Priority Sector Lending
PRIORITY SECTOR LENDING
Some areas or fields in a country depending on its economic condition or government interest are prioritized and are called priority sectors i.e. industry, agriculture. These may further be sub divided. Banks are directed by the state bank of the country that loans must be given on reduced interest rates with discounts to promote these fields. Such lending is called priority sector lending.
The different segments of the priority sector are as follows:
1. Agriculture
2. Small Scale Industries
3. Small Road and Water Transport Operators
4. Retail Trade
5. Small Business
6. Professional and Self-employed persons
7. Education
8. Housing Finance
Priority Sector Lending BY RBI
The Government of India through the instrument of Reserve Bank of India (RBI) mandates certain type of lending on the Banks operating in India irrespective of their origin. RBI sets targets in terms of percentage (of total money lent by the Banks) to be lent to certain sectors, which in RBI's perception would not have had access to organized lending market or could not afford to pay the interest at the commercial rate. This type of lending is called Priority Sector Lending. Financing of Small Scale Industry, Small business, Agricultural Activities and Export activities fall under this category. This is also called directed credit in Indian Banking system.
Financing Priority Sector in the economy is not strictly on commercial basis as not only the general approach is liberal but also the rate of interest charged on such loans is less. Export finance is, in fact, available at a discount of 20% or more on the normal rate of interest to Indian corporate. Part of the cost of this concession is borne by RBI by means of refinancing such loans at concessional rate. Indian Banks, therefore, contribute towards economic development of the country by subsidizing the business activities undertaken by entrepreneurs in the areas which are
Some areas or fields in a country depending on its economic condition or government interest are prioritized and are called priority sectors i.e. industry, agriculture. These may further be sub divided. Banks are directed by the state bank of the country that loans must be given on reduced interest rates with discounts to promote these fields. Such lending is called priority sector lending.
The different segments of the priority sector are as follows:
1. Agriculture
2. Small Scale Industries
3. Small Road and Water Transport Operators
4. Retail Trade
5. Small Business
6. Professional and Self-employed persons
7. Education
8. Housing Finance
Priority Sector Lending BY RBI
The Government of India through the instrument of Reserve Bank of India (RBI) mandates certain type of lending on the Banks operating in India irrespective of their origin. RBI sets targets in terms of percentage (of total money lent by the Banks) to be lent to certain sectors, which in RBI's perception would not have had access to organized lending market or could not afford to pay the interest at the commercial rate. This type of lending is called Priority Sector Lending. Financing of Small Scale Industry, Small business, Agricultural Activities and Export activities fall under this category. This is also called directed credit in Indian Banking system.
Financing Priority Sector in the economy is not strictly on commercial basis as not only the general approach is liberal but also the rate of interest charged on such loans is less. Export finance is, in fact, available at a discount of 20% or more on the normal rate of interest to Indian corporate. Part of the cost of this concession is borne by RBI by means of refinancing such loans at concessional rate. Indian Banks, therefore, contribute towards economic development of the country by subsidizing the business activities undertaken by entrepreneurs in the areas which are