Priority Sector Bank Lending

Priority Sector Bank Lending Some Important Issues J K KHUNDRAKPAM The recent article on priority sector lending of banks of K M Shajahan (1998) (KMS hereafter) makes the following points. First, priority sector lending became an important national agenda after the nationalisation of major banks in 1969. Phenomenal progress towards this was made by setting up study and working groups and targets for lending to these sectors. However, the financial sector reforms reversed the trend during the nineties though the recommendations of Narasimhan Committee and other subsequent committees to prune down lending to these sectors have not been formally accepted by the RBI. Second, against the indicated policy intentions, there followed marked dilution and expansion in the coverage of priority sectors. Third, the procedure of targeting priority sector lending worsened the position of poorer states. To remove this inherent bias toward the poorer states, targeting should be linked to bank deposits rather than to bank credit.