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of competitive opportunities thrown up in para banking activities – merchant
banking, housing finance, mutual funds, insurance and others, and above all,
in the notion of universal banking and project finance, all shifting the balance
to an extent in favour of wholesale banking.
As the story has unfolded in the following sections, even as banks have
responded to the above challenges, they have very seriously faltered on their
traditional developmental role particularly in their task of credit delivery for
agriculture and other varied informal sectors. The resultant distortions in
credit distributions, persisted for over a decade after the 1990s, became very
glaring.
In particular, the inadequacy of agricultural credit has remained a live
issue and many committees have examined this issue in the recent period –
R V Gupta Committee (1997); V.S. Vyas Committee - I (July 2001); V.S. Vyas
Committee - II (June 2004); and C. S. Murthy Working Group on Priority
Sector Landing [RBI 2005, September]. Amongst them, the V.S. Vyas Advisory
Committee – II (June 2004), which has acquired a crucial status, examined
comprehensively the various issues relating to bank lendings to agriculture. It
came to the conclusion that both the direct (13.5%) and indirect (4.5%) lending
targets were essential for achieving an annual growth of 4% in agricultural
production. It further reasoned that increased market orientation of the sector
both in its inputs and output, the objectives of an equitable spread of the
4% target growth, the potential for increasing India’s share in world trade in
agricultural commodities, the need for expanded and improved infrastructure
– all of these would translate into higher credit demand. The committee
noticed that as of March 2003, only five out of 27 public sector banks and
two out of 29 private banks had met the target of extending 18% of net bank
credit outstanding to agriculture. This shortfall occurred despite monitoring
credit flow through
special agricultural credit plans
(SACP) initiated since
1994-95 and reinforced further as per the recommendations of the R.V. Gupta
Committee 1997 (which had preferred fixing of targets based on annual flows
rather than outstandings). Since 1995-96, the shortfall in the 18% target had
to be covered as deposit accounts into the Rural Infrastructure Development
Fund (RIDF) established with NABARD.
Again, the C. S. Murthy Internal Working Group of the RBI on Priority
Sector Lending (September 2005) examined the needs of agriculture and
asserted that the rationale for the priority sector prescriptions continued to
exist. It argued that though the share of agriculture in GDP had come down to
less than one-half of what it was three decades ago, the sector has continued
