Executive Summary

This project focuses on understanding the steps taken by the Government and Reserve Bank
of India in the upliftment of neglected sector. This project only focuses on understanding the
sectors termed by as Priority sectors by Government of India.

Objectives
1) To study about the banking sector in India.
2) To study about sectors covered under Priority sector.
3) To study about steps taken by Reserve Bank and Government of India in the
upliftment of the neglected sector.
4) To understand the latest development and trends in the lending of priority sector.

Research Methodology
It is basically a study project and not a Research Project, so basic
methodology is limited to Quantitative approach of study.

Scope of Study
1) Project scope is limited to academic purpose.
2) It is limited to a study project than a Research project.

Significance of the study

1) Study is in itself very significant as it provides us a way to give back to the society in
terms of Service to nation, service to our people.
2) Upliftment of the neglected sector leads us towards the development of our nation
itself, as mentioned in our national Song Sujalam Sufalam Malayaja Sheetalam,
Sasya Shamalam (Taking our motherland towards growth, fertility, prosperity etc).
3) This study project could become a Research project providing us new avenues
whereby we can bring about the upliftment of our people.

Limitations of the Study

1) Scope of the project being limited to study project, we are not able to provide real
time figures of how much people have been benefited from this Government policies.
2) We are not able to include people responses to this policies by government.

Introduction
Why Priority Sector

Referring to above figure, some sectors of the economy were prioritized to focus on rural
development, channel resources to areas that are deemed as national priority, inclusion of
poor in growth of the country and synchronize the bank lending according to national
importance
Before nationalisation it was class banking whereas after nationalisation in 1969 it became
mass Banking. The concept of priority sector lending has started germinating and getting
converted to a giant tree after a span of 40 years. Earlier banks used to lend to the sectors,
which were giving good amount of return to them. Certain sectors were unable to get any
return in the initial stages of their operations. Such sectors were neglected by the banking
sector.
Because of this unbalanced growth of economy, the general population was unable to get the
requisite benefits, so for the purpose of balanced growth of economy certain sectors were
declared to be Priority sectors by the government of India, ministry of finance and certain
percentages were made mandatory for lending so that multi-prolonged development of
economy would take place.
Case studies undertaken by the study group of the National Credit Council

showed that:
1) The credit extended by commercial banks was not widely disbursed and there are
credit gaps particularly in the case of small borrowers.
2) There was potential demand for credit by small borrowers, but the nonexistence of
institutional facilities resulted in their approaching moneylenders and traders.
3) Co-operatives, which were already in existence, were not in a position to provide
adequate finance to these sectors (G.O.1. 1969: 81-6).
The following are the main sectors & subsectors of priority lending as per RBI guidelines
dated. 20/07/2012.
1) Agriculture
a) Short Term Loan for crops
b) Medium & long Term loan to farmers for purchase of agri implements & machinery,
loans for irrigation & other developmental activities.
c) Loans for spraying, welding, harvesting, sorting, grading & transporting.
d) Loan against pledge/hypotication of agricultural produce.
e) Loans to small and marginal farmers for land purchase for agricultural produce.
f) Loans to distressed farmers.
g) Loans to PACS (Primary Agricultural Credit Societies)and FSS(Farmers Service
Societies).
h) Large sized Adivasi Multi Purpose Societies (LAMPS).
i) Loans to farmers under Kisan Credit Card Schemes.
j) Export credit to farmers for exporting their farm produce.
2) Indirect Loan to Agriculture
Like loans to corporate, partnership firma & institutions engaged in agriculture &
Allied activities like dairy, fishery, animal husbandry, poultry, Bee Keeping &
Sericulture.
3) Micro & Small Enterprises
Micro Enterprises are those for whom investment does not exceed 25 Lakh rupees
Small Enterprises are those for whom investment is more than Rs.25 Lakh but not
exceeding Rs.5.00 crores.
This sector comprises loans for Food and Agro processing, khadi & village industries
sector.
4) Education loans up to 10.00 lakh for studies in India & Rs.20.00 lakh for studies
abroad.
5) Housing loans to individuals up to 25 lakhs in metro centres and up to 15 Lakhs
in other centres are treated as priority sector lending. Loans for repairs to homes
are also treated under priority sector category.
6) Weaker sections
a) Small and marginal farmers.
b) Artisans, village and cottage industries.
c) Beneficiaries of National Rural Livelihood Mission (NRLM).
d) S/C and S/T
e) Differential Rate of Interest (DRI) beneficiaries.
f) Scheme for Rehabilitation of Manual Scavengers (SRMS).

g) Loans to SHG (Self Help Groups).

h) Loans sanctioned to minority communities.
7) Bank Loans to mutual fund industries for lending by them to priority sector, is
also treated as Priority Sector Lending.
Thus Priority sector refers to those sectors of economy which may not get timely & adequate
credit in absence of their special dispensation. Typically these are small value loan to farmers
for agriculture & allied activities, micro & small enterprises, poor people for housing students
for education & other low income groups.
Also in view of the planned effort for economic development of the country it is necessary to
have institutions, which can sub-serve the social and economic objectives of planning.
Government's accepted policy envisages that the benefit of development must accrue more
and more to the relatively less privileged classes of society and that there should be a
progressive reduction in the concentration of income, wealth and economic power. In this
context, it is necessary to make credit facilities available to high priority sectors like
Agriculture, Small Scale Industries and Exports.
At present other priority sectors include other small business and service sector. In the
context of the failure of the large industries to solve the worsening problem of unemployment
and poverty which is the result of the concentration of economic power in the hands of few
and increased inequalities in the distribution of income and wealth, agriculture (especially
small farmers), small scale industry and other priority sector play a major role in solving
these problems.
This has been recognised throughout the world by the policy makers, governments as well as
academicians and researchers. As these sectors can be developed with limited available
capital and light technology, it permits more population to participate in gainful economic
activities with which we can solve the problem of poverty, reduce the inequalities in the
distribution of income and wealth at the national level and unemployment problem at the
individual level.

