  With a view to providing better customer service and to ensure that all loan applications relating to SSI/Small borrowers are disposed of expeditiously, the following norms may be adhered to by all the banks provided the loan applications received are complete in all respects and duly accompanied by a check list, if prescribed.

3.3.1  Loan applications in respect of loans up to Rs.25,000/- to SSI/Small borrowers etc. may be disposed of within two weeks from the date of receipt of loan application,

3.3.2  Other cases of loans upto Rs.5 lakh may be disposed of within a period of four weeks from the date of receipt of duly completed loan application.

3.3.3  All such loan applications which are complete in all respects and accompanied by check list where prescribed, should be acknowledged by the bank/branch, on the day the application is received.

3.4  A Scheme for Small Enterprises Financial Centres (SEFC) for strategic alliance between branches of banks and SIDBI located in the clusters of SSI units has been worked out in consultation with the Ministry of SSI and Banking pision of Ministry of Finance, Govt. of India, SIDBI, IBA and select banks. Banks have been encouraged to establish mechanism for better co-ordination between their branches and branches of SIDBI located in the clusters identified by the Min. of SSI, Govt. of India for co-financing of SME sector (including tiny and service sector) on mutually agreeable operational modalities to   be worked out by SIDBI and the strategic partner bank. For details please see Annex VII.

4. FLOW OF CREDIT TO MINORITY COMMUNITIES

Primary (urban) co-op. Banks should initiate steps to enhance/ augment flow of credit under priority sector to artisans and craftsmen as also to vegetable vendors, cart pullers, cobblers, etc. belonging to minority communities. The minority communities notified in this regard are Sikhs, Muslims, Christians, Zoroastrians and Buddhists.   Within the overall target for priority sector lending and the sub- target of 25 per cent for the weaker sections, sufficient care may be  taken to ensure that the minority communities also receive an equitable portion of the credit. 

The banks should submit a half yearly statement (as on March 31/ September 30) within 15 days of the close of the relevant half year, showing the progress made in deployment of credit to these communities, to the concerned Regional Office of this department under whose jurisdiction they  nction, in the format given in Annex II.

5   MONITORING AND EVALUATION OF PRIORITY SECTOR AND WEAKER SECTION ADVANCES

5.1 Primary (urban) co-operative banks should take effective steps to achieve the above recommended targets and monitor the priority sector lendings from the quantitative and qualitative aspects.

5.2  In order to ensure that due emphasis is given to lending under priority sector, it is considered desirable that the performance is reviewed periodically. For this purpose, apart from the usual reviews, which the banks are periodically undertaking, specific reviews by the Board of Directors of the respective banks may be made on half-yearly basis. Accordingly, a memorandum may be submitted to the Board of Directors at half-yearly intervals i.e. as on  September 30 and March 31 of each year giving a detailed critical account of the performance of the bank during the period showing increase/decrease over the previous half-year as per the proforma given in Annex III.

5.3  A copy of the annual review as on March 31 may be forwarded to the concerned Regional Office of the Reserve Bank with the Board's observations, indicating the steps taken/proposed to be taken for improving the bank's performance. The report should reach the Regional Office within a month from the end of the period to which it relates.

6. REPORTING REQUIREMENTS

6.1 Primary (urban) co-operative banks should submit an Annual Return as on  March 31 each year to the concerned Regional Office of the Reserve Bank in the proforma given in Annex IV. The return should be furnished within one month from the end of the period to which it relates to the concerned Regional Office.

6.2 Member banks of State Federations may also submit a copy of the above returns to their respective federations in order to enable them to monitor their performance.

6.3 It will be seen from Part I, column 3 to 7 of the Return that under each item of priority sector, advances to weaker sections are also to be included.

6.4 Further, while giving the details of the position relating to advances made to different categories, viz. Scheduled castes, Scheduled tribes, women and others, care must be taken to ensure that there is no duplication in reporting and the figures under columns 23 to 27 thereof in part II of the return indicating the position alone should be reported against the relevant columns in Part I of the return.

7. REGISTER FOR PRIORITY SECTOR/ WEAKER SECTION ADVANCES

 In order to facilitate compilation of the relative figures, banks may maintain a register to indicate all the items of priority sector advances and also another  register for weaker section  advances  showing  particulars,  with  separate folios to each activity so that the total of advances to priority sector and weaker sections under each activity and to each type of beneficiary may be available at any given point of time.  The proforma of these registers may be    on the lines of the annual return to be submitted to RBI as given in Annex IV.

Annex 1

List of Items of Priority Sector/Weaker Sections Advances
[Ref. Para. 2.1]

1. PRIORITY SECTOR

1.1  Agriculture and Allied Agricultural Activities

1.1.1 Advances to inpiduals for Agriculture activities

1.1.1.1     Primary (urban) co-operative banks may finance agricultural activities subject to the following conditions:

(a) Banks would provide direct finance only to regular members and not to nominal members and not through any agency like primary agricultural credit societies and primary land development banks etc.

(b) Credit should be extended only after obtaining 'no dues certificate' from the existing credit agencies in the area,

(c) Banks should follow the scales of finance and obtain security as per guidelines issued by RBI/NABARD.

1.1.1.2 Finance granted by scheduled primary (urban) co-op banks under the NABARD's scheme of financing "Agriclinics and Agribusiness Centres" will be considered direct finance to farmers for agriculture purposes.  These may be reported under agriculture and allied activities in the annual Priority Sector Lending statement.

1.1.1.3 The scheduled primary (urban) co-operative banks may lend to non-banking financial companies (NBFCs) for on-lending to agriculture and such loans may be reckoned for the purpose of priority sector lending as indirect finance to agriculture.

1.1.1.4 Advances granted by banks upto Rs.20 lakh per dealer for dealing in drip irrigation/sprinkler irrigation systems and agricultural machinery, may be classified under ‘Indirect Finance to Agriculture as part of the priority sector lending’ and reported under this head in the annual statement sent to RBI.

1.1.2 Advances to inpidual forActivities Allied to Agriculture

The following activities undertaken by the members of the primary co-operative banks will comprise activities allied to agriculture:

1.1.2.1 Development of Dairy and Animal Husbandry.

1.1.2.2 Development of Fisheries.

1.1.2.3 Development of Poultry, Piggery etc.

1.1.2.4 Development and maintenance of Stud farms, Beekeeping, Sericulture, etc. However, breeding of race horses cannot be classified under this head.

1.1.2.5 Purchase of Bullock Carts, Camel Carts, Pack Animals etc.

1.1.2.6 Distribution of inputs for allied activities such as poultry feed, cattle feed, etc.

1.2 Small Scale Industrial Units , Equipment/ System for development of new and renewable source of energy, etc.

1.2.1Small Scale and Ancillary Industries

1.2.11 Small-scale industrial units are those engaged in the manufacture/ processing/ preservation of goods / tyre retreading activity (through cold/hot process)/ coffee curing or processing (does not include growing coffee) / water mills and whose investment in plant and machinery (original cost) does not exceed Rs.100 lakh. 

An ancillary industry is an industrial undertaking which is engaged or is proposed to be engaged in the manufacturing or production of parts, components, sub-assemblies, tooling or intermediates, rendering of services, and undertaking supplies, or proposes to supply, or renders not more than fifty percent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant & machinery does not exceed Rs.100 lakh. These industries are included under SSI.

Note: No SSI Unit or Ancillary unit referred to above shall be subsidiary of or owned or controlled by any other industrial undertaking.

Exemptions

(a) Small scale industrial units set up prior to December 24, 1999 whose investment in plant & machinery was upto Rs. 300 lakh and were given SSI status vide Government of India Notification No.S.O.857(E) dated December 10, 1997 or units which have got provisional registration with state authorities for their SSI status would continue to remain as SSI units, in spite of the order dated December 24, 1999 provided the provisional registration had taken place within the period of limitation of 180 days specified in the order dated December 10, 1997 and any advances to such units should be reckoned as advances to SSI sector under priority sector.

