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The primary objective of social control and nationalization is to ensure a

better alignment of the commercial banking system to meet the needs of the
economy. It is the duty of the banks to see that credit flows into channels that
are most productive and most helpful to our growth and development. To
promote the welfare of the people who are socially and economically backward,
the concept of priority sector lending was evolved.

Quantitative targets were set for lending to priority sector and separate
sub-targets were also set for lending to agriculture and weaker sections of the
society. As a result, lending to the borrowers in priority sectors have increased
substantially. Increased flow of credit to the different sectors assisted the
developmental activities and thereby expanded the income as well as the
standard of living of the people.

Several studies on this subject in a restricted sense have been

undertaken by particular banklgroup of banks, individuals and organizations.
Number of Committees appointed by the Government of lndia and RBI have
also studied the banking problems of the country. Presented below is the review
of such literature.




r w n r t s +bat cornrnerc~alb a k s are reluctant to give

loans and advances to the priority sector, including self employment schemes.
This is mainly due to the reason that the banks have no clear and precise role
about the scope of lending to the priority sector. He has also argued that the
Reserve Bank of lndia should give a clear definition of the different components
of the priorlty sectcr, which will enable the commercial banks to increase their

participation in lending to priority sector.

M.A.Oommen ( 1 9 7 2 ) states
that commercial banks have an important
role in financing SSI units in Kerala. Though the financial institution at state
level and all lndia level provided financial assistance to SSI units for meeting
their flxed and working capital requirements, the major part of the financial

requirements of SSI units are satisfied by the loans and advances of

commercial banks.

Purohit M,C (1973)~,in his study on Small Artisans and Potential for
Bank Financing, conducted in Jaipur City,

states that the working capital

requirement alone accounts for 89 per cent of the total financial requirements.
The share of raw material in the total working capital requirement is substantial.
He adds that 36 per cent of the artisans run their units with borrowed 'funds.
These artisans who borrowed funds had mainly relied upon non-bank financing
intermediaries No artisan has borrowed from any co-operative agency or
governmental agency, a few relied on commercial banks. Ignorance about the
facilities provided by the commercial banks and the. inability of the artisans to
fulfill the bank requ~rementsto avail easy loans have forced the artisans to take
financ~alassistance from non-banking financial institutions at a higher rate of

Namb~ar P O.D. ( 1 9 7 7 ) ~conducted a study on financing of Priority

Sector. He is of the view that the commercial bank's neglect of priority sectors
including agr~culture,small scale industries, small artisans, self employed

persons, etc, is one of the major reasons for their backwardness. The banks are
reluctant to take up the financing of the priority sectors due to the smallness of
their size arid their precarious existence at the margin of viability. Their urban
origin, security orientation, methods and procedures of operations are not
suitable for financing the priority sectors. Financing of priority sectors is a new
experience for the banks and presents a number of problems. They have to
reorient their lending policies with a shift of emphasis from security to viability of
the project. He also states that the role of commercial banks in the priority
sectors does not end with the provision of finance but it also includes the
evaluation of the feasibility of a project and to aid the entrepreneurs to select
the right type of projects. An improved co-ordination between various agencies
including governmenl agencies and commercial banks is necessary for a better

S.L.Shetty ( 1 9 7 8 ) conducted
a study on the achievement of commercial
banks since nationalization. HIS study, reveals that the credit deposit ratio of
banks which are not relatively participating in priority sector lending is h i g h s
than the average credit deposit ratio. He also states that a few branches of
banks performed well in priority sector lending by concentrating in certain areas

of prior~ty sector by neglecting other areas. These branches recorded

remarkable credit deposit ratios. He added that in some states commercial
banks concentrated highly in priority sector lending.

In his study tic? makes an attempt to establish the relationship between

credit deposit ratio of commercial banks and priority sector lending.

I.G.Patel (1979)~is of the view that banks in the country have a very
important role rn uplifting the socio-economic status of the weaker sections. For
accelerating the development of the economy, it is the poorest section of the
people which have to be uplifted. The banks have a special responsibility to
uplift the poorest strata of the people. Towards this end, they should give more
attent~on in financ~ng schemes with objectives of providing employment
opportunities to the weakest of the weaker section of the people whether they
are in the rural or urban areas.

Singh and Balraj (1979)' conducted a study on advantages of loans from

banks in Hissar D~strictof Haryana, and states that rural people are under the
explo~tationof moriey lenders. Majority of the villagers depend on the money

lenders for the~rpersonal and business purposes because of their mode of

operation is best suited to the rural people. Operation of a nationalized bank in
the village can relieve the rural people from the exploitation of money lenders to
a certa~nextent. They also report that the banking facilities are not easily
accessible to the rural people because of the cumbersome procedure,
unnecessary formalities and delay in disbursement of loans.

L.D'Mello (1980)%onducted a study on Bank credit for weaker sections

and states that commercial banks which are sewing the business community in
cities and urban areas are unable to provide big amount of credit to the weaker
sections. Diversion of funds for lending to weaker section may affect the
profitability of the commercial banks and they are not ready to sacrifice their

C.L.Kheman~and K.V.Balakrishnan (1981)'

in their study on the

importance of consumption credit to weaker sections states that the target

group under the spor~soredschemes should be granted consumption loans for
their specific needs Wh~legranting the consumption loans, the capacity of the
borrowers to repay the loans should be considered. They also remark that the

very objective of priority sector lending cannot be said to be achieved if the

beneficiaries under the sponsored schemes are approaching the money lenders
for therr consumptiorr credit.

K D~nkarRao (1982)'' conducted a study on Lead Bank Scheme and

states that Extension of credit to priority sector is a social obligation. It is to be
shared between the agencles, Including the government departments and the
agencles who are involved in the rmplementation of the schemes for
development of agriculture and other prior~tysectors. The Lead Bank Scheme is
the best alternative tor sharing responsibility at the grass root level on a mutual
bass. The lead role


not merely confined to the Lead Bank shouldering the

major responsibility iri branch expansion and credit extension. The stress is laid
on the lead bank's hason role in integrating credit with complimentary inputs
and services. The priority sector lending involves considerable extension
efforts. The credit agencies or the government departments or both have to
ensure the critical integration of credit with inputs and services. This would
require co-ordination among financial institutions and in many cases collective
act~onby them. These tasks would become immensely complex if individual
agencles act ~ndeperidently In the short run the Lead Bank Scheme can only

facilitate the flow of a given quantum of credit to the priority sector, but may not
be able to increase this quantum. The Lead Bank Scheme can only be
expected to reflect the local needs and genuine regional grievances, the
influence of which could be felt only in the long run.

B.K. Sarkar (1983)" opines that success of a marketing drive for the
target group in the priority sector depends on a careful study of each segment
of the society. The need and capacity of the borrowers and their willingness to
take activities, etc. should be thoroughly analysed. The desired result can be
achieved only if the borrowers utilize the amount borrowed by them for the
purpose for which it has been lent

A.R. Patei (1984j.' conducted a study on the performance of the public

sector banks in lending under the differential rate of interest scheme. The study
rreveals the bank~ngprogress in lending to SCIST borrowers under the scheme.
'The number of SCIST borrowers and the amount advanced increased
remarkably. But compared to the number of borrowers and their demand for
fund, the allocation by the banks under the scheme is very limited. Therefore
the banks are unable to finance all the eligible beneficiaries under the DRI

Sche~;ie The study i n s also thrown l~ghtto the fact that a number of el~gible

borrowers could not avail loan under the DRI scheme but at the same time a
number of well settled influential persons availed loans under the scheme.

Balishter and Roshan Singh (1984)'~in their study on Integrated Rural

Development Programme expressed the view that the recovery of loans
advanced by the Bank under the IRDP is satisfactory in all categories of
families and this nullified the common impression that advancing of loans to
weaker sections would lead to accumulation of bad debts.

i.Sathya Sundaram (1984)14 remarks that a number of schemes are

formulated and implemented for the development of rural economy. The
success of such schemes depends on the operation of the credit agencies
which are entrusted with the task of helping the rural poor. The establishment of
more and more credit agencies will create confusion in, the rural credit
operat~on.Therefore, a proper co-ordination among the credit agencies is
essential for the better implementation of the scheme and which will be more
helpful to the rural poor.

Raut (1984)'~conducted a study on scope and problems of financing

tribal farm development by Land Development Banks and indicates that the
problems of overdue


mainly due to misutilisation of loans by tribal farmers.

The tendency to misutilise the loan is due to the fact that the consumption
priorities of tribal farmers are of more urgent nature than asset building

Raj Kishore Panda (!985)16 states that the diversion of credit towards
non-productive purposes is more among medium and large farmers than
among small farmers.

Ramesh Chand and Sidhu (1985)" in their study states that high level of
education of the borrowers or family members of the borrowers contributes
towards non-defaulters This factor which places the borrowers into defaulters
group are the higher values of ratio of dependence on the family, capital
expenditure and total borrow~ng.While lower levels of education, ratio of
dependents in the family. consumpt~on expenditure and net cash income
account willful default and reverse is true for non-willful defaulters.

Viswanathan B.S. (1985)'' conducted a study on rural co-operative credit

and states that the overdues to a large extent are on account of willful default
which 1s either due to an ineffectwe recovery

machinery or because of

unfavourable recovery climate.

D.P.Khankhoje and V.r.Godse (1986)" conducted a study on Systems

and Procedures in priority sector lending. In the study They state that banks are
following unnecessary procedures and systems in priority sector lending. Such
procedures are very rigid and cause delay in disbursement of loans. The banks
should simplify the procedures especially those relating to the documentation.
But there should not be any simplification in supervision and control over the

I.Satya Sundaram (1986)" conducted a study on DRI Scheme and points out
some of the problems of the Scheme. Fund allocation under the DRI Scheme is
insufficient when compared wlth the number of borrowers under the scheme.
Moreover the borrower utilizes the loan amount of loan for purposes that are
outside the scope of the scheme There is no change in the standard of living of
the beneficiaries even after implementation of the scheme. He is of the view

that for achieving the desired result under the scheme, some means of control
are necessary.

R.N. Maihotra (1986)'' conducted a study on the role of banking in Rural

Development and opines that banks should actively participate in rural credit.
They should provide financial assistance against viable projects and exercise
effective control over credit utilization. The responsibility of the banks does not
end wlth the disburserr~entof loans. They should see that the borrower utilizes
the amount of loan for the purpose for which it has been sanctioned. Credit
institutions with


responsibility alone can contribute to the rural


S F . Dangat. SRRadkar and M.P.Dhongada ( 1 9 8 6 ) conducted

a micro
leve! study on the utilization of fund borrowed under medium and long terms
loans. In the study they state that most of the borrowers use the medium and
long term loans are for their personal and unproductive purposes. The funds
are mainly used by the borrowers for conducting marriages and other functions,
constructton of buildings for residential purposes, repayment of earlier debts,
etc. Proper appraisal, guldance and supervision by the bank personnel are

essent~alto ensure that the borrowers utilize the amount borrowed by them for

B. Ramachandra Rao (1987)'~conducted a study on the Evaluation and

monitoring of Priority Sector advances. In the study he suggests that the priority
sector advances should be given at low rate of interest only to the deserving
people. The object of the scheme cannot be achieved if such loans are
provided to the financially sound persons. Better monitoring and supervision by
the banks will be required to ensure that the funds are disbursed to the right
persons and it is utilized for the right purpose. This will in turn increase the
profitability of the banks.

Econom~cResearch Department of the State Bank of India, Central Office.

Bombay (1987)'~conducted an observative study on the impact of bank credit
on the weaker sections in Kerala. The study reveals that the financial
assisrance from the banks has helped many poor and efficient workers to start
self-employed business units. The study also reveals that the bank loans help
to generate employrnent opportunities and income of the people thereby
increases the standard of living of the poor.

H C. Malhotra and Kulshrestha (1987)'~ opines that bank loans will not

improve the quality of life of the poor unless the borrower utilizes the fund for
productive purses. To ensure utilisation of fund for productive purposes, proper
monitoring and supervision by the lending banks are essential. They suggest
co-ordination between the lending agencies and minimizing competition to
improve the better util~zationof fund by the borrowers.

P.D.Ojha (1987)"~
the then Deputy Governor of RBI, made a comment
on the Banking and Economic Development in India while inaugurating a
seminar at Sukhadai Jniversity, Udaipur. He remarks the borrowers default in
repayment of loans by the beneficiary is a common feature of the bank loans
under sponsored schemes like DRI, SSI. Self-employment and other priority
sector advances The accumulat~onof such default affects the efficient working
of the banking system. Banks flnd it difficult in recycling the credit and they are
discouraged in lending under sponsored schemes. He requests the banks to
make necessary appraisal of the proposal and grant loans only against viable
projects and that banks should have eKective supervision and control over the
utilization of fund disbursed.

CRangarajan (,1988)" remarks that diversion of bank credit for

productive purposes is essential for economic development. Banks are more
rigid in lending activities and therefore the deserving and needy people are not
getting financial assstance. New measures are essential to ensure that the
bank loans reach the deserving hands.

Muhammad Yunus (1988)" opines that financial assistance provided by

the banks to the poor is not charity hence the banks should ensure that the
loans granted to the weaker sections are repaid in time. He adds that loans
without strict control will lead to rnis-utilisation of fund and the result will be
default in repayment of the loans for which the lending institution is responsible
and not the borrower.

N.A.Majumdar (1988)'~ conducted a study on Credit support to Priority

Sector and states that the policy makers do not give due attention to Small
Scale Industries sector which contributes 40 per cent of the value added in the
rnanufactur~ngsector anci about 35 per cent of the total expects. But inspite of
their involvement, the credit extended to SSI Units has declined considerably
over the last few years. The capac~tyutilization in this sector is around 50 per

cent (weighted average) and one of the main reasons responsible for the gross
under utilization is finance. T~melyand adequate availability of credit to this
sector would enable the capacity utilization to go up substantially both in the
short and the medium term. Thls would also enhance export capability.

R Munira] (1988)"' suggests that before granting loans, the beneficiaries

shouid be properly motivated to use the credit, adopt improved technology,
keep up credit disciplirie, etc. They should be inculcated to banking habits.

Inadequate or lack of supervision and follow-up as well as lack of interpersonai relationship between banker and borrowers - are the major causes for
the misutilisation 1 diversion of loans, which lead to low income, low savings and
rlon repayment If these factors are taken into consideration, the overdues can
be minimised to the extent of 60 to 70 per cent.

K.K Ammannaya 1:1989)~'opines that to solve the problem of poverty,

the poorest among the poor shouid be identified and they should be provided
with financ~alassistance against v~ableprojects. They should also be provided

with adequate train~ngfor the proper utilization of loan amount and be informed
about the responsibil~tyin repayment of the loan.

U.K. Sarma (1989)~'conducted a study on the Role of Bank in rural

development and states that bank loans for the development of rural areas will
increase the rural inljebtedness unless such loans are utilized for productive
purposes. Banks should be more careful in dealing with rural credit and they
should ensure that loans are sanctioned against viable projects and amount is
disbursed in time. Adequate and timely credit may help increased productivity
and profitability He adds that loans utilized for productive purpose will be repaid
in time

Manmohan Singh Gill (1990)" conducted a study on the problems of the

borrowers in obtaining bank loans and impact of bank loans on their economic
and social status. The study reveals that most of the loans under the sponsored
schemes are sanct~onedon the recommendations of the political leaders and
officials and that the beneficiaries have given bribe to these leaders and officials

for obta~ning loans The study also reveals that though there is no much

progress in the social status, the loans have helped the beneficiaries to improve
their income status.

S.S. Kalra ( 1 9 9 0 ) ~opines

that the recovery of loans under the
sponsored schemes is a difficuit task of the banks and they should develop new
and improved technlql~esin credit recovery. He suggests that follow up and
supervis~onwill facilitate better utilization of bank credit and its recovery in time.

Dr S.N.Bansal and Dr. V.K.Agarwal ( 1 9 9 1 ) ~are

~ of the view in their
article "Why world bank is against priority sector lending" that the recovery
aspect is equally important to its lending counter part, the lending of money to
the rural masses alone is not going to deliver the goods unless it is
accompanied by an equally fast pace of recovery in our country. The recovery
of loan especially in rural areas is lagging behind the lending operations.

They are also of the view that the government policy of waiving of loans
~ n a k erecovery of bank llsans more difficult. The beneficiaries who are regularly
repaying the loans wrll refrain from repaying the loans and this will result in non-

recycling the loan for further lending. Ultimately such policy affects the
economic progress.

