Priority Sector In Priority Sector

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According to the Reserve Bank of India, Priority Sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections. PSL is an important financial policy aiming to restore the balance within different sectors of the economy and aid the development of the weaker, employment-intensive sectors such as agriculture and micro or small scale enterprises by channelizing credit and facilitating inclusive economic growth. After the nationalization of banks in India in…show more content…
In 1974, the RBI advised banks to increase PSL to one third of their overall credit by March 1979. As per currently prevailing norms, every domestic bank with more than 20 operating branches should have at least 40% of its Adjusted Net Bank Credit lent to specific segments to qualify for PSL, of which Agricultural segments should comprise at least 18%, and the advances towards Weaker Sections another 10%. For foreign banks with less than 20 branches, the corresponding norms for PSL are 32% for overall exposure with no specific sub-targets for Agriculture or Weaker…show more content…
Most banks have failed to comply with PSL requirements resulting in a lack of inclusive financial growth. This is mainly due to the fact that banks are profit-making, commercial entities whereas PSL schemes force banks to make developmental loans irrespective of the borrower’s credit-worthiness or the bank’s capabilities to do so or whether it is profitable or cost effective making such loans high-risk where banks do not recover their full costs. This has resulted in a tremendous amount of bad loans and has done little to reduce poverty or create employment in a manner in which well-appraised loans to borrowers who eventually repay the loan and seek more for growth could have done. Secondly, PSL regulations emphasis on lending to micro segments have discouraged small units from growing as funding would be denied to them once they become medium or large scale enterprises under the scheme. Thirdly, PSL regulations are confined to only banks and banking companies and excludes various non-banking organizations such as NBFCs, cooperative banks, etc., which could perhaps better implement PSL schemes based on their level of specialization and expertise as compared to certain banks that do not have the required capabilities to do

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