98
Banking Sector Reforms (Narasimham Committee – II, April 1998) noted the
reasons why the Government could not accept the earlier recommendation
of reducing the priority sector target from 40% to 10%. According to the
assessment made by RBI, the above redefined “priority sectors” would itself
account for a little less than 30% of net bank credit. The Committee, therefore,
conceded that though there were high NPAs in priority sector advances, any
sudden reduction of the target could have the danger of a disruption in the flow
of credit to the deprived sectors.
In the continuance of the 40% target, however, the authorities have been
overtly influenced by the pursuit of reform measures, and hence they have
sought to nullify, through back door, the social and distributional objectives
of the priority sector target by including vast numbers of loan categories
which, by no stretch of imagination, could be conceived as belonging to the
weaker section borrowings that would not pass the test of bankability. Thus,
the definition has been expanded to cover bank finance to agriculture through
NBFCs and finance for distribution of inputs for activities allied to agriculture,
that is, agri-clinics and agri-businesses, up to
`
15 lakh (raised from
`
5 lakh).
Again, in agriculture, apart from finance to individual farmers including SHGs
and other farmer groups, finance rendered to corporates, partnership firms
and institutions up to an aggregate amount of
`
one crore for major agricultural
purposes including pre-harvest and post-harvest activities, and one-third of
loans in excess of
`
one crore in the aggregate per borrower for all agriculture
and allied activities.
Such definitional liberalisation has been equally liberal in non-farm
sector targets. The ceiling of
`
2 lakh has been raised to
`
5 lakh in respect of
professionals and self-employed persons. For medical practitioners, a higher
ceiling of
`
10 lakh for rural and semi-urban areas and a further advance of
`
10
lakh for the purchase of a one motor vehicle have been reckoned under priority
sector lending. Also, investments in special bonds of specified institutions and
investment in venture capital are eligible for inclusion under priority sector
lending. The number of vehicles permitted for transport operators has been
increased from two to six and finally to ten from October 1997. New housing
loans up to
`
5 lakh for individuals and loans to software industry even up to
`
1 crore have been likewise included under this category.
Therefore, any systematic evaluation of banks’ performance in regard to
‘priority sector’ advances is not possible because of these frequent definitional
changes. A more damaging consequence of these definitional changes has been
in diverting the focus of priority sectors from the truly informal agriculture and
small industry categories to the “others” category; within the priority sectors,
the share of these “others” category has shot up to double its original size of