Priority Sectors in India

Chapter I
Banking in India

Banking in India in the modern sense originated in the last decades of the 18th century. The
first banks were Bank of Hindustan (1770-1829) and The General Bank of India, established
1786 and since defunct.
The largest bank, and the oldest still in existence, is the State Bank of India, which originated
in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal.
This was one of the three presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under charters from the British East
India Company. The three banks merged in 1921 to form the Imperial Bank of India, which,
upon India's independence, became the State Bank of India in 1955. For many years the
presidency banks acted as quasi-central banks, as did their successors, until the Reserve Bank
of India was established in 1935.

In 1969 the Indian government nationalised all the major banks that it did not already own
and these have remained under government ownership. They are run under a structure know
as 'profit-making public sector undertaking' (PSU) and are allowed to compete and operate as
commercial banks. The Indian banking sector is made up of four types of banks, as well as
the PSUs and the state banks; they have been joined since 1990s by new private commercial
banks and a number of foreign banks.
Banking in India was generally fairly mature in terms of supply, product range and reacheven though reach in rural India and to the poor still remains a challenge. The government
has developed initiatives to address this through the State bank of India expanding its branch
network and through the National Bank for Agriculture and Rural Development with things
like microfinance.

Adoption of banking technology

The IT revolution has had a great impact on the Indian banking system. The use of computers
has led to the introduction of online banking in India. The use of computers in the banking
sector in India has increased many fold after the economic liberalisation of 1991 as the
country's banking sector has been exposed to the world's market. Indian banks were finding it
difficult to compete with the international banks in terms of customer service, without the use
of information technology.

Number of branches of scheduled banks of India as of March 2005

The RBI set up a number of committees to define and co-ordinate banking technology. These
have included:

In 1984 was formed the Committee on Mechanisation in the Banking Industry

(1984)]whose chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of
India. The major recommendations of this committee were introducing MICR
technology in all the banks in the metropolises in India This provided for the use of
standardized cheque forms and encoders.

In 1988, the RBI set up the Committee on Computerisation in Banks (1988) headed
by Dr. C Rangarajan. It emphasized that settlement operation must be computerized in
the clearing houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and
Thiruvananthapuram. It further stated that there should be National Clearing of intercity cheques at Kolkata, Mumbai, Delhi, Chennai and MICR should be made
Operational. It also focused on computerisation of branches and increasing
connectivity among branches through computers. It also suggested modalities for
implementing on-line banking. The committee submitted its reports in 1989 and
computerisation began from 1993 with the settlement between IBA and bank
employees' associations.

In 1994, the Committee on Technology Issues relating to Payment systems, Cheque

Clearing and Securities Settlement in the Banking Industry (1994)[14] was set up
under Chairman W S Saraf. It emphasized Electronic Funds Transfer (EFT) system,
with the BANKNET communications network as its carrier. It also said that MICR
clearing should be set up in all branches of all those banks with more than 100
branches.

In 1995, the Committee for proposing Legislation on Electronic Funds Transfer and
other Electronic Payments (1995)[15] again emphasized EFT system.

Number of ATMs of different Scheduled Commercial Banks of India as on end March 2005
Total numbers of ATMs installed in India by various banks as on end June 2012 is 99,218. [16]
The New Private Sector Banks in India are having the largest numbers of ATMs, which is
followed by off-site ATMs belonging to SBI and its subsidiaries and then by Nationalised
banks and Foreign banks. While on site is highest for the Nationalised banks of India.[13]
Branches and ATMs of Scheduled Commercial Banks as on end March 2005[13]
Bank type
Number of branches On-site ATMs Off-site ATMs
Nationalised banks
33627
3205
1567
State Bank of India
13661
1548
3672
Old private sector banks 4511
800
441
New private sector banks 1685
1883
3729
Foreign banks
242
218
582

Total ATMs
4772
5220
1241
5612
800

Chapter II
Priority sector lending by Banks in India
Banks play, an important role in the modem economy by providing necessary credit to
different sectors of the economy. In recent years they have been assigned the responsibility of
financing what are called the priority sectors. The word priority sector is used for those
segments of the Indian economy whose development is considered essential for the economic
growth of the country and attainment of 'social justice', but which had received only
indifferent attention from the private sector banks.

In the process of development, certain sectors lag behind, but the development of these
sectors is essential for accelerating growth. These sectors lag behind because they lack
financial resources. As the banks are urban biased and profit-oriented in their approach they
are less likely to finance these sectors because the latter are: (1) less profitable, (2) lack
collateral securities, and (3) are high-risk sectors for lending. Without providing necessary
assistance to these sectors it will not be possible to accelerate the growth of the economy. In
India, agriculture, small scale industries and exports are identified as the priority sectors.
Priority sector lending implies priority in the allocation of funds at concessional rate of
interest, margins etc., to units of the priority sector identified as such.
Small scale industries form an important sector of the Indian economy. In 1997 -98 they
accounted for 40 per cent of the industrial output and 35 per cent of the exports. They
provided employment to 160 lakh workers
The prime objective of planned economic development is to make more efficient and
judicious use of scarce resources in order to achieve economic development. In a country like
India, human resources constitute a major resource, which is also relatively abundant and
entrepreneurs are capable of making only small investments. Small industries, which are
labour intensive and capital saving play a vital role in the utilisation of these abundant
resources and thereby help promote economic development of the country.
When we see that mostly the priority sector advances are made either at Base Rate (The rate
prescribed by RBI, below which no lending can be made) or some margin up to maximum
1%. The margin received on these advances either are Nil or very meagre. But the benefit
acquired because of this lending is quite encouraging.
It can be observed from the data that due to introduction of priority sector and its prescribed
share in lending, good and notable changes are observed. Economy is developing in a
balanced way so no sector is neglected.
Certain sectors are dependent upon each other. Infrastructure is one of them. It comprises of
development of means of transport from all sources like water, road, rail and air travel.
Development of communication like telephones, mobiles, internet, construction of roads,
ports, airports, creation of means of power generation like solar energy, wind energy, atomic
energy, non-traditional sources of energy.
All the means of development of infrastructure are requiring much larger period of gestation ,
no of times the costs of inputs are not equalling to the return on investment, that too after
completion of projects only.
PS lending committee headed by Sr. M.V.Nair said that loans up to 10.00 lakhs are already
included in PS. Banks are seeking priority sector tag or loans to affordable home builders.
This would create demand for steel, cement credit at a time when the economy is in the midst
of slowdown.
Banks need to lend 40% of their portfolio to the priority sector, including SSI, according to
Banerjee-Duflo. In January 1998, SSI sector was included in priority sector with investment

in plant and machinery between 0.65 to 3 crores. In early 2000, firms with ipm between 3
crores rupees and 1 crore rupees taken away from the priority sector.
Table below shows the targets under the priority sector
Nature

Domestic Banks( Public and

Private)
Total Priority sector advances 40% of NBC
Total agricultural advances
18% of NBC
SSI advances
No Target
Advances to weaker section
10% of NBC
Export credit
Export credit doesnt form
part of priority sector

Foreign Banks operating in

India
32% of NBC
No Target
10% of NBC
No Target
12% of NBC

Rate of interest as per current interest policy, in case of loans up to Rs. 2Lakh , the interest
rate should not exceed the prime lending rate (PLR) of the bank, while in case of loans above
Rs.2 Lakh , banks are free to determine the interest rate.
PENALTIES FOR NON-ACHIEVEMENT OF PRIORITY SECTOR LENDING
TARGET / SUBTARGETS
1. Domestic scheduled commercial banks Contribution by banks to Rural
Infrastructure Development Fund (RIDF):
1.1 Domestic scheduled commercial banks having shortfall in lending to priority sector target
(40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever
is higher) and / or agriculture target (18 per cent of ANBC or credit equivalent amount of OffBalance Sheet Exposure, whichever is higher) shall be allocated amounts for contribution to
the Rural Infrastructure Development Fund (RIDF) established with NABARD. The
concerned banks will be called upon by NABARD, on receiving demands from various State
Governments, to contribute to RIDF.
1.2 The corpus of a particular tranche of RIDF is decided by Government of India every year.
Fifty per cent of the corpus shall be allocated among the domestic commercial banks having
shortfall in lending to priority sector target of 40 per cent of ANBC or credit equivalent
amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty per
cent of the corpus shall be allocated among the banks having shortfall in lending to
agriculture target of 18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet
Exposure, whichever is higher, on a pro-rata basis. The amount of contribution by banks to a
particular tranche of RIDF will be decided in the beginning of the financial year.
1.3 The interest rates on banks contribution to RIDF shall be fixed by Reserve Bank of India
from time to time.
1.4 Details regarding operationalisation of the RIDF such as the amounts to be deposited by
banks, interest rates on deposits, period of deposits etc., will be communicated to the

concerned banks separately by August of each year to enable them to plan their deployment
of funds.
2. Foreign Banks Deposit by Foreign Banks with SIDBI
2.1 The foreign banks having shortfall in lending to stipulated priority sector target/subtargets will be required to contribute to Small Enterprises Development Fund (SEDF) to be
set up by Small Industries Development Bank of India (SIDBI).
2.2 The corpus of SEDF shall be decided by Reserve Bank of India on a year to year basis.
The tenor of the deposits shall be for a period of three years or as decided by Reserve Bank
from time to time. Fifty per cent of the corpus shall be contributed by foreign banks having
shortfall in lending to priority sector target of 32 per cent of ANBC or credit equivalent
amount of Off- Balance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty
per cent of the corpus shall be contributed by foreign banks having aggregate shortfall in
lending to SSI sector and export sector of 10 per cent and 12 per cent respectively, of ANBC
or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a prorata basis.
2.3 The concerned foreign banks will be called upon by SIDBI, as and when required by
them, to contribute to SEDF, after giving one months notice.
2.4 The interest rates on foreign banks contribution to SEDF shall be fixed by the Reserve
Bank of India from time to time.
COMMON GUIDELINES FOR PRIORITY SECTOR ADVANCES
1 Banks should follow the following common guidelines prescribed by the Reserve Bank for
all categories of advances under the priority sector.
2 PROCESSING OF APPLICATIONS
2.1 Completion of Application Forms
In case of Government sponsored schemes such as SGSY, the concerned project authorities
like DRDAs, DICs, etc. should arrange for completion of application forms received from
borrowers. In other areas, the bank staff should help the borrowers for this purpose.
2.2 Issue of Acknowledgement of Loan Applications
Banks should give acknowledgement for loan applications received from weaker sections.
Towards this purpose, it may be ensured that all loan application forms have perforated
portion for acknowledgement to be completed and issued by the receiving branch. Each
branch may affix on the main application form as well as the corresponding portion for
acknowledgement, a running serial number. While using the existing stock of application
forms which do not have a perforated portion for acknowledgement is separately given, care
should be taken to ensure that the serial number given on the acknowledgement is also

