INTRODUCTION:

After the economic liberalization through globalization in 1991 the Banking Sector has undergone a considerable change and consequently credit management. While the primary function of banks is to lend funds as loans to various sectors including agriculture, personal loans, housing loans etc. In recent times the banks have become very cautious in extending loans, the reason being mounting Non-Performing Assets (NPAs). An NPA is defined as a loan asset, which has ceased to generate any income for a bank whether in the form of interest or principal repayment. Commercial Banks continue to face the problem of NPAs attributable, inter alia, to factor such as weak debt recovery mechanism, non-realisation of collateral poor credit appraisal techniques.

The Priority Sector Lending has caused a lot to increase in NPAs of Public and Private Sector Banks. Weaker Section as one of the important sectors of Priority Sector has led to increase the share of NPAs of Priority Sector Lending in total NPAs.

On this ground banks are not willing to adhere to the target set by RBI regarding Priority Sector Lending and Weaker Section.

As per the prudential norms suggested by the Reserve Bank of India (RBI), a bank cannot book interest on an NPA on accrual basis. In other words, such interests can be booked only when it has been actually received. Therefore, this has become what is called as a ‘critical performance area’ of the banking sector as the level of NPAs affects the profitability of a bank.

The Government of India has undertaken several measures to contain the NPA problem. The recent enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 has increased the momentum for the recovery of NPAs. But, these policy measures have not yet yielded the desired results.

Priority Sector Lending and Weaker Section Finance:

Domestic SCBs are required to lend 40 per cent of adjusted net bank credit (net bank credit plus investments made by banks in non-SLR bonds held in the held to maturity category) or credit equivalent of off-balance sheet exposures, whichever is higher, to the priority sector. These SCBs are also required to lend at least 18 per cent to the agriculture sector and 10 per cent to weaker sections covering small and marginal farmers with land holding of five acres and less; landless labourers, tenant farmers and share croppers; artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000; beneficiaries of Swarnajayanti Gram Swarozgar Yojana (SJGSY), Swarna Jayanti Shahari Rozgar Yojana (SJSRY), the Scheme for Liberation and Rehabilitation of Scavengers (SLRS) and the Differential Rate of Interest (DRI) scheme; scheduled castes and scheduled tribes; self-help groups (SHGs); and distressed poor who have to prepay their debt to the informal sector against appropriate collateral or group security. It has been observed that banks have not been achieving the sub-target of 10 per cent for lending to weaker sections. At present, domestic SCBs having shortfall in the 54 priority sector lending target and/or the agriculture sub-target are allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) maintained with the National Bank for Agriculture and Rural Development (NABARD).

Weaker Sections:

The weaker sections under priority sector shall include the following:

a. Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers;

b. Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000;

c. Beneficiaries of Swarnajayanti Gram Swarozgar Yojana (SJGSY);

d. Scheduled Castes and Scheduled Tribes;

e. Beneficiaries of Differential Rate of Interest (DRI) scheme;

f. Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY);

g. Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavengers (SLRS);

h. Advances to Self Help Groups;

i. Loans to distressed poor to prepay their debt to informal sector, against appropriate collateral or group security.

Targets and Sub-Targets Set Under Priority Sector Lending

Total Priority Sector advances: 40 per cent of Adjusted Bank Credit (ABC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Advances to Weaker Sections: Of the stipulated target for priority sector advances, at least 25% (or 15% of the ABC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) should be given to weaker sections.

Advances to Minorities: Within the overall target for priority sector lending and the sub-target of 25 per cent for the weaker sections, sufficient care may be taken to ensure that the minority communities also receive an equitable Portion of the credit. UCBs should initiate steps to enhance/ augment flow of credit under priority sector to artisans and craftsmen as also to vegetable vendors, cart pullers, cobblers, etc. belonging to minority communities. The minority communities notified in this regard are Sikhs, Muslims, Christians, Zoroastrians and Buddhists. Within the overall target for priority sector lending and the sub- target of 25 per cent for the weaker sections, sufficient care may be taken to ensure that the minority communities also receive an equitable portion of the credit.

Objectives of the Study:

I. To evaluate the performance of Public & Private Sector Banks in regard to Weaker Section Finance.

II. To study the NPA of Public and Private Sector Banks.

III. To study the share of NPA in Weaker Sector and Total NPA.

Methodology:

This paper is purely based on the secondary source of data collection. The authors have used data from Report on Trend and Progress of Banking in India (various issues) and other books, magazines and internet. For analyzing the collected data various forms like percentage, growth rate are used and graphically presented to make it clearer.

Performance of Priority Sector Lending

Public Sector Banks are playing very important role in the upliftment of various sectors of the society and are lending to these sectors on priority basis. Table No. 1 reveals that, PSBs have attained the target of 40 per cent lending to priority sector of its NBC during last seven years.

