With reference to the Narasimham committee recommendations on Priority Sector Lending (PSL), which of the following statements is/are correct? 1. Directed credit programme should be phased out gradually. 2. The redefined PSL should be fixed at 10% of the aggregate bank credit. Select the correct answer using the codes given below:

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C

Notes:

Under this sub-title the suggestions revolved around the compulsion of priority sector lending (PSL) by the banks:

Directed credit programme should be phased out gradually. As per the committee, agriculture and small-scale industries (SSIs) had already grown to a mature stage and they did not require any special support; two decades of interest subsidy were enough. Therefore, concessional rates of interest could be dispensed with.
Directed credit should not be a regular programme—it should be a case of extraordinary support to certain weak sections—besides, it should be temporary, not a permanent one.

Concept of PSL should be redefined to include only the weakest sections of the rural community such as marginal farmers, rural artisans, village and cottage industries, tiny sector, etc.
The “redefined PSL” should have 10 per cent fixed of the aggregate bank credit.
The composition of the PSL should be reviewed after every 3 years.

Source: TMH Ramesh Singh