Large foreign banks in the country are grappling with the revised priority sector lending targets as these lenders do not have adequate branch presence to meet the new guidelines. Many of them fear stress on their profitability as their risk management frameworks are not customised to manage farm loans and advances to weaker sections of the economy.
“We have priority sector targets in many countries where we operate. But in India, the challenge is different. The regulator wants us to lend to sectors where we have limited or no expertise,” said a senior executive of a large foreign bank, who did not want to be named. “Our processes are not in tune to manage the risks in these portfolios. It’s going to be difficult to meet these new guidelines.”
On Friday, the Reserve Bank of India (RBI) released the revised guidelines on priority sector lending, which mandated higher target for foreign banks with 20 branches or more in the country. These banks need to lend 40 per cent of their net credit to the priority sector instead of 32 per cent earlier. They will also have sub-targets and get five years time (starting from April 2013) to meet the new guidelines.
Currently, four foreign banks — Standard Chartered Bank, Hongkong and Shanghai Banking Corp, Citibank and Royal Bank of Scotland — have more than 20 branches in India. For foreign banks with less than 20 branches, the priority sector target has been kept unchanged at 32 per cent with no sub-targets.