Various advances are provided by Public and Private Sector Banks which are primarily classified into –
- Priority Sector Advances
- Non-Priority Sector Advances
Priority Sector Advances
Priority Sector Advances play a significant role provided to the banks by the Reserve Bank of India for providing a defined portion of the bank advances to some classified sectors such as agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low-income groups or weaker sections people to promote financial inclusion in India. Priority Sector Advances are necessary for overall development with the joint development of all sectors of the economy to focus, not only one sector.
Domestic scheduled commercial banks and foreign banks with 20 branches and above have to make a minimum of 40% Priority Sector Advances of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher (Reserve Bank of India, 2018). “Adjusted Net Bank Credit is defined as the net bank credit plus investments made by banks in non- Statutory Liquidity Ratio bonds held in the held to maturity category or credit equivalent amount of off-balance sheet exposure, whichever is higher.”
Foreign banks with 20 branches and above have to accomplish the Total Priority Sector Target set by the Reserve Bank of India within a maximum period of five years, starting from April 1, 2013, and ending on March 31, 2018, as per the action plans approved by the Reserve Bank of India, and Foreign banks with less than 20 branches – have to do minimum 40% of Adjusted Net Bank Credit (ANBC) in a phased manner by the year 2020 as set by the Reserve Bank of India.
Domestic scheduled commercial banks and foreign banks with 20 branches and above have to make a minimum of 10% Advances to Weaker Sections as Priority Sector Advances of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. Foreign banks with 20 branches and above have to accomplish the Total Priority Sector Target set by the Reserve Bank of India within a maximum period of five years, starting from April 1, 2013, and ending on March 31, 2018, as per the action plans approved by the Reserve Bank of India.
Priority sector advances are sub-classified in the blow category,
- Advances to Agriculture and Allied Activities
- Advances to Industries Sector
- Advances to Services
- Advances to Personal Loan
Non-Priority Sector Advances
There is no mandatory guideline or Non-Priority Sector Advances by the Reserve Bank of India, but the Non-Priority Sector Advances sector is the sector for banks that attract finance. Non-Priority Sector Advances cover all the remaining sector advances that are not covered under Priority Sector Advances. The bank is always ready to lend finance to Non-Priority Sector Advances due to high profitability in a competitive environment, although NPAs in this sector are increased.
Non-Priority Sector Advances have the same categories as Priority Sector Advances except for the addition of other loans (sub-classification of Personal Loans in a few banks).
