Priority Sector Lending - Meaning

It means Lending to Priority sector in such a way to ensure maximum credit flow to remotest and farthest person of the country by setting up a strong network and series of financial channels. The main objective of Priority lending is providing finance to all those sectors which are deprived of easy access to finance and credit. It also includes facilitation of growth via development of healthy financial system as well as high living standards of poor living below poverty line.

Areas of Priority Sector Lending

Priority sector broadly comprises of the following: 1. 2. 3. 4. 5. 6. Agriculture Micro and small enterprises Micro credit Housing Education Loan State sponsored organizations for SC/ST

Monitoring

Priority sector lending is monitored by Government of India, Ministry of finance (MOF), Ministry of Micro, small and medium enterprises (MSME) and Reserve Bank of India with help of Commercial banks and Regional rural banks. The Reserve bank of India has established a department called Rural Planning and Credit department (RPCD) for monitoring the Priority sector lending by commercial banks. Commercial banks send several returns and reports to RBI on their progress and achievements of targets allotted to them.

Performance of Banks in the Priority sector lending

At the end of March, 2010 Outstanding Priority sector advances of Public sector banks stood at Rs. 8,64,564 crore . The advances to priority sector showed a growth of 19.39 % over the previous year

on Y-O-Y basis. Most of the priority sector lending in India is done by Public Sector banks, Although, Private Banks and foreign banks are also encouraged to advance to these sectors.

Expected Effects of Good Priority sector lending

Following may be the expected outcomes of a strong and good priority sector lending system 1. 2. 3. 4. 5. 6. Increase in Industries and allied activities at grass root level; Improved living standards of rural people; Poverty eradication; Development of infrastructure in rural areas; Increase in production of agriculture and allied goods; Support to gross domestic product; etc.

OBJECTIVES OF PRIORITY SECTOR LENDING Following are the objectives of priority sector lending To improve the economic condition of the country. To facilitate the community by direct and indirect financing For the setup of more industries in the countries

Reduction of mandatory credit to a larger number of sectors and sections, including marginal farmers, cottage industries, small trade and services and low income housing; incentives To improve credit flow to small-scale industries and food crop agriculture as well as temporary credit To assure credit to new industries and new professions by the non-poor section