• Issues fresh order to licensed banks and specialised banks specifying sectors
• Wants lending to MSME sector increased at least by 20% by end-2021
• Number of measures introduced to prevent banks exploiting loopholes to avoid lending to MSMEs
• CB to closely monitor loan disbursement

The Monetary Board of the Central Bank has issued priority sector lending targets to banks as part of its wide-ranging efforts to direct funding to the sectors identified as priority and deemed as high potential in generating jobs, export earnings and overall economic growth. 

To this end, the Monetary Board issued a fresh order to licensed commercial banks and licensed specialised banks last week, specifying the sectors the banks need to prioritise when disbursing loans to the micro, small and medium enterprise (MSME) sector.

However, the Monetary Board maintained that at broader level, the banks ought to grow their loans to the MSME segment by 20 percent at a minimum in 2021, from the levels at the end of 2020. 

When approving facilities, the banks are required to prioritise sectors ranging from but not limited to food and beverage processing, production of medical utilities and related products, development of distant leaning facilities and domestic cottage industry. 

The other industries include rubber and rubber products, ship and boat building, cosmetics, batik and handloom, gem and jewellery, health and wellness, electronics and electrical components, motor vehicle assembly, pharmaceutical manufacturing and porcelain, ceramic and pottery. 

The lending target will apply on credit facilities such as term loans, leasing, overdrafts and trade finance facilities, including off-balance sheet exposures, said the Monetary Board, adding that the pawning advances would not be considered under this priority sector lending targets. 

What banks have been doing in the past was that whenever sector lending targets were announced by the regulator, advances granted under gold-backed loans were also counted as part of those targets, as people pawn their gold articles for quick cash requirements for agriculture and working capital needs.

Loans granted under both rupee terms and foreign currencies are considered under these targets. 

Further, entities with an annual turnover not exceeding Rs.1.0 billion are considered under this order, in line with the definition of SME provided in the Banking Act Directions to avoid banks claiming achievement of the target by granting loans to big corporates operating in the said industries.

The loan disbursements will also be monitored regularly by the Central Bank, as banks are required to file the details of the loans, non-performing loans and year-to-date growth, within 30 days from the end of each quarter.

While the 20 percent lending target for the MSME sector at a broader level was first assigned in January 2021, the Central Bank has been constantly engaging with the banking sector since then to identify and direct lending to specific sectors, which have higher potential to add economic value. 

The banks have a target to lend up to Rs.850 billion in total privates sector credit in 2021, under the Monetary Board’s 14 percent private lending target assigned for this year.