An internal group of RBI studied the question of priority sector credit and recommended that directed lending has to be continued with respect to small borrowers. Directed lending, if continued, has the potential to generate huge employment.

Priority sector credit is not uncommon among developing economies. As bank credit is generally scarce, relatively inexpensive with competing claimants, its rationing, at least in parts, becomes essential so as to ensure that it reaches the deserving poor to fund their bankable activities. This is the social purpose behind the priority sector credit, and it has the obvious potential to gradually eradicate poverty and unemployment. It is therefore no surprise that banks, which are highly leveraged institutions that thrive on public trust are required to comply with priority sector lending norms. While banking is pure commerce, development banking includes social objectives in emerging economies. This process may involve cross-subsidization within the bank or subsidization by the government. While the first model (cross-subsidization) is generally preferred, the second model (subsidization by the government) is being phased out in many countries.

BankCredit, Redefining Priorities, internal group, RBI, priority sector, credit, recommended, directed lending, respect, small borrowers, lending, continued, potential, generate, huge employment.