Directed Lending System in India: A Review

Abstract

Directed Lending has grown in significance since the nation's banks were nationalized. Commercial banks' Directed lending quotas have given birth to a significant instrument for distributing capital to self-employment programs, small businesses, and farmers. Priority sector requirements mandate that scheduled commercial banks lend forty percent of their total loan volume to the designated directed sectors in accordance with RBI directions. Over the years, the RBI has implemented numerous modifications to the standards for Directed Lending. The issue of NPA is not exclusive to Indian public sector banks; it is prevalent across the whole banking sector. A significant proportion of non-performing loans in Indian banks originated from credit to the directed sector under the influence of officials in charge of government. Had banks adequately supervised their credits, the issue of bad debt might have been controlled, if not eradicated. To determine how effective and efficient banks were, the majority of researchers relied on the DEA model. Fixed and random effect model, t test, Tobit regression, CCR, BCC are used to get the desired result. It is also found in different studies that there is one major issue, which is NPA. In this study, we try to find out the reasons and suggestions regarding NPA.