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International Journal of Multidisciplinary Research Vol.1 Issue 1, May 2011, ISSN 2231-5780

PERFORMANCE REVIEW OF COMMERCIAL BANKS IN INDIA WITH SPECIAL REFERENCE TO PRIORITY SECTOR LENDING - A STUDY OF POST REFORMS ERA
DR JASMINDEEP KAUR *; SILONY**; * Lecturer, Commerce Department, Punjabi University, Patiala **Lecturer, Department of Commerce, Patna Womens College, Patna

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ABSTRACT The present paper is related to the role of public sector and private sector banks in priority sector lending. For the purpose of study secondary data has been collected from Statistical Tables Relating to Banks in India, Report on Trend and Progress of Banking in India. The period from 1990-91 to 2007-08 has been chosen for the study. The scope of study covers the data of public sector banks and private sector banks in India. It is found from the study that priority sector advances and agricultural advances of both the types of banks had improved manifold over the study period. But, they were still lacking behind to achieve the targets set for them by RBI in agriculture sector. It was observed that the performance of private sector banks in respect of all the parameters was better than that of public sector banks. It is suggested to increase the attention of both the public and private sector banks on the priority sector of the economy. KEYWORDS: Public sector banks, private sector banks, priority sector, performance.
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______________________________________________________________________________ INTRODUCTION Banking system has a significant place in the nation. A banking institute is indispensable in a modern society. It is comparable to heart of the economic organism pumping in the savings and pumping out the investible funds in diverse channels. It forms the core of the financial system of a country. Although the financial system of India is still characterized by the existence of both the organized and unorganized segments, institutions in the organized financial system have grown significantly and are playing an increasingly important role. The unorganized sector comprises of the moneylenders and indigenous bankers catering to the credit needs of a large number of persons especially in the country side. Organized financial sector has a wide mixture which comprised of commercial banks, co-operative banks and the other institutions. Amongst the institutions in the organized sector, commercial banks are the oldest institutions having a www.zenithresearch.org.in

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wide network of branches, commanding utmost public confidence and having the lions share in total banking system. Commercial bank plays a pivotal role in the economic development of a country. Economic development involves investment in the various sectors of economy. The banks collect saving from the people and moblise saving for investment in industrial projects. They are simple business or commercial concerns which provide various types of services to customers in return for payment in one form or another. They have been in existence in India for the past several decades. Historically, they were started and developed by the industrialists/ businessmen in the metropolitan cities and port towns. Banking was, therefore, concentrated mainly in big cities. Within these big cities also, it was mainly the well placed traders, businessmen and the industrialists who availed of most of the credit facilities. The small common man or the agriculture sector did not receive loan at all. As a result of this, RBI appointed a committee on the Direction of the All-India Rural Credit Survey in 1951. The committee recommended to nationalize the Imperial Bank of India to become State Bank of India. Accordingly, State Bank of India was set up on July 1, 1955. With this, a large number of branches were opened in the unbanked areas. In 1960, eight banks which were the subsidiaries of State Bank of India were also nationalised. This brought one-third of the banking segment under the direct control of the Government. Although the Indian banking system had made considerable progress in the 1950s and the 1960s, but the benefits of this did not flow down to the general public in terms of access to credit. In fact, till 1968 commercial banks were not involved to any significant extent in www.zenithresearch.org.in providing direct finance to agriculture. The Informal Group of Institutional Arrangement for Agriculture Credit suggested in 1964 that commercial banks which through their rural branches were gradually mobilizing more and more resources should deploy these resources for development activities being undertaken in rural areas. All India Rural Credit Review Committee also observed in its report in 1969 that the role played by commercial banks in the past for financing agriculture was negligible. It was against this background that the scheme of social control over banks on December 14, 1967 was introduced. Radical transformation of banks, their organization and lending policies were the main aim of this scheme. But in many banks, people

