Priority Sector Lendings in the Post Reform Period

Abstract

Priority Sector Lending has become an essential component of national agenda after the nationalization of banks. The list of sectors included in priority sector lending has changed with time. Major changes in priority sector lending is seen after the initiation of banking sector reforms in 1991. The study attempt to analyse the performance of public sector banks' advances under priority sector lendings. The period of the study is 1991 to 2009 and is divided into two parts. PSBs' achieved and surpass the stipulated target (40 percent of NBC) during the second half of the study period. In Agriculture Advance they have failed to keep pace with the rate at which both NBC and priority sector lendings have increased. Banks appear to have partially forgotten their responsibilities in lending to SSIs and weaker sections in the period after reform. The percentage share of priority sector NPAs is quite high as compared to its share in NBC. Shrinking share of real priority sector, neglect of agriculture coupled with its sub optional structure, neglect of SSIs, and mounting NPAs in priority sector lending are some serious issues, which need immediate attention. Hence, banks should adopt a balanced approach as development agent and ensuring sustainability of directed lending.