Adjusted Net Bank Credit: Adjusted Net Bank Credit is a term used to target various sectors under Priority Sector Lending. The targets and sub-targets under priority sector lending are linked to Adjusted Net Bank Credit (ANBC). Domestic commercial banks have to set a target of 40% of the ANBC for the advances to priority sector lending while foreign banks have to set a target of 32% for the same. ANBC comprised of the total credit forwarded by the banks together with other investments made by it. Total credit includes Loans forwarded by banks, overdrafts forwarded by banks to the customers etc.
ANBC = Loans + Investments
Computation of Adjusted Net Bank Credit
|Bank Credit in India (As prescribed in item No.VI of Form ‘A’|
(Special Return as on March 31st) under Section 42 (2) of the RBI Act, 1934.
|Bills Rediscounted with RBI and other approved Financial Institutions||II|
|Net Bank Credit (NBC)||III|
|Bands/Debentures in Non-SLR categories under HTM category + other investments eligible to be treated as priority sector + Outstanding deposits under RIDF and other eligible funds with NABARD, NHM, SIDBI & MUDRA limited on account of Priority Sector Shortfall + outstanding PSLCs||IV|
|Eligible amount for exemptions on the issuance of long-term bonds for infrastructure and affordable housing as per circular DBOD.BP.BC No.25/08.12.2014/2015 dated July 15, 2015||V|
|Eligible advances extended in India against the incremental FCNR (B)/NRE deposits, qualifying for exemption from CRR/SLR requirements||VI|
1) Bank Credit
- Bank Credit of a bank is the loans, cash payments, overdrafts provided by the bank to customers.
- It also contains the bills purchased and bills discounted.
- Bills purchased are the bills which have been purchased as a security for the advances given. For example: ABC Company goes to bank for taking a loan. Now it has to provide any security against that loan, so that bank can recover the money if the company is not able to pay the money back in stipulated time.
- Instead of keeping any asset as security, it gives a bill to the bank saying that it will give the amount of money plus interest after a stipulated time. So in this way the bank has purchased a bill against giving the amount written in the bill to the company.
- Bills discounted are the bills which are purchased after discounting money. For example A person buys a product from the market, and promises to pay the money at some later time. The shopkeeper will give a bill to the customer. If the shopkeeper wants the money before that time, he can go to the bank with the bill. Now bank will not give the entire money written on the bill to the shopkeeper, but it will deduct some money (known as bill discounting) from the bill and lent the remaining to the shopkeeper.
- Now when the shopkeeper receives the money from his customer, he can pay back to the bank. The bank deducts the money or discounts the bill in order to keep the discounted money with it as interest.
2) Bills Rediscounted with RBI and other approved Financial Institutions
- Banks also do the rediscounting of bills. We have read in the last paragraph about bill discounting. Example of bill rediscounting continues from there.
- Now if the bank wants that money before stipulated time period, it can present that bill to RBI or other Financial Institutions and get that bill rediscounted. So the bank will pay the amount to RBI or other Financial Institution after it gets the money back from the shopkeeper.
3) Net Bank Credit (NBC)
- The third term is Net Bank Credit which is calculated as Bank Credit minus Bills Rediscounted.
- The amount from Bills rediscounted gets minus from Total Bank Credits because, when a bank rediscounts a bill, it gets some amount from RBI or other Financial Institution to which the bank presented the bill for rediscounting. So it is not the credited amount but the debited amount to the bank.
4) Investments in Non-SLR categories under HTM (Held To Maturity) category + other investments eligible to be treated as a priority sector.
- We know that banks have to maintain their deposits in liquid assets with itself before granting credits or loans to customers in order to meet the future contingencies.
- The liquid assets are such as government securities, bonds and precious metals like gold are the assets which can be converted to cash any time. And the ratio of prescribed liquid investments to deposits is termed as Statutory Liquidity Ratio (SLR).
- Now other than the SLR investments, investing in various capital market instruments such as stocks and bonds issued by public and private sector companies and commercial papers, investment in mutual fund schemes, etc. come under the Non-SLR investments.
- Held To Maturity means the investments which remain for a specified time period i.e. till the maturity and also the investments which have fixed or determinable payments.