(b) The maximum investment limit in plant and machinery in respect of small scale industries engaged in the manufacture of certain hosiery, hand tools, stationery, drugs and pharmaceuticals items and certain items of sports goods as per Annex VI, has been enhanced from Rs.100 lakh to Rs.500 lakh.

Note: Registration of SSI units is not compulsory for including SSI units under priority sector advances

1.2.1.2  Items reserved for exclusive manufacture in SSI sector-

At present there are 506 items reserved for exclusive manufacture in SSI sector as of March 28, 2005, forwarded to UCBs vide circular UBD. PCB. No. 13/ 09.09.001/ 2005-06 dated September 29, 2005.  

1.2.1.3 Units financed by primary (urban) co-operative banks under the 22 broad groups of Cottage and Small Scale Industries for which refinance is available from RBI under section 17(2)(bb) read with Section 17(4)(c) of RBI Act, 1934,    will be covered under this category.  These include:

i) Flaying and tanning
ii) Leather goods
iii) Pottery
iv) Hand pounding of paddy and cereals
v) Rice Mills, including flour mills and bakeries
vi) Oil crushing
vii) Palm gur
viii) Cane gur and khandsari
ix) Canning of fruits and vegetables
x) Manufacturing and processing of agricultural and Marine products and forest produce including beverage industries
xi) Other village industries such as carpentry and black-smithy, bee-keeping and honey and honey products
xii) Handicraft Industries
xiii) General Engineering
xiv) Chemical Engineering and Chemical Industries
xv) Construction Material
xvi) Sericulture
xvii) Coir
xviii) Spinners Societies
xix) Cotton Textiles and other textiles
xx) Printing, book binding and lithography
xxi ) Saw mills, wood work and furniture and fixtures, and
xxii) Miscellaneous industries such as manufacture of sports goods, bidis, buttons, card-boards and other paper products, cutting and polishing of real and artificial gems and stones, manufacture and use of equipment/ systems for development of new and renewable sources of energy.

1.2.1.4 New and renewable sources of energy

In this category, the activities of small-scale industrial units engaged in   manufacture and use of equipments/systems for development of new and renewable sources of energy as under: 

(i) Flat plate solar collectors
(ii) Concentrating and pipe type solar collectors
(iii) Solar cookers
(iv) Solar water heaters and systems
(v) Air/Gas/Fluid Heating Systems
(vi) Solar refrigeration, cold storages and air-conditioning systems
(vii) Solar crop driers and systems
(viii) Solar stills and desalination systems
(ix) Solar pumps based on solar thermal and solar photo voltaic conversion
(x) Solar power generating systems
(xi) Solar photo voltaic modules and panels, for water pumping and other applications
(xii) Wind mills and any specially designed devices which run on wind mills
(xiii) Any special devices including electric generators and pumps running on wind energy
(xiv) Bio-gas plants and bio-gas engines.
(xv) Electrically operated vehicles including battery operated or fuel-cell powered vehicles
(xvi) Agricultural and municipal waste conversion devices producing energy
(xvii) Equipment for utilising ocean waves and thermal energy
(xviii) Machinery and plant used in the manufacturing of any of the above sub-items.

1.2.2 Cottage Industries, Khadi & Village Industries, Artisans and Tiny Industries

1.2.2.1 Cottage industries, Khadi & Village Industries, Artisans are those units, which are engaged in manufacturing, processing, preservation or servicing activities involving utilisation of locally available natural resources and/or human skills normally undertaken by the beneficiaries in their houses.

1.2.2.2  Tiny industries are those units whose investment in plant & machinery is upto Rs. 25 lakh irrespective of location of the unit.