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who had been controlling the policies of the banks in the past still continued to exercise their influence over them in one way or the other. The study group under the chairmanship of Dr. D.R. Gadgill on Organisational Framework for the Implementation of Social Objectives highlighted the continued existence of credit gaps and revealed that bank advances continued to be earmarked for the big industry and traders. Consequently, 14 major banks were nationalized on July 19, 1969 to make the system reach out to the small man and to the remote rural areas. Further, 6 more banks in 1980 were nationalized, which brought a large segment of the banking business under Government ownership. The nationalization of bank was designed to make the system reach out to the small man and the rural and semi urban area and to extend credit coverage to sectors like agriculture, small scale industries, retail trade, self employed scheme, education etc, popularly known as the priority sector. Despite of significant and commendable expansion of banking services in India during post nationalization period, these achievements had extracted a heavy price in terms of qualitative deterioration of services and some undermining of the financial strength of system. Productivity and profitability of the system were seriously impaired. As a result of which a high powered Committee on the Financial System (CFS) headed by Shri M. Narasimham was constituted by the Government of India in August 1991 to examine all the aspects relating to the structure, organization, function and procedures of the financial system. The committee submitted its report in November 1991 and made wideranging recommendations like reduction in liquidity ratio, phasing out of direct credit programme, redefinition of priority sector, determination of rate of interest without the intervention of RBI, abolition of branch licensing and ending the dual control of Finance www.zenithresearch.org.in Ministry and Reserve Bank over the banking system. As a result of these reforms the performance of banks in all respect improved manifold. Banking sector underwent remarkable changes after reforms. An attempt has been made in this paper to analyse the growth of commercial banks (public sector banks and private sector banks) in India during the post reforms period.

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OBJECTIVES OF THE STUDY

(1) To study the contribution of public sector banks and private sector banks in financing priority sector (2) To examine the component wise lending and to evaluate the performance of commercial banks with regard to Priority Sector Lending in India. (3) To give suggestions on the basis of the study.

RESEARCH METHODOLOGY For the purpose of study secondary data has been collected from Statistical Tables Relating to Banks in India, Report on Trend and Progress of Banking in India for the various years. The study concentrates on post reforms era. The period from 1990-91 to 2007-08 has been chosen for the study. The scope of study covers the data of public sector and private sector banks in India. Suitable statistical tools have been used in the study. REVIEW OF LITERATURE Sahu and Rajasekhar (2005), in their research paper, analysed the trends in credit flow to agriculture by scheduled commercial banks during 1980-81 to 1999-2000. They observed that the share of credit to agriculture in total bank credit for all the bank groups declined significantly, especially after banking sector reforms in spite of many efforts. They analysed that www.zenithresearch.org.in scheduled commercial banks provided large quantum of funds to better-off farmers and to the activities earning high interest income only. They established the negative relationship between agriculture credit and investment in government security, credit subsidy and proportion of credit provided by the co-operative. They recognized that increasing lending rate reduced the credit disbursed to agriculture by scheduled commercial banks and affected the average quality of their loan portfolio so they suggested not to increase the interest rate to offset losses from defaults or to meet the lending cost, but to strengthen the quality of credit delivery system and ensure prompt repayment of loans for supporting the agriculture sector.

