Direct Credit Program

Since nationalization the government has encouraged the lending to agriculture and small-scale industries at a concessional rate of interest. It is known as the directed credit program. Shri Raghuram G Rajan Committee opined that these sectors have matured and thus do not need such financial support. This directed credit program was successful from the government's point of view but it affected commercial banks in a bad manner. Basically it deteriorated the quality of loan, resulted in a shift from the security oriented loan to purpose oriented loans. Banks were given a huge target of priority sector lending, etc. ultimately leading to profit erosion of banks.