ABSTRACT
Directed credit program is justified based on the
failure of the market forces in efficient allocation of credit and the resultant social cost involved in such misallocations. It was initiated in India with the purpose of directing credit to certain underprivileged sectors and sections of the society in terms of credit distribution by the later part of 1960s. In the present scenario, there is a growing concern from different quarters regarding the continuation of the program on the ground of increasing non-performing assets of banking sector from priority sector lending. Moreover, the post economic reform period in India has experienced a fall in the share of the priority sector advances to total advances and diversion of funds to profitable areas and sectors. Considering the wide disparity existing in India, these developments can lead the regions, states, economic sectors or sections of population far behind in the development path and widen the disparity within those dimensions. In this background, this study examined specifically three issues – the level of concentration; inter regional and state-wise differences; the impact on sectoral performance – in the distribution of priority sector advances over the period from 2000 to 2013. We find significant differences; in distribution; in the impact of the loans upon sectoral performances; and in concentration of the funds flow, across sub sectors, regions and states in the priority sector lending activities of scheduled commercial banks over the study period. These evidences call for setting up of location specific targets and modified clustered approaches instead of the existing classifications in the lending program in India.