1.2.3  Small Scale Service & Business (Industry Related) Enterprises (SSSBEs)

1.2.3.1 Small scale service and business (Industry Related) enterprises with investment upto Rs. 10 lakh in fixed assets, excluding land and building are categorised as  Small  Scale  Service & Business Enterprises (SSSBEs) and              are included under SSI Section in Priority Sector.

1.2.3.2 An illustrative list of activities which presently qualify as Small Scale Service & Business Enterprises and those which do not, is given in AnnexV.

1.2.4 Food and agro based processing and forestry

1.2.4.1 Loans and advances by primary (urban) co-operative banks

(a) Credit extended by the banks for food and agri-processing industries may be classified under Priority Sector.

(b) Forestry as an activity is also included under Priority Sector for the purpose of lending by banks. The banks may intensify their efforts to promote development of this sector by financing bankable schemes/activities under forestry.

(c)  The primary (urban) co-operative banks may report disbursements (direct lending only) under the above two segments under "Loans and Advances to Cottage/Small Scale Industry" (item 2 of reporting formats) in the annual return to be sent to Regional Office.

1.2.4.2 Loans and advances by scheduled primary (urban) co-operative banks

(a) Lending by scheduled primary (urban) co-operative banks to NBFCs or other financial intermediaries for on-lending to the tiny sector may be classified under Priority Sector lending.

(b) The bank's finance to HUDCO, as a line of credit, for on lending to artisans, handloom weavers etc. under tiny sector, may be classified as indirect lending to SSI (Tiny) sector.

While providing credit to tiny sector through NBFCs/Financial intermediaries/HUDCO, banks may devise suitable mechanism to ensure that the bank credit is appropriately classified under Priority Sector after satisfying that the relevant norms at the ultimate borrower level are complied with and the bank observe strict financial discipline and ensure end use of funds.

(c) Disbursements under above items by the scheduled primary (urban) co-operative banks may be reported under "Loans and Advances to Cottage/Small Scale Industry" (item 2 of reporting formats) under a separate sub-head so that information regarding on-lending to these institutions is readily available at Central/Regional Offices.

1.2.5 Leasing & Hire Purchase Finance by Scheduled PCBs

Leasing and Hire purchase finance extended by scheduled primary (urban) co-op. banks to SSI sector at the select branches departmentally, may be classified under SSI sector, provided the beneficiary satisfies the criteria laid down by RBI for treating the advances as advances to Priority Sector and subject to other norms on the subject.

1.3  Advances to Small Road and Water Transport Operators

1.3.1 Loans to Small Road & Water Transport Operators (SRWTO) owning not more than six vehicles (including the one proposed to be financed) in respect of primary (urban) co-operative banks having Demand and Time Liabilities (DTL) upto and inclusive of Rs. 25 crore be reckoned as priority sector advances.

1.3.2 Loans to SRWTO owning not more than ten vehicles (including the one proposed to be financed) in respect of primary (urban) co-operative banks having Demand and Time Liabilities (DTL) of more than Rs. 25   crore be reckoned as Priority Sector advances.

1.3.3  The bank credit by scheduled primary (urban) co-operative banks to NBFCs for financing of trucks for the purpose of on lending to SRWTOs,    will be treated as priority sector lending, provided the ultimate borrowers (SRWTOs) satisfy the eligibility requirements for being classified under the   priority sector. The bank should strictly observe financial discipline and ensure end use of funds.  Such loans to NBFCs may be reported under a separate sub-head against Sr. No. 3 (ii) of Annex 4, Parts I & II in the Annual Return sent to RBI. The instructions contained in RBI circulars No.UBD. DS.PCB.25/13.05.00/94-95 dated October 21, 1994, DS.PCB.CIR.60/ 13.05.00/ 94-95 dated May 30, 1995 and UBD.DS.PCB.Cir.63/ 13.05.00/ 95-96 dated May 24, 1996 regarding lending to NBFCs remain unchanged.

