Priority sectors and banking policy

....RBI proposal should be viewed as part of the " learning process" of RBI and as part of the macro banking policy. Public memory may be short but not the researchers'. In the first flush of enthusiasm of implementing banking reforms in the early 1990s, RBI policy- makers were intoxicated with market theology and were keen on mimicking British or American banking models. Directed credit symbolised by the priority sector credit target of 40% was a " dirty phrase". At the same time the policy- makers were not bold enough to openly do away with such credit targets. They adopted a more subtle way of de- emphasising priority sectors. Many PSBs defaulted on the 40% target and RBI winked at the default. Not only that, in a bid to boost their profits, following British or American models, PSBs got rid of a large number of small borrowal accounts. In effect, small borrowers including small farmers were disenfranchised. All this has been well documented. A more concrete evidence of RBI's policy of financial " exclusion" during this phase was that RBI ceased to discuss credit allocation to priority sectors......

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