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Banking and Insurance

Notes In pursuance of the same, the Government of India at a meeting of the National Credit Council
held in July 1968 emphasised that commercial banks should increase their involvement in the
financing of priority sector namely agriculture and small scale industries. The description of the
priority sector was later formalised in 1972 on the basis of report submitted by the informal
study group on statistics relating to advances to the priority sectors constituted by the Reserve
Bank in may 1971.

9.1 Priority Sector Lending

The broad guidelines relating to priority sector leading in their current form are discussed
below as basic queries and answers:
1. What are the targets under priority sector lending?

Ans. The targets and sub-targets set under priority sector lending for domestic and foreign
banks operating in India are furnished as below:

Category Domestic Banks Foreign Banks
(both public sector and private sector banks) operating in India
Total priority sector advances 40 per cent of NBC 32 per cent of NBC
Total agricultural advances 18 per cent of NBC No target
SSI advances No target 10 per cent of NBC
Export credit Export credit does not form part of priority 12 per cent of NBC
sector
Advances to weaker sections 10 per cent of NBC No target
DRI advances 1% of previous year’s total advances No target
Note: NBC denotes net bank credit.

2. What constitutes net bank credit?
Ans: The net bank credit should tally with the figure reported in the fortnightly return submitted
under section 42(2) of the Reserve Bank of India Act, 1934. However, outstanding deposits
under the FCNR(B) and NRNR Schemes are excluded from net bank credit for computation
of priority sector lending target/sub-targets.
3. What does the priority sector comprise?

Ans. Broadly, the priority sector comprises the following:
1. Agriculture
2. Small scale industries (including setting up of industrial estates).

3. Small road and water transport operators (owning up to 10 vehicles).
4. Small business (Original cost of equipment used for business not to exceed Rs. 20
lakh).

5. Retail trade (advances to private retail traders up to Rs.10 lakh).
6. Up to Rs. 1 lakh and Rs. 2 lakh for repairing of houses in rural/semi-urban and
urban areas respectively].

7. Consumption loans (under the consumption credit scheme for weaker sections).
8. Micro-credit provided by banks either directly or through any intermediary; loans
to self help groups (SHGs)/Non-Governmental Organisations (NGOs) for onlending
to SHGs.

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