1.4 Retail Traders

1.4.1 Advances to private retail traders dealing in essential commodities (Fair Price Shops) be reckoned as Priority Sector advances.

1.4.2 Other private retail traders with credit limits not exceeding Rs. 10 lakh may also be reckoned as priority sector advances.

1.5 Small Business Enterprises

1.5.1 Small business enterprises include inpiduals and firms managing business enterprises established mainly for the purpose of providing services other than professional services, whose original cost price of equipment does not exceed Rs.20 lakh without any ceiling on working capital.  The banks are free to fix inpidual limit for working capital depending upon the requirements of different activities undertaken.  An illustrative list of small business enterprises, is indicated below:

1.5.1.1  Agents selling goods on commission basis

1.5.1.2 Booking, clearing and forwarding agents

1.5.1.3  Estate agents

1.5.1.4 Press cum publishing houses, etc.

1.5.1.5 Hair dressing saloons

1.5.1.6 Restaurants, hotels, canteens, etc.

1.5.1.7 Servicing and repairing of various types of machinery such as automobile, air-conditioning and refrigeration equipment etc.This segment does not include SSSBEs mentioned in paragraph 1.2.3  above.

1.6 Professionals and Self-Employed Persons

1.6.1 Professionals and self-employed persons are those whose borrowings (limits) do not exceed Rs. 10.00 lakh of which not more than Rs.2.00 lakh should be for working capital requirements. Activities involving the use of skill and labour of the inpidual or that of his/her family members alone will be covered under this category or persons.  Loans to these persons include advances for the purpose of purchasing equipment, repairing or renovating existing equipment and/or acquiring and repairing business premises or for purchasing tools and/or for working capital requirements to medical practitioners including Dentists, Chartered Accountants, Architects, Surveyors, Construction Contractors or Management Consultants, Lawyers or Solicitors, Engineers, Architects, Consultants or to a person trained in any other and/or craft who holds either a degree or diploma from any institution established,  aided or recognised by Government or to a person who is considered by the bank as technically qualified or skilled in the field in which he is employed.  However, in the case of qualified medical practitioners setting up practice in the semi-urban and rural areas, the aggregate borrowing limits should not exceed Rs.15.00 lakh, of which not more than Rs.3.00 lakh should be for working capital requirements. Further, advances granted to a qualified medical practitioner for purchase of one motor vehicle within the above mentioned ceiling may be considered as eligible to be reckoned towards priority sector.

1.6.2 Loans for purchase of cars, motor vehicle to professional and self-employed persons other than qualified medical practitioners to the extent and in the manner indicated above are not considered as priority sector advances.

Loans upto Rs. 10 lakh given to software professionals are to be covered under this category.

1.6.4  Besides, all advances to the following categories of persons will also be classified under advances to Self-employed persons:

1.7 Educational Loans

1.7.1 Educational loans include loans and advances granted to inpiduals for educational purposes and not those granted to institutions and would also include all advances granted by banks under special schemes, if any, introduced for the purpose.

1.8 Housing Loans

1.8.1 Loans granted for construction, additions, alterations, repairs, etc. granted as under would be categorised as housing loans:

1.8.2 Inpidual housing loans upto Rs.15 lakhs, irrespective of location,  will be reckoned as part of banks’ priority sector lending. Housing finance to borrowers availing loans above Rs 15 lakh will not be treated as priority sector lending.

1.8.3 Loans granted by banks upto Rs.1 lakh in rural and semi urban areas and Rs.2 lakh in urban areas for repairs, additions and alterations etc. to inpidual borrowers, would be reckoned as Priority Sector advances.

1.8.4 Assistance granted to any governmental agency for the purpose of construction of houses exclusively for the benefit of SC/STs, where the loan component does not exceed Rs. 5.00 lakh per unit and all advances for slum clearance and rehabilitation of slum dwellers would be classified as priority sector advances as well as weaker section advances.

