Priority Sector Lending by banks in India constitutes the lending to

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UPSC Civil Services (Prelims) Official Paper 2013
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  1. agriculture
  2. micro and small enterprises
  3.  weaker sections
  4.  All of the above

Answer (Detailed Solution Below)

Option 4 :  All of the above
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Detailed Solution

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The correct answer is all of the above.

Key Points

  • First of all in 1974, the banks were given a target of 33.33 % as a share of the priority sector in the total bank credit.
    • This was later revised on the recommendation of Dr. K S Krishnaswamy to 40%.
    • This is the current target given to banks to disburse the loans to the priority sector.
  • Broadly, the priority sector includes Agriculture Finance, Small Enterprises, weaker sections, Retail Trade, Micro Credit, Education Loans and housing loans.
    • Hence the correct option is 4.

​​Additional Information

  • At present, the domestic banks have to disburse 40% of the Net Bank Credit to the Total Priority sector, out of which 18% should be total agricultural advances.
  • The Foreign banks have been given a target of 32% of the Net Bank Credit to the priority sector, however, there is no lower limit fixed for agriculture.
  • Target Credit to women beneficiaries is 5%.
  • The basic objective of setting priority sector targets has been to ensure a greater flow of credit to certain sectors where credit would normally not flow to the desired extent.
  • Earlier, there was a demand from various stakeholders of the society that banks should be given a higher than the current 40% target of the Priority sector.
    • As of now, the targets have not been revised.
    • The reason is that out of total deposits, banks have to keep a certain amount to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) and from the remaining disposable amount 40 per cent is dedicated for the priority sector, so increasing the amount reserved for priority sector lending from present 40 per cent is not possible.
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