AN ANALYSIS OF THE DETERMINANTS OF PRIORITY SECTOR LENDING IN INDIA

Abstract

The priority sector lending scheme has been formulated with the objective of ensuring assistance to those sectors of the economy which has not yet obtained adequate support from formal financial institutions. Priority sector lending is a compulsory responsibility given by the RBI to the commercial banks for deploying a fixed portion of their bank lending to few specific sectors which development is very much essential for inclusive financial system like agriculture and allied activities, micro small and medium enterprises, students for education, homeless poor people for housing and other low income groups and weaker sections. However the effectiveness of priority sector lending programme depends upon a few factors such as bank size, bank performance and lending efficiency. This paper tries to identify the factors that determine priority sector lending by scheduled commercial banks in India from 2001-2020. This study used time series data. Data analysis begins with the testing of the unit root of the series to confirm whether the data are stationary or not. Auto regressive distributive lag model is employed to check the relationship of the variables under study. The results indicate deposits, advances, employee strength and return on assets have significant impact on the priority sector lending.