Directed credit, with its objectives of growth, employment and equity, has been an important policy tool in India since independence. However, this has not translated into substantively improving access to finance outcomes. This has also created attendant problems of high levels of NPAs associated with priority sector assets originated by banks. A recent Financial Stability Report2 states that ‘the contribution of priority sector to aggregate NPAs of the banking system was 48% as at September 2011, which was higher than contribution to total advances of the banking system of 31%’.
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