ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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A Review of Bank Lending to Priority and Retail Sectors

The surge in bank credit in the last couple of years has been an encouraging phenomenon in Indiaâ??s banking sector. This reflects as much the turnaround in the economy as the improved balance sheets of the banks themselves. However, though overall credit growth has been of a high order, the expansion of agricultural credit and credit to small-scale industries sector has not kept pace with it. Retail credit, which is growing from a very low base, has expanded rapidly during this period. While consumption-led growth can help improve the growth rates in the economy, it would also result in increasing risks.

I ndian banking has witnessed several positive changes in the recent years making it progressively sound and stable. Bank stocks have witnessed sustained demand from investors in the equity market, reflecting the vast improvement in the sectors fundamentals. The buoyancy in banking stock prices has been used by many banks to boost their capital by tapping the capital markets. Internally, banks have constructively used the trading gains arising out of profits from the sale of government securities to strengthen their balance sheets. Externally, a number of policies have been of crucial help in considerably reducing the nonperforming assets (NPAs) these include the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act for foreclosure, the Corporate Debt Restructuring (CDR) mechanism, the debt recovery tribunals (DRTs) and the policy initiatives towards one-time settlements. These factors have given a boost to banks ability to readjust assets and significantly extend their advances portfolio.

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