Agriculture growth is crucial for alleviating rural poverty. Access to banking credit to more farmers and appropriate quantity and quality agricultural credit are crucial for realizing the full potential of agriculture as a profitability activity. In 1969 when the first 14 major banks were nationalised as shown in Table No. 1 Agriculture Sector could attract only Rs. 162 crore out off total bank credit of Rs.3016, which shows the share of Agriculture Sector was just 5.37 per cent. This share went up to

Graph No.1

Rs. 84,435crore (15.1 percent) in 2004 and rose up to Rs. 2,98,211 crore (17.2). During the last 6 years time period it increased merely by 2.1 per cent. But in terms of rupees it has increased by Rs. 2,13,776 crore, which was more than 353 per cent of lending to Agriculture Sector in 2004. Except 2008 PSBs have failed to adhere the target of 18 per cent lending Agriculture Sector.

The SSI Sector occupies a unique position in the Indian Economy. In terms of employment generated, this sector is next only to Agriculture Sector. It has share of 40 per cent of the gross industrial value added in the economy. About 50 of the total manufactured exports of the country are directly accounted for this sector. In spite of this contribution, the sector has been facing big financial problems and has failed to attract the attention of the bankers. Before the nationalisation of major banks it could receive only Rs. 257 crore which was merely 8.52 percent of total credit (Table No.1). The substantial lending to SSI Sector has increased from 58,311 in 2004 to Rs. 1,91,307 in 2009, but during all these years its share remained below 12 per cent of Net Bank Credit.

The other Priority Sector includes those segments of the society which are not in position even after 60 years of independence to fulfill their basic three needs i.e. food, clothe and shelter. The Central and State Governments are taking various steps to fulfill these basic needs of their citizen, but yet are not 100 per cent successful. Its share in bank credit was very nominal in 1969 i.e. 0.72 per cent of total credit, which increased to 18 per cent in 2004 and again dropped to 13.4 per cent in 2009.

Graph No.2

As per the target regarding Priority Sector Lending set by RBI is applicable to Private Sector Banks also. The Table No. 2 describes that during all the years of study period Private Banks have achieved the target of 40 per cent of Net Bank Credit to Priority Sector. The Agriculture Sector being an important sector of Priority Sector has failed to receive the directed credit of 18 per cent of NBC from Private Sector Banks. The amount of Agriculture Credit increased with growth rate of 31.47 per cent and amount of SSI credit increased with 35.95 per cent are high as compare to increase in Total Priority Sector Lending at annual growth rate of 25.40 per cent, but the amount of credit to other Priority Sectors has increased with just 16.41 per cent. In spite of credit to Other Priority Sectors has shoot up to Rs. 76,919 crore in 2007 from just Rs. 5,777 crore in 2007, the percentage has decreased from 23.2 per cent to 22.9 per cent. During the present study period share of SSI credit has remained very low as compare to other two sectors.

Graph No.3

According to directions issued by RBI regarding lending to weaker section of society all the domestic banks have to direct at least 10 per cent of their NBC or OBE (whichever is higher) towards this sector. The above Table No.3 shows that non of the bank group could achieve this target about Weaker Section Finance except once in 2005 by State Bank Group. The performance of Private Sector Bank group has remained very poor as compare to other two groups. The performance of PSBs is varying from just 1.20 per cent to 3.85 per cent. The graph highlights that contribution of Nationalised Bank Group has been very high as compare to two other groups. The WSF by Nationalised Bank Group has shoot up from Rs. 31,173.38 crore in 2007 to Rs. 83,725 crore, but in terms of percentage to NBC it has increased by merely 2.1 per cent. But the table also reveals that growth of Private Sector Banks in regard to WSF is 48 per cent, which is more than double of the growth rate shown by other two groups.

Graph No.4

Table No.1 Outstanding Advances to Priority Sectors by Public Sector Banks

(As on the last reporting Friday) (Rs. In Crore)

Year	Agriculture		Small-Scale Industries		Other Priority Sectors		Total		Net Bank Credit
Year	Amount	% to NBC	Amount	% to NBC	Amount	% to NBC	Amount	% to NBC	Net Bank Credit
June 1969	162	5.37	257	8.52	22	0.72	441	14.6	3016
March 2004	84435	15.1	58311	10.4	101710	18.1	244456	43.6	560819
March 2005	109917	15.3	67800	9.5	125114	17.4	307046	42.8	717419
March 2006	163558	16.1	82434	8.1	163756	16.1	409748	40.3	1017656
March 2007	202614	15.4	102550	7.8	206661	15.7	511825	38.9	1313840
March 2008	249397	18.2	151137	11.1	209842	15.4	610376	44.7	1364268
March 2009@	298211	17.2	191307	11.3	230507	13.6	720083	42.5	1693437
Compound Growth Rate	20.68%		17.98%		26.04%		20.32%		17.15%

