Lending to Priority Sector in India: Some issues of Credit and NPAs of Public and Private Sector Banks

Abstract

Priority sector lending has been an essentialfeature of India’s credit policy.Priority sector lending has been in use for long, as an instrument to channelize credit to strategic sectors of the economy that have been marginalized by institutionalised credit delivery system. This programme ensures that the necessary bank credit be allocated forstrategically importantsectors of the economy.Priority sector lending was imbibed in the lending policy for the commercial banks in response to shortages of output in agricultural and industrieswhich caused severe imbalances in the economy after the independence and partisan of the country. Hence, the priority sector lending was used as a lively device for directing the credit flow to the neglected entities with a purpose to re-establish sectoral equilibrium. The program requires commercial banks to extend loans to strategic sectors: agriculture, exports, small business, housing, and economically weak sections of the society. Priority sector lending is still relevantfor economies like India as small scale entities have been backbone of our economy being employing the large section of population of the country. The present study is an attempt to analyse the status of credit allocation and NPAs of priority sector lending of public sector banks and private sector banks considering a period of 15 years from 2004-2005 to 2019-2020.