Vijay Zanzrukiya - 80118190029

ADVANCES TO PRIORITY SECTOR

Advances to Priority Sector refers to lending to those sectors of the economy which may not get timely
and adequate credit in the absence of this special dispensation. This is an important role given by the
(RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like
agriculture and allied activities, micro and small enterprises, poor people for housing, students for
education and other low income groups and weaker sections. This is essentially meant for an all-round
development of the economy as opposed to focusing only on the financial sector.

As far as ad-vances to the priority sectors are concerned, the progress has been slow. This is partly
attributable to the fact that the bank officials from top to bot-tom could not accept nationalisation
gracefully, viz., diversion of a certain portion of resources to the top priority and hitherto neglected
sectors. This is also attributable to the poor and unsatisfactory loan recovery rates from the agricultural
and small sectors.

An Internal Working Group (IWG) was set up in July 2014 to revisit the existing priority sector lending
guidelines. Where the Target was defined for Total Priority sector was 40 per cent of Adjusted Net Bank
Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

The first half of 2018-19 saw public sector banks

(PSBs) and private banks meeting the overall
priority sector lending target. However, shortfalls
were observed in certain sectors and sub-sectors
in the case of both PSBs (micro-enterprises) and
private banks (total agriculture, small and marginal
farmers; non-corporate individual farmers; and
weaker sections).

As banks struggle to meet PSL targets, priority

sector lending certificates (PSLCs), which allows
sale of PSL obligation, have gained traction.
According to central bank data, PSLCs trading
volume increased by 270 per cent to Rs 1.8 trillion in 2017-18, up from Rs 49,800 crores in the previous
year. In H1 of 2018-19, trading volume more than doubled from the level a year ago.