ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Bank Credit : Eroding Priority

Bank Credit : Eroding Priority


How true is it that priority sector lending by public sector banks is on the rise, as claimed by the RBI in its latest Report on the Trend and Progress of Banking in India, 1999-2000? The report has claimed that compared to the previous year, 1998-99, when the proportion of priority sector lending to total advances was 43.5 per cent, well above the target of 40 per cent, it was 43.6 per cent in 1999-2000.

The claim is open to question because the definition of the priority sector has been widening and it is necessary to examine if credit to the core priority sector, comprising agriculture and small-scale industry (SSI), has benefited from increased priority sector lending. This does not seem to have happened. Incremental priority sector lending to agriculture in 1999-2000 was only 30 per cent of total incremental priority sector lending compared to 36 per cent in the previous year. The SSI sector's share was a mere 15 per cent compared to 29 per cent in the previous year. It is worth noting that since 1995-96 the share of agriculture has never achieved the norm of 18 per cent of total advances and in 1999-2000 its share declined to less than 13 per cent. The same is true of the SSI sector. The only sector where priority sector lending has registered a substantial increase in the nineties is 'other priority sector advances' (OPSA), thanks to the definitional revisions by the RBI.

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