The stipulation is that forty per cent of advances in the case of domestic banks (and thirty two per cent, inclusive of export advances, in the case of foreign banks) be lent to specified priority sectors such as agriculture, small industries etc. As a result of financial sector reforms, there has been expansion in lendable resources.
However, during the reform process, the list of eligible sectors for treatment as “priority sector” was expanded to include investments in specified bonds and also activities such as venture capital. Several dilutions and distortions in computation of the stipulation occurred in the process.