.....The Narasimham Committee of 1991, which went into the issue of directed credit, observed after drawing attention to the problem of low and declining profitability, that there was a need for gradual phasing out of the directed credit programme, and that the proportion should be fixed at 10 per cent of the aggregate credit to cover the really needy and poor. This recommendation was not heeded by the Reserve Bank or the government. A similar approach for redefining the sub-targets was made by the recent Nair committee, stressing the need for flow of credit to small and marginal farmers and micro enterprises. This also went unheeded.......
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GOI and RBI may consider the following steps:
• Redefine sub-sectors in the priority sector reckoning the changes that have taken place during the last two decades and realign the targets for sub-sectors
• Ask banks to ensure that their rural, semi-urban, urban and metro branches realign their credit portfolios to meet local credit needs
• Instead of prescribing straight-jacket targets for lending to sub-sectors like agriculture, make necessary policy changes which will reflect the availability of expertise and outreach of each category of banks. E.g. If a bank has more branches in urban areas and cities and are able to lend more to microfinance, allow a set-off their disbursal to microfinance over and above a bench-mark against their target for lending to agriculture.
• Route all concessions and subsidies in interest rates through the banking channel and make the lending banker responsible to ensure that the ultimate borrower is charged some interst to cover cost of funds.
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