@ : Provisional

Source: Report on Trend and Progress of Banking in India, RBI, (2003-04 to 2008-09)

Table No.2: Outstanding Advances to Priority Sectors by Private Sector Banks

(As on the last reporting Friday) (Rs. In Crore)

Year	Agriculture		Small-Scale Industries		Other Priority Sectors		Total
Year	Amount	% to NBC	Amount	% to NBC	Amount	% to NBC	Amount	% to NBC
March 2004	14730	14.2	7590	7.3	26600	25.7	48920	47.3
March 2005	21636	13.5	8592	5.4	38797	24.2	69886	43.6
March 2006	36712	13.6	10421	4.2	5777	23.2	106586	42.8
March 2007	52034	12.7	13136	3.9	76919	22.9	144569	42.9
March 2008	58567	15.4	46912	13.7	58566	15.4	164068	47.8
March 2009@	76062	15.9	47916	12.0	66198	13.8	190207	46.8
Compound Growth Rate	31.47%		35.95%		16.41%		25.40%

@ : Provisional

Source: Report on Trend and Progress of Banking in India, RBI, (2003-04 to 2008-09)

Table No.3: Bank Group-Wise Advances to Weaker Section

(As on last Friday of March) (Rs. In Crore)

YEAR	State Bank Group		Nationalised Banks		Private Sector Banks		TOTAL AMOUNT
YEAR	Amount	% to ANBC/ OBC	Amount	% to ANBC/ OBC	Amount	% to ANBC/ OBC	TOTAL AMOUNT
2004	13598.36	7.06	27990.28	7.64	1495.49	1.34	43084.13
2005	25198.92	10.08	38293.19	5.20	1913.86	1.20	65405.97
2006	27052.97	8.17	51320.93	8.01	3909.26	1.6	82283.16
2007	31173.38	7.3	31173.38	7.3	5228.58	1.55	99513.46
2008	43209.28	9.6	83725.52	9.2	7227.76	2.10	134162.6
2009	41498.28	9.24	83718.62	9.25	15844.00	3.85	141060.9
Compound Growth Rate	20.44%		20.03%		48.20%		21.86%

Note: Data are provisional

Source: Report of Trend and Progress of Banking in India, RBI (2003-04 to 2008-09)

Table No.4: NPAs in Total Advances of Public and Private Sector Banks.

(As at the end of March) (Amount in Rs. Crore)

YEAR	Public Sector Banks		Private Sector Banks		Total Amount of NPA
YEAR	NPA Amount	% to Advances	NPA Amount	% to Advances	Total Amount of NPA
2004	51541	7.8	10344	5.83	61885
2005	16904	2.0	4212	2.20	21116
2006	14566	1.3	3171	1.01	17737
2007	15145	1.1	4028	0.97	19173
2008	17836	1.0	5647	1.08	23483
2009	21033	0.9	7418	1.28	28451
Compound decline Rate	-13.88%		-5.39%		-12.15%

Note: Data are provisional

Source: Report on Trend and Progress of Banking in India, RBI (2003-04 to 2008-09)

Table No.5: Bank Group-wise NPAs in Weaker Section

(As at the end of March) (Amount in Rs. Crore)

YEAR	State Bank Group		Nationalised Banks		Private Sector Banks		Total Amount of NPA
YEAR	NPA Amount	% to Advances	NPA Amount	% to Advances	NPA Amount	% to Advances	Total Amount of NPA
2004	2623.93	22.08	5082.56	21.52	155.52	12.15	6862.01
2005	2871.33	13.91	2880.71	9.35	207.98	13.15	5960.02
2006	1772.63	9.01	3250.59	8.17	267.26	11.30	5290.48
2007	1724.40	6.33	3456.75	6.70	149.31	3.87	5330.46
2008	2058.41	5.35	3330.00	5.28	117.04	2.33	5505.45
2009	1290.00	3.5	3784.00	4.4	91.00	0.6	5165.00
Compound Growth Rate	-11.16%		-4.80%		-8.54%		-4.62%

Note: Data are provisional

Source: Report on Trend and Progress of Banking in India, RBI (2003-04 to 2008-09)

Table No.6: NPA in Weaker Section Finance and Total Advances of Public and Private Sector Banks.

