WHY Priority Sector lending? SBI manager start making calculation, how much money is left with him? Money received from common men 1 crore=100 lakh Money set aside in CRR MINUS 10 lakh Money invested in SLR MINUS 25 lakh Money left 100-10-25=Rs.65 lakh. • Out of that 65 lakhs, let’s assume SBI manager has to keep aside 15 lakh for Administrative costs, salaries of employees, electricity bill, internet bill, Xerox machine etc. So he has only 50 lakh left for providing “loan” to needy people. • Now loan-takers line up in front of SBI office 50 farmers Give us loans of 1 lakhs each for buying seeds and fertilizers. However, given the vagaries of monsoon and low profit margin in agriculture, we cannot pay more than 5% interest rate. 25 Small businessman Give us loans of 2 lakhs each to setup small retail shops / car mechanic / hair saloon etc. We offer 11% interest rate. we cannot offer a penny more because our profit margin isnot good. 2 Students Sir please give us loan of Rs.25 lakhs each, for paying self-financed medical college. We can pay atmost 9% interest rate. 1 Big businessman Give me those 50 lakhs. In a few months, Diwali is coming and I want to setup a new firecracker factory. I offer you 15% interest rate. • if SBI is run from purely profit point of view, then farmers, small businessmen, students and weaker sections of the society will never get any loan. • Because SBI manager would want to give loan to a person that offers him highest interest rate. • Then who is going to protect those weak people? Who is going to help them get loans at reasonable rates? Ans. RBI. • Suppose RBI tells the SBI manager, “40% of the money you lend, must go to priorities sectors viz. agriculture, small scale business, housing and education.” (=40% of 50 lakh=20lakh). • ^This is the basic funda of priority sector lending.
Posted on: Sun, 28 Jul 2013 17:34:06 +0000
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