It is more profitable to lend to “priority sector” in India?

According to a report in Indian Times, Chennai-headquartered Indian Bank is making very good profits in so-called “priority sector”(agriculture, backward areas, women-owned businesses, etc), to which other banks are willing to lend only when forced to by the government.  According to another report in Hindu Business Line,  many banks actually have to buy loans from public sector banks in order to meet the government-set target of priority sector lending.

Thus the news sounds too good for me to believe ( I checked my calendar and today is not April the First). The report doesn’t give details on how they manage to do it, but I think we definitely need to learn from them if it is true.

“At a time when most banks are fighting for market share in corporate/SME business, Chennai-headquartered Indian Bank is betting big on priority sector lending.  Against the mandated 40%, this bank’s priority sector portfolio accounts for 51% of its advances. “Our experience of lending to priority sector has been good. Non-performing assets (NPAs) in agriculture, for instance, account for less than 2% of that portfolio. The average net interest margin (NIM) is around 4% which is much higher than what we would get by lending to corporates,” says KC Chakrabarty, the bank’s CMD.”

How do they do it? If any readers know about articles about the experience of Indian Bank's lending to priority sector, please let me know. I'd like to look into it.

Comments

[Naveen]

Work done by Abhijit Banerjee should help you.
http://econ-www.mit.edu/faculty/index.htm?prof_id=banerjee&type=paper

Good blog!

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