UPSC Prelims 2013 Q76: Indian Economy – Banking & Financial Sector
- (a) agriculture
- (b) micro and small enterprises
- (c) weaker sections
- (d) All of the above
Answer: (d) All of the above
Explanation
Priority Sector Lending (PSL)
Banks must give a set share of their loans to sectors that matter for development but find credit hard to get.
| Sector | Part of priority sector? |
|---|---|
| (a) Agriculture | Yes |
| (b) Micro and small enterprises | Yes |
| (c) Weaker sections | Yes |
Targets for domestic commercial banks:
| Category | Target (share of adjusted net bank credit) |
|---|---|
| Total priority sector | 40 percent |
| Agriculture | 18 percent |
| Micro enterprises | 7.5 percent |
| Weaker sections | 12 percent |
Other priority sectors: export credit, education, housing, social infrastructure, renewable energy.
If a bank falls short: it must deposit the shortfall in the Rural Infrastructure Development Fund with NABARD.
Banks can also trade Priority Sector Lending Certificates.
Answer: (d) All of the above.
Why each option is right or wrong
- (a) Incorrect. Agriculture is only one of the priority sectors.
- (b) Incorrect. Micro and small enterprises are only one part.
- (c) Incorrect. Weaker sections are only one part.
- (d) CORRECT. Priority sector lending covers all of the above.
Key point
Priority Sector Lending: 40 percent of adjusted net bank credit; agriculture 18, micro enterprises 7.5, weaker sections 12 percent; shortfall goes to RIDF.
Remember
Priority sector = agriculture + MSEs + weaker sections and more.
Common mistakes
- Thinking priority sector means agriculture only.
- Forgetting the overall 40 percent target.
- Not knowing the penalty route: the Rural Infrastructure Development Fund.
Exam tip
40 - 18 - 12 - 7.5: total, agriculture, weaker sections, micro enterprises.
Sources
- Reserve Bank of India — Master Directions on Priority Sector Lending
- National Bank for Agriculture and Rural Development — Rural Infrastructure Development Fund