On 20 July 2012, the Reserve Bank of India in a notification titled "Priority Sector Lending - Targets and Classification" increased the targets for priority sector lending by foreign banks with more than 20 branches. For foreign banks with less than 20 branches, the priority limit remains the same i.e. 32%.
Commercial banks in India are required to reserve a certain share of their aggregate bank advances for lending to priority sectors. These priority include mainly agriculture, micro and small enterprises, education, housing and export credit.
Earlier, all foreign banks were required to lend 32% of their aggregate credit to the priority sectors. With this measure, foreign banks that have more than 20 branches will be subject to the same rules as are subject to Indian commercial banks and therefore they will be required to lend 40% of their aggregate credit to the priority sectors. This measure does not, therefore, discriminate against foreign firms.
The measure does, however, favour certain Indian sectors, making more bank finance and export credit available to them. On this grounds it has been classified "red" in the GTA database.