A Reserve Bank panel today suggested raising the cap for priority sector lending by

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foreign banks to 40 per cent of total lending, from existing 32 per cent, thereby bringing them at par with domestic peers.

"Considering the principle of reciprocity, foreign banks are expected to comply with priority sector target and sub- target as applicable to domestic banks," the committee, headed by Union Bank of India CMD M V Nair, said in a report.

Foreign banks have been enjoying differential treatment in allocating targets since inception of priority sector guidelines in 1968.

Priority sector lending comprises loans given to agriculture sector, housing, education, women and weaker section. Also, to meet the target, banks can lend to non-deposit taking NBFCs, like microfinance companies.

Foreign banks are expected to meet the sub-targets of 15 per cent for exports, 15 per cent for MSE sector within which 7 per cent to micro enterprises, the report submitted to RBI said.

However, given the limitation of reach and distribution, these banks may continue to be given relaxation for achievement of overall agriculture targets.

Export credit up to a limit of Rs 10 crore would only qualify for the purpose of reckoning under priority sector, it said.