
The Reserve Bank of India (RBI) has recently made changes to its priority sector guidelines with the aim of encouraging banks to provide small loans in economically disadvantaged districts that have low average loan sizes. These new norms are designed to discourage lending in districts where the average loan sizes are high.
Starting from the financial year 2025, the RBI will give more weight to fresh priority sector loans in districts where the availability of loans is low, specifically less than Rs 9,000 per person. In these districts, the weight assigned to the loans will be 125%. On the other hand, in districts where the availability of loans is high, more than Rs 42,000 per person, the loans will have a weight of 90%. It’s important to note that except for outlier districts with low credit availability and those with high loan sizes, all other districts will continue to have the current importance level of 100%.
According to the RBI, the decision to revise the guidelines is based on the need to rank districts based on per capita credit flow to the priority sector. This ranking will then be used to establish an incentive framework for districts that have lower credit flow and a disincentive framework for districts with higher priority sector credit flow. The aim is to promote equitable distribution of credit and financial inclusion across different districts.