Priority sector lending has undergone several changes in the post-reform period and played an important role in building strong rural households and small/new entrepreneurs who previously were unable to receive credit from banks.

The banking industry in India has undergone a transformation since the beginning of liberalization. It was in 1972 that for the first time, the term `Priority Sector' was formalized to include the underserved areas of Indian economy and channel the flow of credit to certain sectors of the economy. However, the strategy of priority sector lending has been too prolonged in natureallocation of credit to certain sectors (about 40% of total credit) and subsidized interest rates on such lending.

The scope and extent of priority sector lending has undergone several changes in the post-reform period, with several new areas and sectors being conferred the status. For a nation which is shifting from a traditional agrarian economy to manufacturing and service-driven economy, a more balanced approach is required focusing both on the sectors which are critical for our future growth and sectors which the majority of the population depends on.

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