Mumbai : The Reserve Bank of India (RBI) on Thursday decided to broaden the scope of
Priority Sector Lending (PSL) by including start-ups and enhancing borrowing limits for renewable
energy sectors.
The central bank would also increase the targets for lending to ‘small and marginal farmers’ and ‘weaker
sections’ under the PSL.
The eligible entities get access to credit on easier terms from banks under the PSL. Banks are required to
assign 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher to priority sector, including agriculture and micro-enterprises, it said.
The PSL guidelines were last reviewed by the central bank in April 2015.
‘With a view to align the guidelines with emerging national priorities and bring sharper focus on inclusive
development, the guidelines have been reviewed after wide ranging consultations with all stakeholders,’
the RBI said.
The revised guidelines also aim to encourage and support environment-friendly lending policies to help
achieve Sustainable Development Goals (SDGs).
Broadening the scope of PSL, it has been decided to include ‘start-ups; increasing the limits for
renewable energy, including solar power and compressed bio gas plants; and, increasing the targets for
lending to ‘Small and Marginal Farmers’ and ‘Weaker Sections’, the central bank said.
To address the regional disparities in the flow of priority sector credit, an incentive framework has
already been put in place for banks.
While higher weight would be assigned for incremental priority sector credit in the identified districts
where credit flow is comparatively lower, a lower weight would be assigned to incremental priority
sector credit in identified districts where the credit flow is comparatively higher.
Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said the country’s headline
inflation is expected to remain elevated during the second quarter of the current fiscal year and may
subside thereafter.
Domestic food inflation remains elevated across most economies since the onset of the pandemic, Das
said in his statement while unveiling the central bank’s bi-monthly monetary policy review.
Supply chain disruptions on account of COVID-19 persist, with implications for both food and non-food
prices, as per RBI’s Monetary Policy Statement, 2020-21.
‘Volatility in financial markets and rising asset prices also pose upside risks to the outlook. Taking into
consideration all these factors, headline inflation may remain elevated in Q2:2020-21, but may moderate
in H2:2020-21 aided by large favourable base effects,’ it said.
Keeping the key repo rate unchanged at 4 per cent in Reserve Bank’s bi-monthly policy review, RBI
Governor Das said the decision on repo has been taken while ‘ensuring inflation remains within the
target’.
Das, however, did not give any range on inflation expectations.
RBI has set the medium-term target for consumer price index (CPI) inflation or retail inflation of 4 per
cent within a band of +/- 2 per cent, while supporting growth.
‘A more favourable food inflation outlook may emerge as the bumper rabi harvest eases prices of
cereals, especially if open market sales and public distribution offtake are expanded on the back of
significantly higher procurement,’ as per the policy review by the six-member Monetary Policy
Committee (MPC) of the RBI.
Nonetheless, upside risks to food prices remain, he said, adding that the abatement of price pressure in
key vegetables is delayed and remains contingent upon normalisation of supplies. Protein-based food
items could also emerge as a pressure point.
Higher domestic taxes on petroleum products have resulted in elevated domestic pump prices and will
impart broad-based cost push pressures going forward, Das said further.
The MPC noted that in an environment of unprecedented stress, supporting recovery of the economy
assumes primacy in the conduct of monetary policy.
While the space for further monetary policy action is available, it is important to use it judiciously to
maximise the beneficial effects for underlying economic activity, it said.
‘At the same time, the MPC is conscious of its medium term inflation target…Given the uncertainty
surrounding the inflation outlook and extremely weak state of the economy in the midst of an
unprecedented shock from the ongoing pandemic, the MPC decided to keep the policy rate on hold,
while remaining watchful for a durable reduction in inflation to use available space to support the revival
of the economy,’ Das said.
All the six MPC members voted unanimously for keeping the policy repo rate unchanged and continue
with the accommodative stance as long as necessary to revive growth and mitigate the impact of
COVID-19 on the economy, while ensuring that inflation remains within the target going forward, RBI
said.
The RBI takes into account retail inflation as a key input while arriving on its monetary policy decisions
every two months.
In the previous policy review in May, RBI had expected that favourable base effects, among others
factors, may pull down headline inflation below target in Q3 and Q4 of 2020-21.
The Reserve Bank of India on Thursday sounded a note of caution saying that protracted spread of the
COVID-19 pandemic poses ‘downside risk’ to the domestic economy which is expected to remain in the
negative zone in the current fiscal.
RBI Governor Shaktikanta Das, while unveiling the bi-monthly monetary policy, also said that early
containment of the pandemic could impart an ‘upside’ to the economic growth outlook.
Regarding growth outlook, the Monetary Policy Committee (MPC) noted that the recovery of the rural
economy is expected to be robust, buoyed by the progress in kharif sowing.
Manufacturing firms expect domestic demand to recover gradually from the second quarter and to
sustain through the first quarter of the fiscal 2021-22. On the other hand, consumer confidence turned
more pessimistic in July relative to the preceding round of the Reserve Bank’s survey, Das said.
External demand is expected to remain anaemic under the weight of the global recession and contraction
in global trade.
‘… real GDP growth in the first half of the year is estimated to remain in the contraction zone. For the
year 2020-21 as a whole, real GDP growth is also estimated to be negative,’ Das said.
An early containment of the COVID-19 pandemic may impart an upside to the outlook. A more
protracted spread of the pandemic, deviations from the forecast of a normal monsoon and global
financial market volatility are the key downside risks, he noted.
The governor also that said in the the MPC’s assessment, global economic activity has remained fragile
and in retrenchment in the first half of 2020.
‘A renewed surge in COVID-19 infections in major economies in July has subdued some early signs of
revival that had appeared in May and June,’ he said.
