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Journal for Studies in Management and Planning
Available at
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I SSN: 2395-0463
Vol ume 03 I s s ue 05
April 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 84
Priority Sector Advances of Commercial Banks in
India: Trends and Strategies
Dr Sanjeev Kumar1 Dr. Prem Prakash2 & Provinder Kumar 3
1Assistant Professor, Department of Economics, Govt. Degree College Majheen, Distt. Kangra,
Himachal Pradesh-176032. Email-drsanjeeveco0679@gmail.com
2Assistant Professor, Department of Economics, Govt. College Karsog, Distt. Mandi, Himachal
Pradesh-175011.
3Research Scholar, Department of Commerce and Management, Career Point University, Kota,
Rajasthan cum Assistant Professor, Department of Commerce, Govt. College Hamirpur HP-177005.
Abstract
The objective of the paper is to analyze the
priority sector lending in India by public
and private sector banks. The entire study
is based upon secondary data, collected
from the various relevant issues published
by RBI. The period of the study includes
the years from 2001 to 2014. The 25
public sector and 17 private sector banks
are selected by the investigators. The
exponential growth rate has been
calculated to analyze the growth of priority
sector lending by commercial banks. To
explain the inter-year as well as inter-bank
disparities in priority sector lending, the
co-efficient of variation has been
calculated. The performance of public and
private sector banks in priority sector
lending has been compared with the help
of t-test. To find out the various statistical
values, the investigators used the
Statistical Package for Social Sciences
(SPSS). The investigators found that,
although, on an average, the prescribed
target of lending has been achieved, but,
one important issue of concern is the
shrinking share of priority sector credit in
net bank credit over a period of time by
both the public and private sector banks,
which needs immediate attention of the
policy makers. As far as percentage of
priority sector credit to net bank is
concerned, the public sector banks in all
the years of the first phase and second
phase ( except the years 2012 and 2103),
achieved the prescribed target of lending.
Further, in all the years (except the years
2001 and 2002) of the first phase and
second phase, the prescribed target of
priority sector lending was achieved by the
private sector banks.
Key Words: Commercial Banks,
Secondary Data, Exponential Growth
Rate, Co-efficient of Variation, t-test, Net
Bank Credit (NBC).
1. Introduction:
Banking is an important segment of
the tertiary sector and acts as a backbone
of economic progress. They act as a
development agents and are the source of
hope and inspiration of the masses. Bank
nationalization in 1969, coincided with the
adoption of the Fourth Five Year Plan with
its emphasis on agrarian development
which led considerable emphasis on
technology and modernization. Certain
sectors of the economy, i.e. agriculture,
small scale industries, small traders were
accorded special focus and were called as
the priority sector. Each major bank was
given a target and their performance in this
regard was to be monitored continuously
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by the RBI. After bank nationalization,
lending to the priority sector was seen as
an essential component of national agenda.
Priority sector occupies a special
place in the Indian economy and is an
important feature of the Indian banking
policies. The socialization of bank credit is
the theme of priority sector lending by the
commercial banks. In 1980, a major
review of the components of priority
sector was undertaken by a working group
headed by K.S. Krishnaswamy. Credit was
earmarked for the weaker sections of the
society i.e. small and marginal farmer,
landless labourers, SC/ST etc. to achieve
this task banks opened more branches in
rural areas which had no banking facilities.
Krishnaswamy, while endorsing the
existing composition of priority sector,
recommended of fixing lending targets for
all major categories included under
priority sector, except exports. Starting
from 1969, there was only a single target
for priority sector lending till the end of
1970’s. During the mid 1970’s, the RBI
advised the banks to raise the proportion of
credit to priority sector to 33.30 per cent of
net bank credit (NBC) by March 1979.
This target was gradually raised to 40 per
cent which was to be achieved by March
1985. The current priority sector targets
are as follows: for scheduled commercial
banks, the total Priority Sector lending is
40 percent of Adjusted Net Bank Credit
(ANBC).