1.8.5 Besides the governmental agencies, assistance given to non-governmental agencies approved by National Housing Bank (NHB) for the purpose of refinance, will also be eligible for all the categories of borrowers as applicable to governmental agencies as priority sector advances.

1.8.6 Investments made by UCBs in bonds issued by NHB / HUDCO on or after  April, 1, 2007 shall not be eligible for classification under priority sector lending.

1.9 Consumption Loans

1.9.1 Consumption loans include loans for general consumption, medical expenses, marriage ceremonies, funerals, births, religious ceremonies etc. not exceeding Rs. 1,000/- per inpidual.

1.10  Loans and Advances to Software Industry

1.10.1 The loans to the software industry having credit limit upto Rs. one crore from the banking system, will be eligible for inclusion under Priority Sector.

1.10.2 Loans given to software professionals upto Rs. 10 lakh will be covered and reported under the category of "loans to professionals and self employed" as  indicated in paragraph 1.6.3 above. Advances to Software Industry may be reported under a separate head "Software Industry" in the annual statement of Priority Sector advances.

2. WEAKER SECTIONS

2.1 All advances upto to the limits specified under the priority sector, granted to Scheduled Castes (SC), Scheduled Tribes (ST) and Women.

2.2 Advances not exceeding Rs. 50,000/- under categories 1.1 to 1.6 to all beneficiaries other than SC/STs and Women.

2.3 Advances to road and water transport operators upto Rs. 50,000/- for purchase of cycle rickshaws auto rickshaws, small boats, etc. as also for repairs and replacement of spare parts.

2.4 In respect of education loans, advances granted to persons having monthly income not exceeding Rs. 2,000/-.

2.5  Assistance granted to any governmental agency for the purpose of construction of houses exclusively for the benefit of SC/STs, where the loan component does not exceed Rs. 5.00 lakh per unit and all advances for slum clearance and rehabilitation of slum dwellers would continue to be classified as weaker section advances.

2.6 Besides the governmental agencies assistance given to non-governmental agencies, approved by NHB for the purpose of' refinance (Housing Loan) to weaker section, will also be eligible for all the categories of borrowers as applicable to governmental agencies as priority sector advances as well as weaker section advances.

Annex II

Statement of credit flow under Priority Sector to artisans, craftsman, vegetable vendors, cart pullers, cobblers etc. belonging to Minority Communities
-----------------------------------------------------------------------------------------------------------
{Ref. Para. 4.2}
Name of the Urban Co-operative Bank: ----------------------------

Statement for the half year ended March 31, (Year)/ September 30, (Year)

Annex III

Memorandum to be submitted to the Board of Directors of the bank

[Ref. para 5.2]

Priority Sector Advances - Half-yearly Review - Position as on ________

*  Please also indicate percentage in bracket.

Date :    G.M./CEO    Chairman

ANNEX V

Part II

ILLUSTRATIVE LIST OF ACTIVITIES WHICH ARE NOT RECOGNISED AS
SMALL SCALE INDUSTRY AND BUSINESS (INDUSTRY RELATED) ENTERPRISES
(SSSBEs)

1. Transportation
2. Storage (except cold storage which is recognised as SSI)
3. Retail/Wholesale Trade Establishments
4. General Merchandize Stores
5.  Sales Outlets for industrial components
6. Health Services including pathological laboratories
7. Legal Services
8. Educational Services
9. Social Services
10. Hotels

Annex  VI

[Ref: Para 1.2.1.1(b)]
List of Industries which are classified under SSI units
having investments in Plant and Machinery more than
Rs.100 lakh but not more than Rs.500 lakh 

Annex  VII

[Ref: Para 3.4]

Scheme for Small Enterprises Financial Centres (SEFCs)

1. Background

Reserve Bank of India in the Annual Policy Statement for 2005-06 announced formulation of a scheme of strategic alliance between branches of banks and branches of SIDBI located in the clusters.

