New priority lending norms widen scope for co-ops, tighten compliance for banks

MUMBAI: RBI has revised its priority sector lending norms allowing lending to the National Cooperative Development Corporation to qualify as priority sector loans, with the objective of expanding credit to cooperative societies while tightening compliance and reporting requirements for banks.
The revised Master Directions on Priority Sector Lending recognise loans extended by banks to the National Cooperative Development Corporation for on-lending to cooperative societies as eligible priority sector lending. The move is expected to open new channels of credit for cooperatives, particularly those engaged in agriculture and allied activities.
NCDC was set up under the National Co-operative Development Corporation Act of 1962 and became operational on March 14, 1963, as an apex financing and developmental institution for cooperatives
At the same time, the central bank tightened compliance norms to prevent double counting of priority sector benefits. Banks lending to NBFCs, housing finance companies, or the National Cooperative Development Corporation will now be required to obtain certificates from external auditors confirming that priority sector status has not been claimed by another lender for the same underlying exposure.
The RBI clarified that banks are barred from charging any loan-related charges, including guarantee fees linked to credit guarantee schemes, on priority sector loans of up to Rs 50,000. The clarification is aimed at ensuring that borrowing costs for small and vulnerable borrowers remain low.
In housing finance, the RBI said that for rural housing loans in areas not covered under the relevant 2011 Census table, banks must follow loan limits applicable to centres with a population below 10 lakh. The change standardises treatment of housing loans in locations with ambiguous population classifications.