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Is Credit drive to priority sector gains clutch in India?

, January 17, 2023, 0 Comments

In India, the priority sector is a set of sectors identified by the Reserve Bank of India (RBI) as being of strategic importance for the country’s development. Credit push to the priority sector refers to the practice of banks and financial institutions making an effort to provide more loans and financial assistance to these sectors. The aim is to ensure that these sectors, which are considered important for the overall development of the country, receive adequate financial support and are able to grow and contribute to the economy.

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The priority sector in India includes sectors such as agriculture, micro and small enterprises, education, housing, and renewable energy, among others. The RBI has set targets for banks and financial institutions to ensure that a certain percentage of their lending goes towards the priority sector. These targets are reviewed periodically and are revised based on the needs and priorities of the country.

In recent years, there has been a push to increase credit to the priority sector in India, with the aim of promoting inclusive growth and development. This has been done through a variety of measures, including:

Increasing the targets for lending to the priority sector:
The RBI has increased the targets for lending to the priority sector in recent years, in order to encourage banks and financial institutions to focus more on these sectors.

Offering incentives for lending to the priority sector:
The government and the RBI have also introduced various incentives for banks and financial institutions that lend to the priority sector. These may include reduced risk weights, tax benefits, and other financial incentives.

Promoting the use of technology:
The government has also encouraged the use of technology, such as digital platforms and alternative lending models, to make it easier for banks and financial institutions to reach out to and lend to the priority sector.

Enhancing financial literacy and awareness:
There have also been efforts to increase financial literacy and awareness among individuals and small businesses in the priority sector, so that they can better understand the various financial products and services available to them and make informed decisions about borrowing and lending.

According to data from the RBI, credit to the priority sector has been steadily increasing in recent years. In 2020, credit to the priority sector accounted for around 43% of total credit disbursed by banks and financial institutions in India. This represents a significant increase from previous years, and suggests that the push to increase credit to the priority sector is gaining traction.

There are several challenges that have arisen in the process of implementing the credit push to the priority sector in India. These challenges include:

Limited access to credit:
Despite the efforts to increase credit to the priority sector, there are still many individuals and businesses in these sectors that struggle to access credit. This is often due to a lack of collateral or a lack of awareness about the financial products and services available to them.

High interest rates:
Another challenge is the high interest rates charged by banks and financial institutions for loans to the priority sector. This can make it difficult for borrowers to afford the loans and may discourage them from borrowing.

Limited financial literacy:
There is often a lack of financial literacy among individuals and businesses in the priority sector, which can make it difficult for them to understand the various financial products and services available to them and make informed decisions about borrowing and lending.

Poor infrastructure:
In some cases, the infrastructure in the priority sector is poor, which can make it difficult for banks and financial institutions to reach out to and lend to these sectors.

Despite these challenges, the credit push to the priority sector in India has had a number of positive outcomes. These include:

Increased credit to the priority sector:
As mentioned earlier, data from the Reserve Bank of India (RBI) shows that credit to the priority sector has been steadily increasing in recent years. This suggests that the credit push has been successful in increasing the flow of credit to these sectors.

Promoted inclusive growth:
The credit push has also helped to promote inclusive growth and development in India, by ensuring that the sectors considered important for the country’s development receive adequate financial support and are able to grow and contribute to the economy.

Improved financial literacy:
The efforts to increase financial literacy and awareness among individuals and businesses in the priority sector have also helped to improve their understanding of the various financial products and services available to them and their ability to make informed decisions about borrowing and lending.

Encouraged the use of technology:
The push to increase credit to the priority sector has also encouraged the use of technology, such as digital platforms and alternative lending models, which has made it easier for banks and financial institutions to reach out to and lend to these sectors. This has helped to reduce the barriers to credit access and improve the efficiency of the lending process.

Overall, the credit push to the priority sector in India has had a number of positive outcomes, despite the challenges that have arisen in the process. The government and the RBI are expected to continue their efforts to increase credit to these sectors in the coming years, in order to promote inclusive growth and development in the country.

In conclusion, the push to increase credit to the priority sector in India is an important measure to promote inclusive growth and development in the country. Through a variety of measures, including increased targets, incentives, the use of technology, and financial literacy and awareness initiatives, the government and the RBI have been successful in encouraging banks and financial institutions to focus more on the priority sector. This has resulted in a steady increase in credit to the priority sector, which is expected to continue in the coming years.

source: https://economictimes.indiatimes.com/news/economy/finance/credit-push-to-priority-sector-gains-traction-rbi-report/articleshow/96605361.cms