Mohammed lqbal Ali and P. Krishnamachary ( 1 9 9 2 ) ~

a study


performance of commercial

banks in the

implementation of

developmental schemes for weaker sections. The study reveals that bank credit
is essential for improving economic conditions of the weaker section. The study
also reveals that the petformance of the commercial banks in financing the
developmental schemes in rural and semi urban areas is satisfactory.

N.S.Toor (1993)'~ requests the banks to change their attitude towards

SSI units. He is of the view that most of the problems of SSI units are beyond
their control and banks should adopt a helping attitude in delaing with SSI units.
Monitoring, supervision, follow-up and control are essential to ensure the
desired result.

A V. Dhond (1!394)38conducted a study on the role of commercial banks

in the Development of Small Scale Industries. In the study, he remarks that the
importance of small scale industries in the economic development of our

country cannot be ignored. The multi-national companies which, are going to

set up their units in India will increase the demand for the products of SSI units.
Thus the SSI units have a bright future in the country. Therefore, the
commercial banks should take necessary steps to increase the credit to SSI

A.R. Patel (1996)~'opines that the Government can help the commercial
banks in the implementation and monitoring of schemes for the development of
rural areas. The Government can also help the banks by appropriate measures
over dues in future. State participation
in recovering the loans which w ~ lreduce
will help to increase the productivity and the amount of credit to the weaker

Varghese K. John and Dr.C.V. Jayamani (1997)~' conducted a micro

level study on Prime Minister's Rozgar Yojana. The study reveals that the
procedures and formalities in sanctioning the loans are too lengthy and time
consuming. The procedures are almost duplication and cause unnecessary
delay in sanctioning the loan. To eliminate the duplication of work they suggest
capability and eligibility of the applicants must
that the feasibility of the u n ~and

be scrutinized by only one agency either the bank or the District Industries
Centre. They also suggest that the PMRY Scheme must be operated for the
benefit of the deserv~ngpeople

D P Sarda ( 1 9 9 8 ) ~is' of the view that government help by means of

measures 1s essent~alto fac~l~tate
the speedy recovery of the loan
under government sponsored schemes He suggests that the problems relat~ng
to over due and recovery of loans should be d~scussedin the State Level
Bankers Meet~ngand to take the help of Government authorit~eson such

A.V. Dhond (1999)~'remarks that small scale industries are best suited
for a developing country like lndia for solving the problems Of unemployment
and capital formation. He reports that small scale industries in lndia account for

95 per cent of total industrial units, 80 per cent of industrial work force, 50 per
cent of turnover of manufacturing sector and 36 per cent of total exports. He
requests the banks and Government departments to increase the support to
SSI units by evolving new mechanism to deal with dues by SSI units.

Sufficient literature on Prime Minister's Rozgar Yojana is not available to

make a critical analysis of the scheme. The available literature on the subject is
often b~asedand covers some mlcro aspects of PMRY Scheme.

A thorough analysis of these studies reveal that implementing agencies

under the Government sponsored developmental schemes have not made
much contribution towards the success of the schemes. Moreover most of the
commercial banks engaged in financing the sponsored developmental schemes
provided loans only because they are under compulsion or obligation. The
review of these literatures also throws light to the fact that most of the banks
have not achieved their targets under the schemes. Therefore, there is ample
scope for the study on the different aspects of the PMRY Scheme in Kerala.





implemented to



opportunities by setting up micro enterprises. There is good scope for research

on the problems and ~mpactof the PMRY scheme in a highly literate state like
Kerala. This study


also important because the analysis of the available

literature reveals that the schoiars have not made any attempt to analyse the
employment generatea by the PMRY Units. This study aims at analyzing the

role of PMRY units in generating employment in the State of Kerala, mode of

lending and utilization of funds by the beneficiaries, attitude of the PMRY
beneficiaries towards the banking services, experience of the banks and
beneficiaries in the implementation of the scheme. The weakness of the
existing machinery n the implementation of the scheme should also be
examined and necessary steps should be taken to rectify them.


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Kerala.' The Journal of the Indian Institute of Bankers, Vol. XLlll ( 3 ) , JulySeptember 1972, p.329.

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