recorded on the main application. The loan applications should have a check list of
documents required for guidance of the prospective borrowers.
2.3 Disposal of Applications
(i) All loan applications up to a credit limit of Rs. 25,000/- should be disposed of within a
fortnight and those for over Rs. 25,000/-, within 4 weeks.
(ii) All loan applications for SSI up to a credit limit of Rs. 25,000/- should be disposed of
within 2 weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are
complete in all respects and are accompanied by a 'check list'.
2.4 Rejection of Proposals
Branch Managers may reject applications (except in respect of SC/ST) provided the cases of
rejection are verified subsequently by the Divisional/Regional Managers. In the case of
proposals from SC/ST, rejection should be at a level higher than that of Branch Manager.
2.5 Register of Rejected Applications
A register should be maintained at the branch, wherein the date of receipt,
sanction/rejection/disbursement with reasons therefore, etc., should be recorded. The register
should be made available to all inspecting agencies.
3 MODE OF DISBURSEMENT OF LOAN
With a view to providing farmers wider choice as also eliminating undesirable practices,
banks may disburse all loans for agricultural purposes in cash which will facilitate dealer
choice to borrowers and foster an environment of trust. However, banks may continue the
practice of obtaining receipts from borrowers.

4 REPAYMENT SCHEDULE
4.1 Repayment programme should be fixed taking into account the sustenance requirements,
surplus generating capacity, the break-even point, the life of the asset, etc., and not in an "ad
hoc" manner. In respect of composite loans, repayment schedule may be fixed for term loan
component only.
4.2 As the repaying capacity of the people affected by natural calamities gets severely
impaired due to the damage to the economic pursuits and loss of economic assets, the benefits

such as restructuring of existing loans, etc. as envisaged under our circular

RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated August 9, 2006 may be extended to the
affected borrowers.
5 RATES OF INTEREST
5.1 The rates of interest on various categories of priority sector advances will be as per RBI
directives issued from time to time.
5.2 (a) In respect of direct agricultural advances, banks should not compound the interest in
the case of current dues, i.e. crop loans and instalments not fallen due in respect of term
loans, as the agriculturists do not have any regular source of income other than sale proceeds
of their crops.
(b) When crop loans or instalments under term loans become overdue, banks can add interest
to the principal.
(c) Where the default is due to genuine reasons banks should extend the period of loan or
reschedule the instalments under term loan. Once such a relief has been extended, the
overdues become current dues and banks should not compound interest.
(d) Banks should charge interest on agricultural advances in respect of long duration crops, at
annual rests instead of quarterly or longer rests, and could compound the interest, if the
loan/instalment becomes overdue.
6 PENAL INTERESTS
6.1.1 The issue of charging penal interests that should be levied for reasons such as default in
repayment, non-submission of financial statements, etc. has been left to the Board of each
bank. Banks have been advised to formulate policy for charging such penal interest with the
approval of their Boards, to be governed by well accepted principles of transparency, fairness,
incentive to service the debt and due regard to difficulties of customers.
6.1.2 No penal interest should be charged by banks for loans under priority sector up to Rs
25,000 as hitherto. However, banks will be free to levy penal interest for loans exceeding Rs
25,000, in terms of the above guidelines.

7. SERVICE CHARGES / INSPECTION CHARGES

7.1.1 No service charges/inspection charges should be levied on priority sector loans up to
Rs.25, 000/-.
7.1.2 For loans above Rs. 25,000/- banks will be free to prescribe service charges with the
prior approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000
dated September 7, 1999.
8. INSURANCE AGAINST FIRE AND OTHER RISKS

8.1 Banks may waive insurance of assets financed by bank credit in the following cases:
No. Category Type of Risk Type of Assets
(a) All categories of priority sector advances up to and inclusive of Rs. 10,000/- Fire & other
risks Equipment and current assets Advances to SSI sector up to and inclusive of Rs. 25,000/by way of Composite loans to artisans, village and cottage industries Fire Equipment and current
assets
All term loans Fire Equipment
Working capital where these are against non-hazardous goods Fire Current Assets
8.2 Where, however, insurance of vehicle or machinery or other equipment/assets is
compulsory under the provisions of any law or where such a requirement is stipulated in the
refinance
scheme of any refinancing agency or as part of a Government-sponsored programmes such as
SGSY, insurance should not be waived even if the relative credit facility does not exceed Rs.
10,000/- or Rs. 25,000/-, as the case may be.
9. PHOTOGRAPHS OF BORROWERS
While there is no objection to taking photographs of the borrowers for purposes of
identification, banks themselves should make arrangements for the photographs and also bear
the cost of photographs of borrowers falling in the category of Weaker Sections. It should
also be ensured that the procedure does not involve any delay in loan disbursement.
10 DISCRETIONARY POWERS
All Branch Managers of banks should be vested with discretionary powers to sanction
proposals from weaker sections without reference to any higher authority. If there are
difficulties in extending such discretionary powers to all the Branch Managers, such powers
should exist at least at the district level and arrangements be ensured that credit proposals on
weaker sections are cleared promptly.
11 MACHINERY TO LOOK INTO COMPLAINTS
There should be machinery at the regional offices to entertain complaints from the borrowers
if the branches do not follow these guidelines, and to verify periodically that these guidelines
are scrupulously implemented by the branches.
12 AMENDMENTS
These guidelines are subject to any instructions that may be issued by the RBI from time to
time.

