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Appraisal of Priority Sector Lending by Commercial Banks in India

  • C Bhujanga Rao


    (Faculty, National Institute of Public Finance and Policy)

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    This report provides an overview of the performance of priority sector lending by commercial banks in India. The review captures the changing contours of Reserve Bank of India policy on priority sector advances. The paper analyses the trends in priority sector lending for the period 1995-2011, the burden of non-performing assets of commercial bank in priority sector lending and the extent to which priority sector targets are achieved by individual banks. It is observed that the scheduled commercial banks credit to GDP ratio and the priority sector advances to GDP have been increasing over the years. The composition of the priority sector advances in the non-food credit of scheduled commercial banks shows that non-food advances account for more than 90 percent of the gross bank credit while food advances account for less than 10 percent. Bulk of the non-food advances is accounted for by priority sector and industry (medium and large). The non-performing assets of the commercial banks used to gauge their profitability and financial health shows vast improvement in the gross and net performing assets of banks and the asset quality of banks has been improving over the years. The performance of banks in priority sector lending has improved in recent years, although substantial variations have been observed in the performance of various bank groups as also in meeting the sub-targets within the priority sector.

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    Paper provided by Madras School of Economics,Chennai,India in its series Working Papers with number 2014-027m.

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    Length: 80 pages
    Date of creation: Feb 2014
    Date of revision:
    Handle: RePEc:mad:wpaper:2014-027m
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