RBI asks finance ministry to review priority lending norms

Kolkata: Reserve Bank has asked the finance ministry for a review of priority sector lending norms which
the foreign banks find difficult to follow under the wholly-owned subsidiary model.

Under the wholly-owned subsidiary model, a framework for which has been put in place by RBI last year, foreign banks may have to meet stiffer priority sector lending target as against the current branch model.[caption id=“attachment_104700” align=“alignleft” width=“380”]  RBI logo. Reuters[/caption]

“The overseas banks operating in the country are showing concerns about priority sector lending, whether they will be able to achieve the norms with regard to agricultural lending,” Reserve Bank Governor Raghuram Rajan said said today while replying to a query in this regard.

“We have urged the ministry to review the priority sector norms. Once that is done, we will nudge the foreign banks to open their subsidiaries in the country,” he told reporters after the RBI Central Board meeting in Guwahati.

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“We would have to also tell them the full range of responsibilities that they will have,” he said.

There were also systemic risks stemming from large foreign banks in India, he said.

“Many of those have been in India for many years. So, to give them incentive for moving into the wholly-owned structure, we have to be explicit about the costs and benefits,” he said.

PTI