History of Priority sector lending in India

Since 1950s the Government of India have appointed a number of Committees to look into
the financial needs of the different sectors of the economy and to assist the government and
the Reserve Bank of India in credit among different sectors and to determine the relevant
priorities.
The All India Rural Credit Review Committee (RBI, 1986), the study group of the National
Credit Council (RBI, 1968-69), the Banking Commission (1972) and the Agricultural Credit
Review Committee (001, 1986), in one or the other way have emphasised the role of
commercial banks in providing credit to the priority sectors, as the co-operatives which are
providing such assistance were not in a position to meet the needs of these sectors adequately.
At the end of July 1967, the Reserve Bank of India urged the commercial banks to enlarge
their assistance to priority sectors. Also a concessional rate of 4.5 per cent interest was
charged on borrowings of commercial banks from the Reserve Bank of India equivalent to
priority sector lending. So emphasis has been laid on the banks moving away from securityoriented lending to purposive, productive and incremental income-oriented lending.
M. Narasirnham Committee (1992) suggested that the system of directed credit programme
should be gradually phased out and that the credit programme should cover a redefined
priority sector, consisting of small and marginal farmers, tiny sector of industry, small
business and transport operators, village and cottage industries, rural artisans and other
weaker sections.
The committee proposed that the credit target for this redefined priority sector henceforth be
fixed at 10 per cent of aggregate bank credit, which the Committee observed, would be
broadly in line with the credit flows to these sectors at present. With regard to the large and
medium farmers and Small Industries now enjoying the benefit of concessional credit and to
whom the direction would no longer apply, a preferential refinance from the Reserve Bank of
India has been suggested.
The Committee believes that the distributive justice should be attained by fiscal instruments
rather than the credit system so directed credit programme should not become a regular
feature but can be made use of in extra-ordinary situations to correct imperfections in the
credit market.
According to the Committee, the growth of agriculture and small scale industries in India has
now reached a point where the productive requirements of these sectors could be met by
banks on the basis of their commercial judgements. Two decades of such preferred credit is a
long enough period to evaluate the impact of priority credit, the necessity of its continuation,
particularly in respect of those who are able to stand on their own feet. In the opinion of the
committee, the directed credit should be limited only to the really needy such as small and
marginal fanners and tiny sector industries (1992: 43-4).
The Committee set up by the Reserve Bank of India (Chairman, P.R Nayak, 1991) to look
into the various aspects of credit requirements of the small scale industries sector submitted

its report in September 1992. The terms of reference of the Committee included examination
of:
(a) The adequacy of institutional credit and its timely flow to the small scale industries,
village and tiny industries,
(b) The need for modifications/relaxations m the norms prescribed by the TandonlChore
Committees in so far as the SSI is concerned.
The Committee has suggested that small unregistered units with credit limits of not more than
Rupees One Lakh should have the first claim on the priority sector credit to small scale
industries and the new priority sector credit dispensation (R.B.I., 1991: 118).

Chapter III
Introduction to Syndicate Bank
Syndicate Bank was established in 1925 in Udupi, the abode of Lord Krishna in coastal
Karnataka with a capital of Rs.8000/- by three visionaries - Sri Upendra Ananth Pai, a
businessman, Sri Vaman Kudva, an engineer and Dr.T M A Pai, a physician - who shared a
strong commitment to social welfare. Their objective was primarily to extend financial
assistance to the local weavers who were crippled by a crisis in the handloom industry
through mobilising small savings from the community. The bank collected as low as 2 annas
daily at the doorsteps of the depositors through its Agents under its Pigmy Deposit Scheme
started in 1928. This scheme is the Bank's brand equity today and the Bank collects around
Rs. 2 crore per day under the scheme.
The progress of Syndicate Bank has been synonymous with the phase of progressive banking
in India. Spanning over 80 years of pioneering expertise, the Bank has created for itself a
solid customer base comprising customers of two or three generations. Being firmly rooted in
rural India and understanding the grassroot realities, the Bank's perception had vision of
future India. It has been propagating innovations in Banking and also has been receptive to
new ideas, without however getting uprooted from its distinctive socio-economic and cultural
ethos. Its philosophy of growth by mutual sustenance of both the Bank and the people has
paid rich dividends. The Bank has been operating as a catalyst of development across the
country with particular reference to the common man at the individual level and in rural/semi
urban centres at the area level.
The Bank is well equipped to meet the challenges of the 21st century in the areas of
information technology, knowledge and competition. A comprehensive IT plan is being put in
place and the skills and knowledge of the Bank's personnel are being upgraded through a
variety of training programmes to promote customer delight in every sphere of its activity.
The Bank has launched an ambitious technology plan called Centralised Banking Solution
(CBS) whereby 500 of our strategic branches with their ATMs are being networked
nationwide over a 4 year period. The Bank is pioneer among Public Sector Banks on
launching CBS. Our bank has already achieved CBS implementation among all its branches.
Thus, the bank is 100% CBS enabled.
Business:
The bank is engaged in following business:
Personal Banking- Under this segment it offers banking products and services for age groups
starting from children to senior citizen. It offers saving accounts, deposit scheme, current
accounts, personal loans, housing loans, cash etc.