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Mohan (2006), in his research paper, examined the role of agricultural credit in supporting agricultural production in India and reviewed the performance of agricultural credit in India during the period 1950-51 to 2003-04. He found that there was rapid increase in total number of rural branches, resulting into the growth of rural credit. The share of commercial banks in total rural credit of the banking system increased rapidly during the study period. He found a wide disparity in disbursement of agricultural credit by commercial banks. Southern states had higher share of agricultural credit to net state domestic product, followed by the northern and central regions. He observed that the proportion of NPAs for commercial banks were higher for agriculture sector than that of non-priority sector. He revealed that although the overall flow of institutional credit increased over the years but there existed several gaps in the system like inadequate provision of credit to small and marginal farmers, paucity of medium and long-term lending, and limited deposit mobilization. He recommended reviewing the agriculture policy and adoption of package approach in different segments of agriculture and agro industry for developing the status of agriculture sector. Rao (2006), in his article, demonstrated the importance and progress of priority sector for economy during the period 1994-95 to 2003-04. He highlighted in his study that priority sector credit including farm credit of scheduled commercial banks declined during the said period indicating the preference of banks for bigger borrowers with higher credit limits instead of large number of small borrowers. He observed the decline in indirect credit to agriculture and small scale industries sector but relatively better position in credit to other priority sectors during the study period. He referred the recommendations of the Narasimham Committee 1991 and 1998 to www.zenithresearch.org.in redefine the concept of priority sector and also referred the observations of RBI committee to stress much on direct agriculture lending, small scale industrial lending, lending to small road and water transport operators (owning more than five vehicles), retail trade and small business under priority sector. In his study, he highlighted various problems of rural credit and suggested to improve input delivery system, water management system, power supply, irrigation facilities, market information and general rural infrastructure, educational and medical facilities, reforming RRBs, state and central co-operatives and scheduled commercial banks for extending rural credit in rural areas.

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Uppal (2009), in his research paper, evaluated the performance of public, private and foreign banks in India and analysed the target achievement by them during 2006-07. He found that priority sector advances of public and private sector banks were higher than foreign banks. He observed that public sector banks were unable to achieve the target of priority sector, while private sector banks have achieved the target. Private sector banks could not achieve the target for weaker section. Foreign banks could achieve the targets for priority sector, small scale industries sector and export sector. He further, found that NPAs of public sector banks was highest followed by private sector banks and foreign banks. Main reason for more NPAs in public and private sector banks was found to be more NPAs in agriculture sector. He examined various issues related to priority sector like, low profitabilty, more NPAs, Government interference, high transaction cost, etc. He also suggested various strategies to overcome these issues.

GROWTH OF PRIORITY SECTOR IN INDIA DURING POST REFORMS PERIOD

Both public sector banks and private sector banks play a vital role in economic development by financing the priority sector of the economy. It is, therefore, important to analyse the performance of scheduled commercial banks in India with respect to priority sector lending and its various components. An attempt has been made to present here the performance of scheduled commercial banks in India in this regard after banking sector reforms.
Table: 1 Year-wise Priority Sector Advances of Commercial Banks in India
(Rs. in crore)

Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96

Public Sector Banks TPS Total %age Share Advances Advances of PS to Total (Rs.) (Rs.) Advances 42276 44995 48384 53197 61794 69609 121678 135832 138295 148388 167063 204257 34.74 33.13 34.99 35.85 36.99 34.08

Private Sector Banks TPS Total %age Share Advances Advances of PS to Total (Rs.) (Rs.) Advances 2688 2819 3319 3846 4064 6283 12067 12432 13165 15452 18765 20154 22.28 22.68 25.21 24.89 21.66 31.17

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1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Exponential Growth Rate (%)

79131 91319 107200 127807 146546 171185 203095 244456 310093 409748 521180 608963 17.30

222158 254916 295654 351383 405430 473951 529244 616570 817344 1075073 1374327 1702039

35.62 35.82 36.26 36.37 36.15 36.12 38.37 39.65 37.94 38.11 37.92 35.78

8832 11614 14155 18019 21550 25709 36705 48920 69384 106586 143768 163223 29.15

27055 35062 44161 56877 82748 115020 143091 174107 226944 302941 390064 470745

32.64 33.12 32.05 31.68 26.04 22.35 25.65 28.10 30.57 35.18 36.86 34.67

Source: Complied and calculated from Report on Trend and Progress of Banking in India from 1990-91 to 2007-08.

