The Hindu Business Line : Priority sector lending rises 33.7 pc in '05-06

The report card
Agriculture and housing were the major beneficiaries
Loans and advances grew by 31.8 per cent
None of the private sector banks could meet the sub-targets for agriculture and weaker sections

Mumbai , Nov. 14

Bank credit to the priority sector increased by 33.7 per cent to touch Rs 5,09,910 crore as on March 31, 2006. In the previous year, such credits increased 40.3 per cent to Rs 3,81,476 crore as on March 18, 2005.

Agriculture and housing were the major beneficiaries, which together accounted for more than two-third of incremental priority sector lending in 2005-06, said the Reserve Bank of India in its Report on Trend and Progress of Banking in India, 2005-06, released on Tuesday.

Loans and advances grew by 31.8 per cent during 2005-06 on top of the increase of 33.2 per cent in the previous year. Deposit growth was 17.8 per cent against 16.6 per cent.

While public sector banks as a group achieved the priority sector target of 40 per cent of net bank credit (NBC) as on the last reporting Friday of March 2006, the sub-targets of 18 per cent of NBC to agriculture sector and 10 per cent of NBC to the weaker sections were not met, the report said.

Total priority sector advances extended by private sector banks increased by 52.25 per cent in 2005-06. None of the private sector banks could meet the sub-targets for agriculture and weaker sections.

Off-balance sheet (OBS) exposures of scheduled commercial banks rose sharply by 50 per cent in 2005-06 over and above the increase of 58 per cent in 2004-05.

In the last five years, the total OBS exposure of banks witnessed a significant growth reflecting the impact of deregulation, risk management operations, diversification of income and new business opportunities thanks to advances in information technology.

Highest share

Among the bank groups, foreign banks had the highest share of off-balance sheet exposures as percentage of total assets, followed distantly by new private sector banks and other bank groups. OBS exposure of the banking system is concentrated in 15 banks, most of which are foreign banks. These banks are particularly in the derivatives segment, said the RBI.

This assumes particular significance in the light of the modified guidelines on priority sector advances. The guidelines announced earlier this month says, "the targets and sub-targets under priority sector lending would be linked to adjusted net bank credit (net bank credit plus investments made by banks in non-SLR bonds held in Held to Maturity category) or credit equivalent of off-balance sheet exposures, whichever is higher, as on March 31 of the previous year."

Earlier, the 40 per cent norm was linked to net bank credit only.

By tagging non-SLR bonds and off balance sheet exposures, banks may have to lend more to agriculture, micro credit, small scale and micro enterprises.

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