A Study for Identifying Reasons for Low Preference of Priority Sector Lending of Indian Commercial Banks

A Study for Identifying Reasons for Low Preference of Priority Sector Lending of Indian Commercial Banks

Neha Goyal (YMCA University, Faridabad, India), Rachna Agrawal (YMCA University, Faridabad, India) and Renu Aggarwal (YMCA University, Faridabad, India)
Copyright: © 2016 |Pages: 14
DOI: 10.4018/IJSEM.2016040103


In Indian Economy Priority Sector Lending implies giving money related help to those sectors of economy which are not getting sufficient institutional financial help. The idea of PSL has been begun since 1970s in India. It has also been observed that bank officials not prefer to give loans under PSL and customers are also facing problems while taking loan under PSL. The study found the reasons of low inclination practices of PSL among bank officials and customers. For this a review of 112 bank officials and 400 clients of various categories of PSL have been done through structured questionnaire. Data has been analyzed with the help of exploratory factor analysis and one way Anova.
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2. Literature Review

Bhattacharya (1995) revealed that PSL of private and foreign banks has negative effect on the performance of these banks.

Shajahan (1998) revealed in his study that small and marginal farmers are neglected.

Uma (2001) found an appropriate increase in income and profitability of beneficiary units of small scale units than non-beneficiary units.

Sathye Milinid (2002) found that banks efficiency in India is lower than in France and UK; and the mean efficiency score of Indian banks is lower than international bank efficiency score. The main reason of this lower efficiency is Priority sector lending.

Dasgupta Rajaram (2002) done a comparative study of PSL before reform period (1991) and post reform period. The author found that earlier to 1991 agriculture loans were used for small and marginal farmers, now it is being shifted to big and medium farmers. Earlier to 1991 there is no concept of indirect agriculture advances. After 1991 SSI limits has been increased, but it can be understood due to inflationary pressure. Before 1991 PSL is targeted to neglected sector of economy, but now in agriculture sector definition is changed.

Attaullah and Cockerill (2004) found that Major reason of low efficiency of bank is Non Performing Assets. NPA occurs due to political pressure, pressure on bank manager to give loans to those projects which are not economical viable, legal bindings on banks to directed lending, bad recovery system and economic conditions of the countries.

Burgess, Pande, and Wong (2005) found in their study that directs lending program help in reducing poverty.

The Reserve Bank of India had draft a technical paper on PSL, 2005. In the paper it has been found that initially commercial banks are focusing on industries and export segment of PSL not on Agriculture sector.

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