Start-ups come under Priority sector as per new lending norms

August 8, 2020

The Reserve Bank of India has brought the startups in the country under the purview of priority sector guidelines (PSL), a move that will make it easier for startups to raise funding from the banking sector. As of now, the sectors are that are under PSL are agriculture, MSMEs, Education, Housing, Social Infrastructure among others.

Significance of the Move

The startups have relied on expensive venture capital till date and that implies they had to give up their ownership in their ventures. This led to their exit also at times. Now with this move, the startups will be able to generate funding from the banks and that way, they will have free equity and the cost of debt will also be pretty low. Now, banks will also consider the startups more seriously while providing them with loans.

What is Priority Sector Lending?

This is a special scheme of the Reserve Bank of India in order to promote some of the important sectors in the economy that do not get proper funding from the banking system. There are basically eight sectors under the PSL guidelines:

Agriculture
Micro, Small and Medium Enterprises
Export Credit
Education
Housing
Social Infrastructure
Renewable Energy
Others such as personal loans to weaker persons, loans to state-sponsored organizations for SC/ST, etc.

The main idea behind this is the banks will have to provide a percentage of the total loans to these sectors, without fail. If the banks do not fulfil this criterion, they will have to deposit that amount to the Rural Infrastructure Development Fund by NABARD.

Startup Promotion Schemes of the Government of India

The government is very much keen to develop the culture of entrepreneurship in the country so that more people are interested in taking up income generation activities. There are various other schemes by the government in this regard are:

Stand up India Scheme: It is meant to provide loans to one SC/ST and one woman entrepreneur per branch of a bank. The loan amount can vary from Rs 10 lakh to Rs 100 lakhs.
Start-up India Scheme: This scheme has been designed by the government of India in order to provide ease of doing business to the startup companies in the country and these companies should not have a turnover exceeding Rs 25 crores in any of the preceding financial years.
State–up Fest: The government organizes this in order to enable all the stakeholders of the startup ecosystem to come together. An international level fest is also organized under this scheme.
Credit Guarantee Fund for Start–Ups: This will help the start-ups get loans from the banks as such loans will have a guarantee from the central government.

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