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Rajan says banks needs to review priority sector lending categories

The RBI governor said recent scandals underlined the need for better internal evaluation of lending processes and banking must become more engaged and informed


Reserve Bank of India (RBI) governor Dr Raghuram Rajan feels that the banking sector needs to question the categories under priority sector lending.


Speaking at a banking conference organised by FICCI, he said, "Select special sectors need ease of credit ... the biggest need for agriculture is long-term money while farmers don't get long-term loans because short-term loans are subsidised".


He said bankers need to "ask if students studying abroad are more needy?"


Reiterating a host of issues in the banking sector, Dr Rajan added that select special sectors need ease of credit. Interest subventions and loan waiver schemes can distort prices and lead to unhealthy borrowing practices, he added.


The RBI governor pointed out that the loan waivers, as proposed by the Andhra Pradesh chief minister, were not healthy for the banking system and could distort prices and the credit culture.


Further, he said the Pradhan Mantri Jan Dhan Yojna is an internal priority and that direct benefit transfers would reduce leakage and limit distortion of prices.


He also cautioned banks on duplication of accounts opened and asked them to ensure that the newly opened accounts work and make the scheme more effective.


The priority sector lending requirement currently is at a minimum of 40%, including sectors such as agriculture, education, rural housing, micro and small sector enterprises, among others.


It is time the government de-regulated diesel prices in the wake of falling global crude oil prices, the RBI Governor said.


He said falling inflation was consistent with the RBI’s forecast. According to the RBI Governor, the dip in IIP showed recovery was still uneven.


Recent scandals underlined the need for better internal evaluation of lending processes. Banking must become more engaged and informed, he said.


Rajan reiterated the call for more operational freedom for State-run banks.



MG Warrier

3 years ago

The concept of priority sector lending was introduced to ensure credit flow from the banking sector to certain neglected sectors including agriculture. The need for some persuasion to encourage banking system to provide adequate credit to priority sector is still there as banks on their own would prefer to deploy credit in bigger urban ventures. Several attempts to shift responsibility by lending to service/consumer sectors, investing in RIDF etc were allowed to achieve priority sector targets. Internal reviews by RBI or at state level forums also concentrated on ‘targets’ and their achievement and a comprehensive look at willingness and capability of each bank to finance priority sector especially in rural areas is yet to happen. Viewed in this context the loud thoughts by RBI Governor is most welcome. Still, the review need to be done by RBI and GOI and appropriate guidance should be issued to banking system

SC asks Prashant Bhushan to reveal source in Sinha guest list case

The Bench asked Bhushan to name the whistleblower in the sealed envelope and said that it will go into the merits of allegations after knowing the source of information


The Supreme Court on Monday directed advocate Prashant Bhushan, who has levelled allegations against Ranjit Sinha, the director of Central Bureau of Investigation (CBI) of protecting the accused in the 2G case, to reveal the name of the whistleblower from whom he got CBI documents and guest list at Sinha's residence.


A Bench headed by Justice HL Dattu asked Bhushan to name the whistleblower in the sealed envelope on the next date of hearing and said that it will go into the merits of allegations after knowing the source of information, as it may have ramification on the reputation of the director and also affect the ongoing trial in the 2G scam.


It said that the affidavit filed by Bhushan is not in consonance with the Supreme Court rules and asked him to reveal the source from whom he got all the documents.


The CBI director questioned the very existence of the diary before the apex court and said that 90 per cent of the entries were fudged though some entries may be genuine.


Advocate Vikash Singh, appearing for the top cop, submitted that somebody else is controlling the proceedings in the case and raised questions on how a media group published a story in advance that Bhushan will be depositing the original guest list before the apex court.


He alleged that a corporate house is working behind all these controversies and it is intended to benefit the accused in the 2G scam.


The Bench also wanted to know the stand of CBI in the controversy but the senior advocate K K Venugopal, appearing for the agency, refused to get into it, saying that it is a matter between advocate Prashant Bhushan and the director.


It then directed its registry to keep all the documents and affidavits filed by CBI director in a sealed cover and deposit them with the Secretary General for safe custody.


The apex court posted the matter for further hearing on 22nd September.


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