Agricultural Banking- With an objective to cater agricultural population, it has introduce

many products and services to cater their requirements. It offers various kinds of loans such
as tractor loans, loans to repay debts and many more other services.
Corporates banking- It caters services from large corporates to small and medium enterprises.
The bank provides cash management services, loans, RTGS, etc.
NRI Banking-It also caters its products and services to NRI clients such as remittances
services, western union money transfer, loans against term deposit, currency exchange etc.
Products and Services:
1) ASBA:Syndicate Bank introduced a new hassle free solution for investment in Public
Issues and Rights Issue called Application Supported by Blocked Amount (Synd ASBA) as
per the SEBI guidelines. Unlike the current system of applying in IPOs using cheques,
where the funds are blocked unproductively as application money till the finalisation of the
allotment/bid. Under ASBA the funds will continue to earn interest during the application
processing period as application money remains blocked in account till allotment. Account
will be debited only successful allotment. This facility is also available for rights issue and
new fund offers (NFO) of mutual funds.
2) Deposits:
Operative Deposit Products

Savings Bank Account

Current Account

SyndSamanya Savings Bank Account

Special products in Syndicat-e-banking

Premium Savings Account

Multi-City Current Account (3 variants)

Multi-City SB Account

Term Deposit Products

Fixed Deposit

SyndTaxShield Deposit

Vikas Cash Certificate

Syndicate Suvidha Deposit

Social Security Deposit

Senior Citizens Security Deposit

Recurring Deposit

Pigmy 1928 Deposit

Pigmy Plus 2007 Deposit

Synd Corporate Suvidha Deposit Scheme

3) Loans:
Retail Loan Products:

SyndSaral

SyndSenior

SyndRent

SyndVahan

SyndSwarnaExpress

SyndPigmy

SyndNivas

SyndNivas Plus

SyndVidya

Central Scheme to provide Interest Subsidy for the period of moratorium on

Educational Loans taken by students from economically weaker sections from
scheduled banks under the Model Education Loan Scheme of IBA.

Solar Water Heating Systems

4) Other Services:

Real Time Gross Settlement (RTGS System) - for instant transfer of funds
Real Time Gross Settlement (RTGS) is a technology based initiative for improvement of
Payment & Settlement System linked to the funds management. RTGS is a gross settlement
in which both processing and final settlement of funds transfer instructions take place
continuously i.e. in real time and transfers are settled individually against the present clearing
system. RTGS settles payments on a transaction basis instead of on net settlement basis
adopted presently at clearing houses. The funds transfer through RTGS is instant, final and
irrevocable.lectronic Funds Transfer (EFT) System
Electronic Funds Transfer (EFT) System
The Electronic Funds Transfer (EFT) System was introduced by the Reserve Bank of India in
1995 for quick movement of funds between different Banks for the Bank Customers. The
scheme is available for transfer of funds across the Banks. At present Reserve Bank of India
manages the Clearing Houses in 15 centres namely Ahmedabad, Bangalore, Bhubaneshwar,
Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New
Delhi, Thiruvananthapuram and Patna.
The EFT system works on the principle of 'NEXT DAY AVAILABILITY OF FUNDS' i.e. the
beneficiary gets the funds credited to his account on the very next day, within 24 hours. This
is a big boon to customer service since under the paper - based cheque payment system, a
customer depositing an outstation cheque for collection receives credit to his account after 12 weeks time, depending upon the destination.
It is hoped that the enhancement in the limit of amount of individual transactions under the
EFT Scheme would be beneficial for the banks' customers and will go a long way in
improving customer service in the banks.
Salient Features:

Fast remittance facility - Credit is afforded within 24 hours.

Any number of remittances per day is permitted.

Amount is directly credited to beneficiary account.

Scope for frauds involving processing of paper instruments is absent.

Built in security.
National Electronic Funds Transfer (NEFT) System
National Electronic Funds Transfer is a nation wide transfer of funds from any bank branch to
any other bank branch. The beneficiary gets the credit on the same day or the next day

depending on the time of settlement. The essential information that the remitting customer
has to furnish is:

Beneficiary details such as beneficiary name and account number.

Name and IFSC of the beneficiary bank branch.

Remitters mobile number or e-mail address.

The bank also offers NRI Services, E Banking Services.

Below graph shows the growth of syndicate bank.

Figures in Lakhs
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0

Figures in Lakhs

Chapter 1V
Priority Sector Lending in Syndicate Bank
1) Priority for women Towards greater empowerment
Women have occupied a pride of place in employment as well as credit dispensation
of the Bank.
Bank pioneered the concept of All Women Branch. The first such branch at
Sheshadripuram in Bangalore was opened as early as 1962.
19% of the credit outstanding under Govt. Sponsored Anti Poverty Schemes
benefitted women.
Out of 92,751 accounts outstanding under advances to Self Help Groups with a
balance of `1382 crore, 72,253 are of women Self Help Groups with an outstanding
credit assistance of `1108 crore. Women groups constitute 78 % in terms of number
and 80% in terms of amount.
Out of total 3,21,265 unemployed youths trained for taking up self-employment
ventures at Rural Development and Self Employment Training Institutes
(RUDSETIs) sponsored by the Bank, 1,36,039 were women candidates constituting
42%.
Out of total 96,134 unemployed youths trained for taking up self-employment
ventures at Syndicate Institute of Rural Entrepreneurship Development
(SIRD) sponsored by the Bank, 59,764 were women candidates constituting
62%.
2) Pioneer in Rural Development
1925 Established in a rural milieu with an objective to financially assist handloom weavers
some of whom joined as shareholders also.
1964 Pioneered into agricultural financing when the Banking system considered it risky and
unconventional.
1966 Syndicate Agriculture Foundation - a voluntary organisation of farmers was promoted
to disseminate scientific farming techniques.
1967 Agri Card an operative credit facility for farmers, a precursor to Kisan Credit Card
launched.
1973 Bio Gas Plant finance scheme introduced in collaboration with Khadi and Village
Industries Commission to popularise non conventional source of energy. Farm Clinics for
rural development established.
1974 Syndicate Farmers' Service Society was organised by the Bank in Hiriadka in South
Kanara based on the recommendations of the National Commission on Agriculture.