Table 1 depicts that priority sector advances of private sector banks increased from Rs. 2,688 crore to Rs. 163,223 crore with the growth rate of 29.15 per cent and that of public sector banks increased from Rs. 42,276 crore to Rs. 6,08,963 crore with the growth rate of 17.30 per cent during 1990-91 to 2007-08. The percentage share of priority sector advances to total advances of public sector banks also increased and remained between 33 per cent and 40 per cent whereas that of private sector banks between 21 per cent and 38 per cent during the same period.

Table: 2 Year-wise Agricultural Advances by Commercial Banks in India

(Rs. in crore)

Public Sector Banks Year

Private Sector Banks % age of Total PS Advances 18.45 18.41 17.05 16.48 20.08 19.62 22.11 23.64 23.01 23.53 25.03 % age Share of Total Advances 4.11 4.17 4.30 4.10 4.35 6.12 7.22 7.83 7.38 7.45 7.57

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

16871 18464 19935 21204 23513 26351 31012 34305 40078 46190 53685

39.91 41.04 41.20 39.86 38.05 37.86 39.19 37.57 37.39 36.14 36.63

13.87 13.59 14.41 14.29 14.07 12.90 13.96 13.46 13.56 13.15 13.24

496 519 566 634 816 1233 1953 2746 3257 4239 5394

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AGR Advances % age of Total % age Share of AGR (Rs.) PS Advances Total Advances Advances (Rs.)

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2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Exponential Growth Rate (%)

63082 73507 84435 112475 155220 205091 248685 16.82

36.85 36.19 34.54 36.27 37.88 39.35 40.84

13.31 13.89 13.69 13.76 14.44 14.92 14.44

8022 11873 14730 21475 36712 52056 57702 35.48

31.20 32.35 30.11 30.95 34.44 36.21 35.35

6.97 8.30 8.46 9.46 12.12 13.35 12.13

Source: Complied and calculated from Table 1.1 and Report on Trend and Progress of Banking in India from 1990-91 to 2007-08.

Table 2 depicts that the performance of public and private sector banks regarding agricultural advances increased manifold. The agricultural advances of private sector banks increased drastically from Rs. 496 crore to Rs. 57,702 crore with the growth rate of 35.48 per cent and those of public sector banks increased from Rs. 16,871 crore to Rs. 2,48,685 crore with growth rate of 16.82 per cent during 1990-91 to 2007-08. The share of agricultural advances to total priority sector advances of public sector banks fluctuated between 34 per cent and 42 per cent, while that of private sector banks fluctuated between 16 and 37 per cent during the same time period which signifies that total priority sector advances in greater percenatge went to nonagriculture sector. The share of agricultural advances to total advances of public sector banks also fluctuated between 12 and 15 per cent and that of private sector banks increased from 4.11 per cent to 13.35 per cent during the study period. This shows that private sector banks were improving faster in this regard, but public sector banks were not paying much attention to agriculture sector.

Table: 3 Year-wise Small Scale Industrial Advances by Commercial Banks in India

(Rs. in crore)

Public Sector Banks Year SSI Advances (Rs) 16756 17689 17487 21561 25843 % age of Total % age of Total PS Advances Advances 39.63 39.31 36.14 40.53 41.82 13.77 13.02 12.64 14.53 15.47

Private Sector Banks SSI Advances % age of Total % age of Total (Rs) PS Advances Advances 1594 1693 2131 2378 3050 59.30 60.06 64.21 61.83 75.05 13.21 13.62 16.19 15.39 16.25

1990-91 1991-92 1992-93 1993-94 1994-95

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1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Exponential Growth Rate (%)

29482 31542 38109 42674 45788 48445 49743 52988 58311 67634 82434 104703 148651 12.14

42.35 39.86 41.73 39.81 35.83 33.06 29.06 26.09 23.85 21.81 20.12 20.09 24.41

14.43 14.20 14.95 14.43 13.03 11.95 10.50 10.01 9.46 8.27 7.67 7.62 8.63

3482 4754 5848 6451 7313 8158 8613 6857 7590 8668 10421 13063 26069 14.36

55.42 53.83 50.35 45.57 40.58 37.86 33.50 18.68 15.52 12.49 9.78 9.09 28.24

17.28 17.57 16.68 14.61 12.86 9.86 7.49 4.79 4.36 3.82 3.44 3.35 5.48

Source: Complied and calculated from table 1.1 and Report on Trend and Progress of Banking in India from 1990-91 to 2007-08.

Table 3 reveals that the performance of private sector banks in respect of small scale industrial advances was highly impressive. Small scale industrial advances of private sector banks increased from Rs. 1,594 crore to Rs. 26,069 crore, representing the growth rate of 14.36 per cent and those of public sector banks increased from Rs. 16,756 crore to Rs. 1,48,651 crore with the growth rate of 12.14 per cent during the study period. The share of small scale industrial advance to total priority sector advances of public sector banks declined from 39.63 per cent in March 1991 to 24.41 per cent in March 2008 and that of private sector banks also declined substantially from 59.30 per cent to 28.24 per cent during the same time period. Further, the share of small scale industrial advances to total advances of public sector banks declined continuously barring few years. It declined from 13.77 per cent in March 1991 to 8.63 per cent in March 2008. A similar situation prevailed in the case of private sector banks. It is pertinent to note that the banks under both the sectors failed to improve their performance with regard to small scale industrial advances which is a matter of concern for the developing country like India. www.zenithresearch.org.in

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Table: 4 Year-wise Other Priority Sector Advances by Commercial Banks in India

(Rs. in crore)

Public Sector Banks Year OPS % of Total PS Advances (Rs.) Advances 8649 8842 9236 10432 12438 13751 16548 18881 24448 32079 40395 53712 71448 101710 129984 163756 201023 211627 23.59 20.46 19.65 19.09 19.61 20.13 19.75 20.91 20.68 22.81 25.10 27.56 31.38 35.18 41.61 41.92 39.97 38.57 34.75 % of Total Advances 7.11 6.51 6.68 7.03 7.45 6.73 7.45 7.41 8.27 9.13 9.96 11.33 13.50 16.50 15.90 15.23 14.63 12.29

Private Sector Banks OPS % of Total PS Advances (Rs.) Advances 598 607 622 834 1098 1568 2125 3020 4447 6467 7998 9074 17602 26600 39241 57777 76925 79452 38.16 22.25 21.53 18.74 21.68 27.02 24.96 24.06 26.00 31.42 35.89 37.11 35.30 47.96 54.37 56.56 54.21 53.51 48.68 % of Total Advances 4.96 4.88 4.72 5.40 5.85 7.78 7.85 8.61 10.07 11.37 9.67 7.89 12.30 15.28 17.29 19.07 19.72 16.70

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Exponential Growth Rate (%)

Source: Complied and calculated from Table 1.1 and Report on Trend and Progress of Banking in India from 1990-91 to 2007-08.

Table 4 reflects that other priority sector advances of private sector banks increased impressively from Rs. 598 crore to Rs. 79,452 crore with the growth rate of 38.16 per cent and those of public sector banks increased from Rs. 8,649 crore to Rs. 2,11,627 crore with the growth rate of 23.59 per cent during 1990-91 to 2007-08. The share of other priority sector advances to total priority sector advances of public sector banks increased from 20.46 per cent to 34.75 per cent and that of private sector banks increased highly from 22.25 per cent to 48.68 per cent during the study period. Further, the share of other priority sector advances to total advances of public sector banks fluctuated between 6 per cent and 16 per cent and that of private sector banks increased continuously during the study period except the years 2001 and 2002. This shows that www.zenithresearch.org.in

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private sector banks were paying increasing attention towards other priority sector than public sector banks.

Table: 5 Year-wise Percentage Share of Priority Sector Advances under National Goals
Public Sector Banks Year Private Sector Banks

TPS advances AGR advances TPS advances AGR advances % of Net Bank % of Net Bank % of Net Bank % of Net Bank Credit.) Credit Credit.) Credit 43.7 43.5 41.2 43.6 42.8 40.3 39.7 44.7 15.7 14.8 14.5 15.1 15.3 15.3 15.4 17.5 36.7 40.9 44.1 47.3 43.6 42.8 42.9 47.8 9.6 8.5 12.0 14.2 13.5 13.6 12.7 15.4

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Source: Compiled from Report on Trend and Progress of Banking in India from 2000-01 to 2007-08.

Table 5 depicts that public sector banks in India have achieved the target of 40 per cent of net bank credit set by RBI for priority sector advances during 2000-01 and 2007-08. The share of priority sector advances to net bank credit ranged between 39 per cent to 45 per cent and the share of agricultural advances to net bank credit of public sector banks in India varied between 14 per cent and 18 per cent. This shows that public sector banks were not able to achieve the target of 18 per cent of net bank credit set by RBI for agricultural advances during the study period. Further, table displayed that private sector banks in India could achieve the target of priority sector in all the years except 2000-01. The share of priority sector advances to net bank credit ranged between 36 per cent to 48 per cent and share of agricultural advances to net bank credit of private sector banks in India varied between 8 per cent and 16 per cent. Thus, both the type of banks was able to achieve the target for priority sector but not for agriculture sector during the period of study. www.zenithresearch.org.in

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Non-Performing Advances
NPA is defined as an advance for which interest or repayment of principal or both remain outstanding for a period of 90 days. It affects the earning capacity and profitability of the banks. Credit is one of the most important assets of the banks. Increasing credit means improving financial soundness of banks but that is only if it is accompanied by the willingness of the borrowers to pay. Indian banking system has very serious problem of mounting NPA. This problem is more critical in case of priority sector. The position of commercial banks regarding NPAs has been shown in Table 6.

Table: 6 Component-wise Percentage of Non-Performing Advances of Public and Private Sector Banks to Total Priority Sector
Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AGR 13.87 13.84 14.60 14.44 15.21 14.99 16.86 20.80 Public Sector Banks SSI OPS 19.44 12.11 18.73 19.24 17.62 16.43 16.72 15.14 14.60 11.92 13.39 15.48 17.42 22.36 27.47 28.21 TPS 45.42 44.49 47.23 47.54 49.06 54.07 59.47 63.61 AGR 5.03 3.76 4.52 4.43 5.29 6.57 9.31 11.31 Private Sector Banks SSI OPS 15.61 7.98 12.73 10.63 12.19 10.96 10.31 6.98 5.02 5.33 5.45 7.35 8.62 12.29 14.93 10.02 TPS 28.62 21.82 20.60 23.97 24.87 29.17 31.22 26.35

Source: Compiled from Trend and Progress of Banking in India from 2000-01 to 2007-08.

It can be seen from Table 6 that percentage of total priority sector NPAs of public sector banks was more than that of private sector banks during 2000-01 to 2007-08. Percentage of total priority sector NPAs of public sector banks increased from 45.42 per cent to 63.61 per cent and that of private sector banks decreased from 28.62 per cent to 26.35 per cent during the same time period. Agriculture NPAs of public and private sector banks increased tremendously from 13.87 per cent to 20.80 per cent and 5.03 per cent to 11.31 per cent respectively, during the study period. Small scale industrial NPAs of public sector banks decreased from 19.44 per cent to 14.60 per cent and that of private sector banks decreased marvelously from 15.61 per cent to 5.02 per cent. Other priority sector NPAs of public sector banks increased sharply from 12.11 per www.zenithresearch.org.in

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cent to 28.21 per cent and that of private sector banks increased from 7.98 per cent to 10.02 per cent during the same time period. Hence, it can be concluded that during the post reforms, priority sector advances of private sector banks grew faster than that of public sector banks. The above analysis shows that public sector banks concentrated more on agriculture sector than other sectors of the economy, in the initial years of the study. But after 2002-03, both public and private sector banks started concentrating on the service sector, recognizing the need of this sector for the economic development of the economy. Both the public and private sector banks achieved the national target of priority sector but, not for agriculture sector during the study period. It can also be inferred that total priority sector NPAs of public sector banks increased and that of private sector banks decreased. This might be because of risk-aversion approach followed by the private sector banks. Sector-wise analysis shows that in agriculture and other priority sector NPAs of public and private sector banks increased and small scale industries sector NPAs of both the banks decreased during the study period. Thus, it has been found that on the whole, private sector banks in India were giving higher attention to priority sector of the economy than public sector banks during the study period. SUGGESTIONS Public sector banks should speed up their performance regarding priority sector lending. As their performance in terms of priority sector, agricultural, small scale industrial and www.zenithresearch.org.in other priority sector advances was slower than that of private sector banks. Besides giving impetus to other priority sector advances, banks should lay stress on agricultural and small scale industries advances also, as their performance is deteriorating in this regard. Considering the importance of priority sector advances in the country like India where agriculture is the major occupation, it is suggested that both public and private sector banks should make committed efforts to achieve the national targets for agriculture sector. So that the major proportion of beneficiaries may be benefited.

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The study points out that priority sector NPAs of the public sector banks in India have shown an alarming increase and this increase is maximum in the case of agriculture sector. The banks with the co-operation of Government should take steps to generate new sources of income for the agriculture sector beneficiaries. Also, the recovery procedure of the banks should be strengthened by organizing recovery camps with the co-operation of local government, creating awareness among beneficiaries about the importance of prompt repayment, fixing recovery targets, regular visits to the borrowers, sending notices to them, taking strict actions against them in case of default and setting up separate cell for recovery of priority sector loans as NPAs are highest in this sector. Banks should be given some incentives to achieve the targets set for priority sector. Proper awareness should be given to public regarding the schemes of priority sector by RBI.

REFERENCES

Chawla, A.S. (1987), Nationalisation and Growth of Indian Banking, Deep and Deep Publications, New Delhi, p.216. Mohan, R. (2006), Agricultural Credit in India: Status, Issues and Future Agenda, Economics and Political Weekly, March (18-24), Vol. XLI No.11, pp. 1013-1040. www.zenithresearch.org.in Patel, K.V.; and Shete, N.B. (1984), Priority Sector Lending by Commercial Banks in India, Prajnan, Vol. XIII, No.1 (Jan-March), p.151. Rao N. K. (2006), Bank Credit: Redefining Priorities, Professional Bankers, ICFAI University Press, Hyderabad, pp. 11-14. Reserve Bank of India (1969), Report of the Gadgil Study Group on the Organisational Framework for the Implementation of Social Objectives, Mumbai, pp. 5-6. Reserve Bank of India (2005), Draft Technical Paper on Review of Priority Sector Lending, Mumbai, September, pp.16-17.

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Reserve Bank of India, Report on Trend and Progress of Banking in India, Mumbai, Various issues. Sahu, G.B.; and Rajasekhar, D. (2005), Banking Sector Reforms and Credit Flow to Indian Agriculture, Economic and Political Weekly, December, Vol. XL, No. 53, pp.55505559. Uppal, R.K. (2009), Priority Sector Advances: Trends, issues and strategies, Journal of Accounting and Taxation, Vol. 1 (5), December 2009, pp-79-80.

http://rbi.org.in/scripts/AnnualPublications.aspx?head=Trend%20and%20Progress%20of%20Banking% 20in%20India, Accessed on 25/12/2008. http://rbi.org.in/scripts/Publicationsview.aspx?id=4310, Accessed on 12/12/2010.

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