(As at the end of March) (Amount in Rs. Crore)

YEAR	Public Sector Banks			Private Sector Banks
YEAR	Total NPA	NPA in Weaker Section	%	Total NPA	NPA in Weaker Section	%
2004	51541	7706	14.95	10344	155.52	1.50
2005	16904	5752	34.03	4212	207.98	4.94
2006	14566	5023	34.48	3171	267.26	8.43
2007	15145	5181	34.21	4028	149.31	3.71
2008	17836	5388	30.21	5647	117.04	2.07
2009	21033	5074	24.12	7418	91.00	1.23

Note: Data are provisional

Source: Report on Trend and Progress of Banking in India, RBI (2003-04 to 2008-09)

In 2002 Government of India took some important steps to overcome the problem of NPAs in banks belonging to both the sectors. The above Graph No.4 clearly shows that there is sudden decline from 2004 to 2006 in NPA of the Public and Private Sector Banks. The Table No.4 shows that, the NPAs of Public Sector was Rs. 51,541 crore in 2004 which has declined to Rs.14, 566 crore in 2006 and again it increased to Rs. 21,033 in 2009. The annual decline rate of NPAs in Public Sector banks for the study period was 13.88 per cent. The NPAs amount of Private Sector Banks was Rs.10,344 crore in 2004 which came down to Rs. 3,171 in 2006 and again went up to Rs. 7,418 in the year 2009. The annual decline rate of NPAs in Private Sector Banks was 5.39 per cent. In term of percentage NPAs to Total advances is decreasing over the period of time, even it has increased in terms of money. The Public Sector Banks are taking hard steps to cover the NPAs as compare to Private Sector Banks.

The Weaker Section Finance by Public and Private Sector Banks is increasing year by year as against the NPAs in Weaker Section are decreasing. As shown in Table No.3 the Weaker Section Finance by State Bank Group has increased during the period by annual growth rate of 20.44 per cent, Nationalised Bank Group by 20.03 per cent and by Private Sector Banks 48.20 per cent. The Table No.4 reveals that, the NPAs in 2004 of State Bank Group was Rs. 2623.93 crore, Nationalised Bank Group was Rs. 5082.56 crore and of Private Sector Banks was Rs.155.52 crore which has dropped down to Rs. 1290 crore, Rs. 3784 crore and 91 crore respectively in 2009. The Weaker Section Finance of State Bank group has declined by 11.60 per cent, of Nationalised Banks by 4.18 per cent and of Private Sector Banks by 8.54 per cent and overall NPAs of Public & Private Sector Banks in Weaker Section Finance has decreased annually at the rate 4.62 per cent.

Graph No.5

The percentage of NPAs in WSF to advances in WSF of State Bank Group was 22.08 per cent, Nationalised Banks 21.52 per cent and Private Banks 12.15 per cent. These percentage have decreased to 3.5 per cent, 4.4 per cent and 0.6 per cent respectively in 2009.

The amount of Total NPAs of Public Sector and Private Sector Banks in India has decreased over the period of time. The Table No.6 shows that the total NPAs of Public Sector banks was Rs. 51541 crore in 2004, this amount has came down to Rs. 14566 crore in 2006 but again which has increased to Rs.21033 crore in 2009. In 2004 the NPAs in Weaker Section of Public Sector Banks were of Rs. 7706, which was just 14.95 per cent to total NPAs. This amount decreased to 5023 crore in 2006, but in terms of percentage to total NPAs, has went up to 34.48 per cent, whereas amount again increased to Rs.5074, but the percentage decreased to 24.12 per cent. This shows the negative impact of decrease in NPAs in Weaker Section on its share in total NPAs. In case of Private Sector Banks the total NPAs have decreased from Rs.10344 crore in 2004 to Rs. 7418 crore. The NPAs in Weaker Section of Private Sector Banks have also decreased from Rs. 155.52 crore to Rs. 91 crore respectively. There is also ups and down in total NPAs and NPAs in Weaker Section. The share of NPAs in Weaker Section of Private Sector Banks has always very low as compare to the Public Sector Banks.

CONCLUSION:

No doubt, both the Private and Public Sector Banks are achieving their target of priority sector lending, but have failed to adhere the targets regarding sub-sectors of i.e. Agriculture and Weaker Section. On one had Weaker Section Finance is increasing at good annual growth rate, and on the other had the Total NPAs and NPAs in Weaker Section are decreasing. The NPAs in Weaker Section are high, but it is decreasing over the period of time. Therefore, banks should try to maximize their credit towards the sub-targets of Priority Sector Lending and should achieve the targets put by RBI. Specially, Private Sector Banks should pay more attention to direct their credit for better livelihood of the poor people of the country, as they have failed.

In accordance to improve the performance of Weaker Section Finance, as suggested in earlier studies the banks should take regular follow up to recover its loan and make its as routine work. Banks also should lend to agriculture sector at lower rate, so that its productivity can be increased. Beneficiaries should use part of the income generated from banks finance for further advancement of the business and strict action should be taken against erring officials.

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Received on 21.01.2011 Accepted on 26.01.2011

Asian J. Management 2(1): Jan. – Mar. 2011 page 14-19