Priority Sector Lending Trends and Practices in Indian Commercial Banks Post Scenario 2000

Abstract

Priority Sector Lending (PSL) means providing credit to neglected sector of economy, newlinewhich is essential for socio-economic balance of the country. Priority Sector Lending newlineincludes lending to Agriculture, Small Scale industries, Education, Housing, Export newlineCredit, Weaker Section and Others. These sectors are less profitable for the financial newlineinstitutions. So for assurance of lending to these sectors Reserve Bank of India has newlinefixed mandatory targets for commercial banks. Banks have to lend 40 percent of their newlinenet credit equivalent amount of Balance Sheet Exposure or Adjusted Net Bank Credit newline(ANBC) to the priority sectors. This mandatory target is further divided in to sub newlinetargets like: 18 percent to Agriculture, 10 percent to Weaker PSL and remaining to the newlineother categories. PSL come in to its present shape after various recommendations of newlinedifferent committee and study groups. The concept of priority sector lending had been newlinestarted with the nationalization of banks in 1969. PSL was being formalized in 1972. newlineThere were no specified targets of PSL in 1972. That time Agriculture, Small Scale newlineIndustries and export credit were the part of PSL. With time various changes had been newlinedone in the categories, targets and sub targets of PSL by RBI. After so many changes newlinePSL come in to its present classification, targets and sub targets. It is being observed newlinethat banks were able to achieve the total targets, but not able to achieve the PSL sub newlinetargets. So in the study it is being identified that in which sectors banks are able to newlinefulfill the targets and in which sectors banks are not able to fulfill the targets. newlineThere are mix views of various researchers about PSL. Some studies observe that due newlineto PSL NPA of banks increased, so PSL has negative impact on profitability of banks. newlineSome studies state that PSL has positive impact on economic development because it newlineleads to increase in income, status and employment of the economy. Some studies newlinestate that PSL sector is not targeting the right beneficiaries. Researches also sta