1975 Sponsored the First Regional Rural Bank of the country - Prathama Bank opened on
02.10.1975 at Moradabad in Uttar Pradesh. 10 such RRBs sponsored by the Bank so far are
all profit making and act as trend setters in energising the rural economy. After
amalgamations, there are now 5 Grameena Banks in 5 states, covering 31 districts
1982 Jointly sponsored RUDSETI (Rural Development and Self Employment Training
Institute) at Ujire in Dakshina Kannada (Karnataka). 26 such Institutes in 16 States today are
providing free entrepreneurship training to unemployed youth. Intensive Rural Development
Branches established.
1989 Service Area Approach to Rural Lending implemented by the Bank bring about allround development of the villages adopted.
1998 Kisan Credit Card launched extending a single operative credit limit for crop
production, other working capital and consumption needs of farmers.
2000 Syndicate Rural Development Trust (SRDT) was established for pursuing rural
development initiatives with initial corpus of `50 lacs to mark the Platinum Jubilee of the
Bank. SRDT has opened 16 SyndRural Self Employment Training Institutes (SyndRSETI) in
5 states and the UT of Lakshadweep so far to train and provide escort service to the
unemployed youth for self employment.
Scheme for financing Solar Water Heating system launched to encourage the use of
renewable energy.
2001 Syndicate Laghu Udyami Credit Card providing hassle free credit facility to address the
financial requirements of small and medium entrepreneurs, small business/retail trade units,
artisans, tiny sector, small scale industrial units, professional and self employed persons
launched as Syndicate Retail credit Card and renamed in 2002.
2003 Synd Swarozgar Credit Card (SSCC): A new product for financing Small Artisans,
Handloom weavers, Fisherman, Service sector, Self employed persons, Rickshaw owners and
other Micro entrepreneurs to meet working capital or block capital or both and also
consumption needs has been launched
2004 Syndicate Kisan Samrudhi Credit Card (SKSCC): A new product launched for meeting
production and investment credit needs of farmers for agriculture & allied activities and also
to meet their consumption requirements.
2005 Scheme for financing Commercial Horticulture Projects of the National Horticulture
Board has been launched to encourage farmers to go in for diversification in agriculture
essential for increasing their income level.
Scheme for financing SC/STs for rainwater harvesting has been launched.
2006 SyndJaikisan: A hassle free composite multipurpose long-term credit facility to meet the
investments related to farm development, contingencies, consumption and pressing social
obligation expenses of farmer was launched. Syndicate General Credit Card launched for
providing an easy and simple operative credit facility to rural entrepreneurs. Scheme for
financing tenant farmers: Two separate schemes launched to provide need based credit to
tenant farmers through Joint Liability Group (JLG) approach as well as individual approach.

2007 SyndSmallCredit: An innovative scheme with doorstep banking facility to provide

need-based credit to entrepreneurs of small means. The product part of financial inclusion, by
bringing all eligible entrepreneurs into bank's fold.
Financial Inclusion: Launched a campaign to achieve 100% financial inclusion. A booklet
containing comprehensive guidelines to augment the process of total financial inclusion
released. Water Conservation initiatives: To promote water conservation and management
practices among the villagers, Bank started initiatives for clearing and cleaning of village
ponds in the selected service area villages.
2008 SyndKisan Sathi: A debt swap facility to extend term loan to free the farmers, tenant
cultivators, share croppers and oral lessees from the clutches of money lenders introduced.
SyndShakthi Smart Card: A pilot project of biometric enabled multifunctional smart card
solution for transacting at diverse usage points was launched under the brand name
SyndShakthi for direct transfer of benefits by Govt. under NREGP, Social Security Pension
Scheme. A step put forward towards financial inclusion through branchless banking and door
step financial services for empowering rural population.
2010 Homestead Farming: A scheme on Homestead Farming introduced to support the
farmers having tiny land surrounding the dwelling unit so that they are able to take up
multiple cropping.
3) Social Lending Concern for the underprivileged
Social lending is the Banks strong point since inception.

Priority Sector Advances as at March 2013 were `46437 crore accounting for
44.62% of the Banks adjusted net credit as against the mandatory level of 40 %.
25.22 Lakh borrowers assisted under priority sector.
Bank has adopted 13,736 Service Area / Operational Area Villages for extending
timely credit to meet all genuine credit needs. Credit to the extent of `16178 crore
was disbursed to priority sector activities under Annual Action Plan in these
villages. The agricultural credit disbursed during the financial year 2012-13 was
`9525 crore.
The Bank has taken various measures through Regional Offices and Lead District
Offices for publicizing among minority community about various credit products
available for their benefits. The advances to minorities as at 31.03.2013 were `7601
crore.
Advances to Weaker Section were `11918 crore constituting 11.45 % of ANBC as
against the mandatory target of 10 %.
SC/ST Advances under priority sector are `2946 crore. The total SC/ST advances
of the bank are `3712 crore covering 4.30 Lakh customers.
26638 new SHGs were credit linked with credit support of `709 crore during 201213. 92751 loan accounts of SHGs amounting to `1382 crore were outstanding as at
31.03.2013.

