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

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A New Orientation to Directed Credit

The policies for directed credit that were introduced in the 1970s accorded significant priority to agriculture, exports and micro, small and medium enterprises. However, the present framework for directing and targeting credit under the priority sector lending policy has lost much of its original thrust because of the demand of the banking system to sustain its profitability and meet tighter prudential standards. The current priority sector guidelines suffer from multiple and complex categorisations incorporating several objectives. A strategic reprioritisation of directed credit to agriculture, exports and micro, small and medium enterprise sectors can moderate the costs of correcting the adverse redistributive effects of inflation. It is also imperative that the priority sector be redefined more from the objectives of growth and employment while the equity angle be left to be best served through the policy of financial inclusion.

other sector that will require special attention. In fact, when the policies for directed credit were evolved, these three sectors were rightly accorded signicant priority. However, the present framework for directing and targeting credit under the priority sector lending policy has lost much of its original thrust. Third, therefore we argue that there is a need for revisiting the priority sector guidelines and reprioritising such targets in conjunction with the parallel policy developments under nancial inclusion.

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