Housing Finance May Come Under Priority Lending

New Delhi: The Reserve Bank said it is considering categorising housing finance for weaker sections as priority sector lending by early next month to ensure adequate flow of credit.

"We are trying to put housing finance for weaker section as a part of priority sector. There is a committee which is looking into it. Hopefully, by the first week of February this report will come," RBI Deputy Governor H R Khan told reporters here.

The committee is headed by Union Bank of India Chairman and Managing Director M V Nair, was constituted by the RBI to look into various issues related to priority sector lending, including review of loan limits under the segment.

The committee has sought to address issues like desirability of simplifying the approach to direct lending, inconsistencies or ambiguities in the existing guidelines, nature of activities presently classified as priority sector that need relook and new areas which should be incorporated.

The terms of reference of the Nair committee is to revisit the current eligibility criteria for classification of bank loans as priority sector with reference to nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans.

It will review nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans which can be brought under priority sector segment.

The terms of reference of the panel include review of limits on loan amounts.

It will also review appropriate documentation and due diligence thresholds to ensure that loans extended by banks are for the eligible categories of purposes and borrowers, which need special attention and treatment, the terms of the report state.

Besides, the panel will consider the desirability, or otherwise, of capping interest rate on priority loans.

The panel will also review the current allocation mechanism for Rural Infrastructure Development Fund (RIDF) and other funds.

The RBI Deputy governor further said the apex bank is also trying to coordinate with the government and market regulator SEBI for developing and broadening the corporate bond market.

As much as 40 percent of the total bank lendings is for priority sector including agriculture and small sector industry.