Even as public sector banks managed to meet the overall targets, projected in their statements of intent for 2007-08, many of them have been unable to meet their lending targets towards priority sector in 2007-08. Not only have they failed to increase lending, they have actually witnessed a deceleration, even in key sectors like agriculture and small scale industry. While in 2006-07, banks registered a growth of 23% in lending towards priority sector, it decelerated to 17% in 2007-08.
Finance minister P Chidambaram in his recent meeting with the PSU bank heads brought up the issue.
Overall credit offtake has been slow with banks increasing their lending rates following the announcements by the Reserve Bank of India to increase cash reserve ratio. However, the government had directed the banks to sustain credit flow towards the priority sectors. ?There has been a shortfall in this area and naturally this has become a cause for concern,? a PSU bank chairman said, adding that it was also a fallout of the overall slowdown of advances.
According to an RBI data, the year on year (y-o-y) growth figures in February 2008 for lending towards priority sector stood at Rs 99,277 crore down from Rs 1,09,094 crore in February 2007. Credit flow towards the iron and steel was estimated at Rs 11,661 crore as on February 2008, while it was Rs 14,609 crore in the corresponding period in the previous year. Similarly, textile sector has also been affected. Advances towards the textile sector which was at Rs 19,191 crore on a y-o-y basis in February 2007 dropped to Rs 16,862 crore in February 2008 on a year on year basis.
However credit flow into the infrastructure sector increased significantly to Rs 55,716 crore as on February 2008 from Rs 29,033 crore in the corresponding period in 2007.
Official sources said that a clear picture would emerge after the financial results of all the banks are ready. ?At this point, it is difficult to assess the exact situation and its impact on the economic growth,? an official source said.