ICICI Bank 2008 Annual Report Download - page 61

Towards a better life
Directed Lending
RBI requires banks to lend to certain sectors of the economy. Such directed lending comprises priority sector
lending, export credit and housing finance.
Till fiscal 2007, RBI guidelines required banks to lend 40.0% of their net bank credit (total domestic loans less
marketable debt instruments and certain exemptions permitted by RBI from time to time) to certain specified
sectors called priority sectors. Priority sectors included small-scale industries, the agricultural sector, food and
agri-based industries, small businesses and housing finance up to certain limits. Out of the 40.0%, banks were
required to lend a minimum of 18.0% of their net bank credit to the agriculture sector and the balance to certain
specified sectors, including small scale industries (defined as manufacturing, processing and services businesses
with a certain limit on investment in plant and machinery), small businesses, including retail merchants, professional
and other self employed persons and road and water transport operators, housing loans up to a certain limit and
to specified state financial corporations and state industrial development corporations. In its letter dated April 26,
2002 granting its approval for the amalgamation, RBI stipulated that since ICICI’s loans transferred to us were not
subject to the priority sector lending requirement, we are required to maintain priority sector lending of 50.0%
of our net bank credit on the residual portion of our advances (i.e. the portion of our total advances excluding
advances of ICICI at year-end fiscal, 2002, referred to as “residual net bank credit”). This additional 10.0% priority
sector lending requirement will apply until such time as our aggregate priority sector advances reach a level of
40.0% of our total net bank credit. RBI’s existing instructions on sub-targets under priority sector lending and
eligibility of certain types of investments/funds for qualification as priority sector advances apply to us.
Any shortfall in the amount required to be lent to the priority sectors may be required to be deposited with
government sponsored Indian development banks like the National Bank for Agriculture and Rural Development
and the Small Industries Development Bank of India. These deposits have a maturity of up to seven years and
carry interest rates lower than market rates. At year-end fiscal 2008, total investments in such bonds were
Rs. 14.85 billion.
RBI has issued revised guidelines applicable from fiscal 2008 on lending to priority sector. As per the revised
norms, the targets and sub-targets have been linked to the adjusted net bank credit, or credit equivalent amount
of off-balance sheet exposure, whichever is higher. The definition of adjusted net bank credit does not include
certain exemptions and includes certain investments and is computed with reference to the outstanding amount
as on March 31 of the previous year. Under the revised guidelines the limit on the housing loans eligible for
priority sector lending has been increased from Rs. 1.5 million to Rs. 2.0 million per borrower. The guidelines have
capped eligible direct agriculture finance to non-individuals (i.e. partnership firms, corporates and institutions) at
Rs. 10.0 million per borrower. One-third of loans in excess of Rs. 10.0 million per borrower are considered as direct
finance while the remaining two-thirds constitute indirect finance. In addition fresh investments made by banks
with National Bank for Agriculture and Rural Development in lieu of non achievement of priority sector lending
targets are no longer to be considered as indirect finance from April 30, 2007. However, the existing investments
in such bonds continue to be classified as indirect agriculture finance till March 31, 2010.
As per the guidelines, banks are also required to lend to the weaker sections 10% of adjusted net bank credit or
credit equivalent amount of off-balance sheet exposures, whichever is higher. In order to ensure that the sub-
target of lending to the weaker sections is achieved, RBI has decided to take into account the shortfall in lending to
weaker sections also, as on the last reporting Friday of March of each year, for the purpose of allocating amounts
to the domestic Scheduled Commercial Banks (SCBs) for contribution to the Rural Infrastructure Development
Fund (RIDF) maintained with NABARD or funds with other Financial Institutions, as specified by RBI, with effect
from April 2009.
We are required to comply with the priority sector lending requirements on the last “reporting Friday” of each
fiscal year. At March 28, 2008, which was the last reporting Friday for fiscal 2008, our priority sector loans were
Rs. 641.50 billion, constituting 50.3% of our residual net bank credit against the requirement of 50.0%. At that date,
qualifying agriculture loans were 17.0% of our residual net bank credit as against the requirement of 18.0%.
Classification of Loans
We classify our assets as performing and non-performing in accordance with RBI guidelines. Under these guidelines,
an asset is classified as non-performing if any amount of interest or principal remains overdue for more than 90
days, in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if
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