Lending to Concerns Priority Sector by Banks - Some Concerns Dr. Kaveri V.S.1 1Former Professor, National Institute of Bank Management, Pune Online Published on 24 March, 2023. Abstract Banks are obliged to comply with target and sub-targets set for priority sector lending as part of socio-economic development by providing adequate, timely and hassle free credit. Priority sector comprises persons/business units including farmers, small enterprises, exporters, people below the poverty line, unemployed youths, weaker sections, SC/ST communities and women beneficiaries etc. From data analysis, it is observed that banks consider priority sector lending mainly from the point of view of compliance and, accordingly, they have been reducing their exposure to the sector. This is due to the fear of Covid 19 on one hand and growing non performing assets in priority sector lending. Towards this end, both GOI and RBI have provided several relief measures to banks during the pandemic to encourage banks to lend more. But, credit risk associated with priority sector loans is on the rise for which banks are expected to reshape their lending practices. In this backdrop, the paper is written to motivate banks to go in more and more priority sector lending on the larger interest of the society. Since 1972, priority sector lending is in practice and Reserve Bank of India has been issuing guidelines from time to time asking banks to achieve target and sub-targets set for the sector and various categories therein. Currently, the target for the priority sector is 40 per cent of total credit and the sub-targets are 18.0, 7.5 and 10.0 per cent respectively for Agriculture, Micro Enterprises and Weaker Sections. It is observed from data analysis that, both public sector banks and private sector banks have been able to achieve the target earmarked for the priority sector, though there is some shortfall in observing the sub-targets in certain categories of the same. But, during the recent past, banks have gradually reduced their exposure to the priority sector due to Covid 19 impact on one hand and high & increasing level of credit risk associated with priority sector lending. While Reserve Bank and Government have taken up several steps to provide relief to banks during the pandemic, much is expected on the part of banks to adopt prudent lending practices reduce credit risk. Towards this end, the paper discusses regulatory aspects, recent trends, impact of covid 19, relief measures provided to banks during the pandemic and suggested lending priority sector. Top Keywords Composition of priority sector, Regulatory aspects, Impact of Covid 19 on priority sector lending, Relief measures, Trends in priority sector lending, Non performing assets, Prudent lending practices. Top |