Experts also believe the proposed increase in loan and asset classification limits will make it easier for all categories of banks, including private lenders, to achieve the disbursement targets, while potentially boosting margins. Private lenders usually fell short of achieving the targets set for them.
“A majority of changes are in terms of higher limits, which will make it easier for banks to find the profile of borrowers,” said Karthik Srinivasan, group head, financial sector ratings, ICRA. “Banks achieve their targets, but the sub-categories create issues.”
Analysts said the fact that these norms have been revised for the first time since September 2020 means they are still catching up with inflation and growth since then. But higher limits are welcome for banks that plan to step on the growth accelerator.
On Monday, the RBI raised loan limits for several loans, including housing loans, and broadened the purposes based on which loans may be classified under ‘renewable energy’, and expanded list of eligible borrowers under the category ‘weaker sections’.
Loan limits to individuals for purchase/construction of a dwelling unit per family have been increased to ₹50 lakh from ₹35 lakh earlier in metros . The threshold has been raised to ₹45 lakh from ₹25 lakh in cities with population up to 5 million. Bank loans up to a limit of ₹35 crore to borrowers for renewable energy-based power generators and for renewable energy based public utilities, like street lighting systems, remote village electrification etc., will be eligible for priority sector classification. For individual households, the loan limit will be ₹10 lakh per borrower. These new limits are effective from April 1.Suresh Ganapathy, head, financial services research, Macquarie Capital Securities, said higher limits give banks more breathing space to focus on growth. “The biggest risk for sector is growth not picking up. We need to see loan growth recovering from 11% to 13-14% next year,” Ganapathy said.
The RBI has not changed the overall priority sector lending target, which remains at 40%. The borrower categories include agriculture, MSMEs, export credit, education, housing, social infrastructure, and renewable energy, among others. Sub-segments within the 40% total threshold also remain.
Private sector banks have emerged as dominant players in the priority sector lending certificate (PSLC) market over the past five years. In FY24, they accounted for nearly half (49%) of total PSLC sales, significantly outpacing public sector banks, which represented 21% of sales, central bank data showed. PSLCs serve as instruments to address potential shortfalls in meeting lending obligations.
Shivaji Thapliyal, analyst at Yes Securities said easier norms could help reduce costs and improve margins for banks. “It will mean reduced requirement for purchasing PSLC and hence reduced cost,” Thapliyal said in a note.
