The Reserve Bank of India has told foreign banks to create sub-targets in their priority sector lending targets to mandatorily offer a portion of their loans under PSL norms to small and marginal farmers and micro enterprises from April. The central bank wants this practice to come into force from April 2018. All foreign banks in the country with more than 20 branches will have to comply with this directive. This will mean banks like Standard Chartered Bank Citibank and HSBC will be impacted. Under PSL norms banks are required to lend 40% of their total loan book to the priority sector, such as agriculture, rural infra, and medium, small and micro enterprises (MSMEs) from April 2020. RBI said a sub-target of 8% of net bank credit, or credit equivalent amount of off-balance sheet exposure, whichever is higher, shall become applicable for foreign banks with 20 branches and above, for lending to MSMEs from FY19. Another sub-target of 7.50%, using the same criterion, will be applicable to these banks from FY19 for lending to micro enterprises. RBI also clarified that all bank loans to MSMEs will now qualify under PSL without any credit cap. Foreign banks have been citing their lack of knowledge of the rural markets to be exempted from rural expansion as a pre-condition for more urban presence.