2.  Proposed operational mechanism

2.1  Strategic Alliance with Banks :

Under the scheme, banks are encouraged to establish mechanisms for better co-ordination between their branches and branches of SIDBI which are located in the clusters identified by the Ministry of SSI, Government of India for co-financing of SME sector (including tiny and services sector) on mutually agreeable operational modalities to be worked out by SIDBI and the strategic partner banks.

Coverage :

• 388 SSI clusters have been identified by UNIDO spread over 21 states in the country. Out of these SSI clusters 123 clusters are being catered to by 30 existing branches of SIDBI and few more branches/ delivery channels are proposed during the year. Thus in terms of coverage, 46 SIDBI branches are likely to be in place by the end of July 2005 broadly covering 149 SSI clusters (details enclosed).
  
  
• The branches of SIDBI in the clusters shall be rechristened as"Small Enterprises Financial Centres" (SEFC).

2.2 Eligibilty Criteria :

Projects :

a) All tiny units irrespective of loan size will be eligible for coverage under SEFCs. Special focussed attention will be given to financing to tiny sector as they have limited access to institutional finance.

b) New SME units (including service sector units) will be eligible under  SEFC Scheme.

c)All proposals from existing units for expansion/modernisation/ persification/technology upgradation/ marketing/exports etc. will also be eligible.

d) Existing units, which are not having banking linkage or having limited banking linkage, will be eligible under SEFCs.

Sharing Pattern :

As envisaged in the Annual Policy Statement, the SEFCs will take up co-financing or exclusive financing of term loan requirements of SSI units along with the bank branches and the working capital requirements of these units will be met by the banks. The strategic partners may also work out arrangement for sharing of financial assistance on mutually agreeable terms on a case to case basis especially in respect of facilities currently not being extended by SIDBI.

Financing Parameters :

Generally norms for debt equity ratio, repayment period, security coverage, rate of interest, etc. would be aligned as per mutual consent of strategic partners.Operational guidelines may be worked out by SIDBI and strategic partners with mutual consent.

2.3 Delivery Mechanism :

“The expertise of the SIDBI in appraisal of credit requirements of SSI units will be leveraged by the branches of commercial banks, by payment of a nominal fee”(Para.84 of Annual Policy Statement)

• SIDBI has developed expertise in quick appraisal of small credit proposals of existing well performing units (upto Rs 50 lakh) through the Credit Appraisal & Rating Tool (CART) model. The same model shall be suitably modified by SIDBI to cover i) green field projects, ii) working capital assessment and iii)  composite loan. The model along with the Risk Assessment Model (RAM), comprehensive rating model available with SIDBI may be utilized to offer efficient appraisal services to SME borrowers. The appraisal may also be done jointly by SIDBI and banks. 


• For tiny units, inpidual banks may develop suitable rating model for quick appraisal. SIDBI will also develop a simplified appraisal model for adoption by banks. 


• The fee structure for appraisal may be nominal.
  

“SIDBI will provide other expert services to help the banks in simplifying the application forms, documentation and disbursement procedures, etc.” (Para.84 of Annual Policy Statement)

• “The working of the scheme may be monitored and modified to suit the local conditions by the State Level Bankers’ Committee (SLBC) and, depending on the experience, the coverage of the scheme may be extended to more clusters. The services of SEFCs will be available for tiny industrial units also.” ”(Para.84 of Annual Policy Statement)


• A suitable monitoring mechanism will be put in place by SEFC at cluster level to review progress made on quarterly intervals and report to respective SLBC convenor.


• SLBC will review the progress under the SEFC scheme.


• Standing Advisory Committee will review the progress under the SEFC in its meetings.

SIDBI may put in place an appropriate mechanism to collect data under SEFC on quarterly basis and report to Reserve Bank of India and Ministry of SSI, Government of India.

LIST OF SME CLUSTERS  COVERED BY EXISTING SIDBI BRANCHES

Appendix

Master Circular on
Priority Sector Lending

1. List of Circulars consolidated in the Master Circular

2. List of Circulars addressed to Registrar of Co-operative Societies