Kolkata: The Reserve Bank of India altered its incentive system to encourage banks to enhance the flow of priority sector credit to areas with lower credit flow.
As a result, starting in FY25, the central bank would give the incremental priority sector credit in districts where the per capita priority sector credit is less than Rs 9000 a greater weight of 125%.
This essentially indicates that a bank's loan of Rs. 100 in a district with a poor credit flow will be treated as a Rs. 125 priority sector loan. Prior to this, the RBI implemented a higher weight norm of 125% in districts with per capita priority sector credit flows of Rs 6000 starting in FY22 and continuing to this day.
RBI keeps track of the district-by-district credit flow rating and shares it with banks, encouraging them to step up their efforts to close the gap as needed.
Additionally, districts with significantly higher priority sector loan flows are subject to a disincentive mechanism that assigns a lower 90% weight to districts where the per capita priority sector credit flow exceeds Rs 42,000. This cutoff was formerly set at Rs 25000.
For all other districts not specified by the central bank, the weight remains at 100%.
FIRST Business Portal addressing the potential of business capability of North East Region.