 Agricultural Credit stood at `20156 crore constituting 19.37% of ANBC. 16.32

Lakh farmers were assisted under agriculture out of which, 52.07 % were Small and
Marginal Farmers.
The disbursement under Special Plan for Agricultural Credit during the year 201213 amounted to `10773 crore. The disbursement under investment credit was `1206
crore during the year 2012-13.
1,27,220 new farmers were brought into Banks fold through 1691 rural and semiurban branches up to March 2013 registering an average of 75 New farmers per rural
& semi urban branch.
Bank has so far issued 14.53 Lakh Kisan Credit Cards to the farmers with credit
limits of over `9352 crore of which, 6.97 Lakh cards with credit limits of `5127 crore
were outstanding as on 31.03.2013.
The Bank has entered into a tie-up with Sugar Mills; Tobacco Board for extending
need based credit to farmers.
4) Syndicate Bank sets aside over Rs 23,800 crore for core sector

MUMBAI: State-Run Syndicate Bank is targeting a 22% jump in its priority sector advances
and a 30% increase in its agri-loans this fiscal.
Besides, the bank aims to achieve 100% financial inclusion in the same time-span, a senior
official said. "Priority sector lending is expected to touch Rs 23,800 crore in FY08, while our
agricultural lending has been projected at Rs 10,800-crore," said Syndicate Bank general
manager Subhash Malhotra.
The bank's priority sector lending in FY07 stood at Rs 19,512 crore, while its farm lending
stood at Rs 8,280 crore. As part of its strategy to achieve financial inclusion, the Karnatakabased bank also plans to open 16 lakh no-frill accounts under the recently launched
Syndsamanya Scheme, Mr Malhotra said.
Syndicate Bank, which has nearly 56% of its branches in rural and semi-urban areas, also
plans to implement the business correspondent model shortly with the aim of including the
yet-to-be-banked low-income groups.
"The bank has a customer base of 19 million which is benefiting from a variety of schemes
such as Syndicate General Credit Cards (SGCC) and Syndsamanya Scheme. A few more
plans are also on the cards. These will be launched next year," Mr Malhotra said.
Last year, Syndicate Bank had launched the SGCC project to avail of instant credits up to Rs
25,000 for low-income groups in rural and semi-urban areas. "That apart, we aim to open
around 70,000 no-frills accounts per month, with zero balance and ATM facility," Mr
Malhotra said.

The bank has completed the financial inclusion in 14 lead districts across the country, while
11 more such districts will be covered in the current fiscal, Mr Malhotra said.
The bank opened nearly 16,51,800 Syndsamanya accounts under the financial inclusion
category, since July 2006 and around 3,60,900 accounts in the current fiscal, he said.
With a view to provide banking services to urban housemaids, the bank also plans to open
around 6,000 accounts, exclusively for the unbanked urban-housemaids in this fiscal.
Despite being in semi-urban localities, these housemaids were found largely unorganised and
unbanked," Mr Malhotra said, adding, "The bank has also simplified the KYC norms for such
categories."
5) Syndicate Bank to finance rice mills in coastal districts
Loan at 13.25 per cent interest rate for entrepreneurs with good financial
credentials
Syndicate Bank, with a high percentage of priority sector lending, proposes to lend liberally
in the micro, small and medium enterprise sector also with a focus on rice mills in their
Vijayawada region of operations extending from Nalgonda to Srikakulam district on the
coast.
The bank proposes to provide loan at 13.25 per cent interest rate for those entrepreneurs with
good financial credentials and going up to 15 per cent for others, with need-based per unit
loan quantum going up Rs.10 crore. Poultry and fishery were the other areas where the
lending was high in Vijayawada Region.
Syndicate Bank Executive Director M. Anjaneya Prasad, who assumed office three months
ago, toured the district and told reporters on Saturday that against an RBI norm of 40 per cent
priority sector lending, the bank had provisioned 46 per cent with Vijayawada Region
recording Rs.700 crore of which agriculture took the highest share.
Expressing the desire to expand the bank operations in Andhra Pradesh, he said that 10 more
branches would be opened in the region under Financial Inclusion norms and commercial
branches at Vijayawada, Kakinada and Visakhapatnam. The bank has 2,600 branches and
license for 170 new till 2012 March.
Describing Rainbow Banking as one of its recent initiatives to provide seven different
features with one account, the bank ED said that Synd. E-Trade was the other product that
was useful for people from metros to villages to trade in share market.
Explaining the health insurance scheme, Assistant General Manager Atchutananda Das, said
that medical coverage for entire family of four can be had from Rs.1 lakh to Rs.5 lakh

without medical check-up. Cashless treatment can be had at a large network of approved
hospitals and the annual premium worked out to Rs.2,000 per Rs.1lakh of coverage.
The coverage with United India Insurance Company as partner can be extended up to 80
years of age and accident insurance policy was built in the medical insurance, he explained.
A back office would very soon be started in all branches for opening bank accounts and
model ATMs developed in Vijayawada region too adding to the existing 37, said Deputy
General Manager P. Raja Reddy.

Chapter V
Conclusion
It is observed that Syndicate Bank has always superseded the mandatory priority sector
targets throughout all these five years studied by us. The said bank was not required to
subscribe to the bonds of NABARD on account of deficit in priority sector lending. The
bank has really taken efforts to see that the definition of priority sector lending is fulfilled
not only in letters but in spirit also.