Friday, November 10, 2006

Priority sector lending by banks

At present the policy guidelines say that banks have to lend 40% of their net bank credit to priority sectors which includes agriculture, small scale sector and weaker sections. The RBI is considering a revision of the guidelines which may result in an increase in the quantum of banks’ priority sector lending. The proposed guidelines expand the base for calculating priority sector lending, to include items like foreign currency deposits by NRIs and certain kinds of non-SLR bonds.

It is estimated that this revision in guidelines will bring about an additional Rs. 50,000 cr for priority sector lending.

According to Narasimhan Committee II, as much as 47% of all NPAs (Non Performing Assets) in the banking sector emanate from the priority sector.