RBI favours a financial system that provides incentives to encourage flow of credit at justifiable terms and conditions and for purposes that ensure servicing of interest and principal, i.e., bankability of schemes. Fifth, an important instrument for influencing allocation of credit in the banking system, keeping in view the compulsion of growth and employment, has been the stipulation regarding bank’s lending to priority sector.
The definition of priority sector has been reviewed from time to time to match with the contemporary requirements. Sixth, in the reform process that commenced in 1992, the reform of the financial sector was early in the cycle.