The committee, headed by Union Bank of India Chairman and Managing Director M V Nair, will revisit the eligibility criteria for classification of bank loans as priority sector, RBI said in a statement.
"It will review nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans under priority sector segment," the Reserve Bank said.
The terms of reference of the panel include review of limits on loan amounts.It will also review appropriate documentation and due diligence thresholds, to ensure that loans extended by banks are for the eligible categories of purposes and borrowers, which need special attention and treatment, it said.
Besides, the panel will consider the desirability, or otherwise, of capping interest rate on priority loans. The panel, which has to submit its report in four months, will also review the current allocation mechanism for Rural Infrastructure Development Fund (RIDF) and other funds.
The RBI said requests were received from various quarters to relook at the definition of the priority sector, especially where bank finance was being routed through other agencies. It was proposed in the Monetary Policy Statement of 2011-12 to appoint "a committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification."