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Aug 11, 2012, 01.52 PM IST
Priority Lending Rules originated in 1968, along the time when banks were nationalised with the aim of using their funds for national building. Banks were told to lend one third of their funds to sectors that the government determined as priority; largely agri and small scale. By 1985 this proportion rose to 40%.
Why is the issue in the news now? CNBC-TV18's special show Indianomics explains. Because a committee headed by former Union Bank Chairman MV Nair recommended that banks may directly lend 9% to small farmers and 7% to micro industries. The remaining targets the committee recommended be loosely defined to include even lending to warehousing and cold chain as lending to agriculture. The recommendations were however not accepted in toto by RBI. Nothing changed under the new rules except it became more punishing for foreign banks but we will come to that in a bit. Here’s how the current targets look : - Targets for priority sector loans
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