The Narasimham Committee
attributed the poor performance of
commercial banks in the post- nationalization period to the managerial
and policy environment within which
banks had been operating. The Committee
sought to improve the efficiency of
banking system by introducing
transparency in operations and ensuring
that the banking sector starts operating on
a sound financial footing. Hence, the
Committee on Financial Sector Reforms
suggested for phasing out Directed Credit
Programmes and was of the view that there
should be redefinition of the priority
sector. However, the Government of India
did not accept this recommendation.
Financial inclusion has become central to
the Indian policy-making over the past few
years and various attempts have been
made to expand its scope. Despite these
attempts, the challenges to financial
inclusion remain formidable. These
attempts and challenges have to be not
only examined in the context of an
increasingly globalised economy, of
expanding markets, and of growing state
intervention, but, also of local variations.
Equally daunting is the magnitude of the
task that requires regulating the activities
of service providers to millions of illiterate
and poor people spread among culturally
disparate groups.
2. Review of Literature:
A number of research studies have
been conducted in India on various aspects
of priority sector lending by the public and
private sector banks. For example, Shete
(2002) observes that the process of
financial sector reforms has by passed the
priority sector in general and agriculture
sector in particular. A large number of
public sector banks are not able to reach
the prescribed targets of lending of
lendings to priority sector and agriculture.
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The internal working group of RBI (2005)
was of the view that, linking the priority
sector obligations to outstanding advances
has its shortcomings. It was suggested that,
in order to improve the flow of credit to
priority sector, the computation of priority
sector lending obligations should be linked
to the total disbursements made by the
banks during the previous year. Roy
(2006) found that during the years 1996-97
to 2004-05, the share of priority sector
lending by the public sector banks
continued to hover at around 32 to 33 per
cent of net bank credit. Within the priority
sector, the share of credit to small scale
industries has declined secularly during the
period under review, while that of
agriculture has continued to be almost
stagnant. Sooden and Sanjeev (2007)
found that the shrinking share of priority
sector credit, neglect of agriculture sector
coupled with its sub-optimum structure
and neglect of small scale industries by
commercial banks is some serious issues
which need immediate attention of the
policy makers. Uppal (2009) observed that
whereas, public sector banks have failed to
achieve the target of 40 per cent, private
sector banks have succeeded in achieving
the overall target. Shabbir (2013) found
that public and private sector banks are
fulfilling the overall priority sector lending
target but not able to fulfill the sub target
of 18 per cent of agriculture sector.
3. Research Methodology:
The main objective of the study is
to analyze the level and structure of
priority sector lending in India during the
years 2001 to 2014. Further, the period is
sub-divided in to two parts i.e. Period I
which includes the years 2001 to 2007 and
Period II stretching over the years 2008 to
2014. The 25 public sector and 17 private
sector banks are selected for the study,
which have continuously deployed priority
sector credit from the year 2001 onwards.
With a view to analyze the growth of
priority sector lending, exponential growth
rate has been calculated as follows:
Yi = a0 * bi
t
ln (Yi) = ln (a0) + t* ln (bi)
g = (b-1), Where: - Yi is the value
of ith indicator, a = constant, bi =
regression co-efficient of ith indicator, t =
time period, ln = common log value, g =
growth rate.
The average (mean value) priority
sector lending is calculated separately for
first and second phase of the study.
The combined mean (X) = Xi =
∑ nixi n
i=1
∑ ni n
i=1
i=1
Where, ni stands for number of
observations and X i stands for mean
value.
The behavior of inter-year and
inter-bank disparities in priority sector
lending is explained with the help of co- efficient of variation (C.V.).
C.V. = σi
Xi
×100 Where,
C.V. stands for co-efficient of variation,
σi = Standard deviation of ith
indicator, Xi = Mean value of ith
indicator.
The performance of public and
private sector banks in priority sector
lending during the first and second phase
of the study will be compared with t-test.
The value of t-test will be computed as
follow:
