such cost is borne by the shg rather than the bank. interest earned from group members is retained in the group. the penetration achieved through shgs has been very significant. as per nabard ’ s report on status of microfinance ( 2008 – 09 ), about 86 million poor households are covered under the shg - bank linkage program with over 6. 1 million saving - linked shgs and 4. 2 million credit - linked shgs as on march 31, 2009. 11. the initial phase of shg movement saw concentration of shgs in the southern parts of the country, but now the shgs have spread more to the eastern and north eastern regions where the extent of financial exclusion is greater. the government of india has also been using the shgs for subsidy linked credit schemes for the poor. nabard offers grant assistance to ngos that promote shgs and link them to banks. mandated priority sector lending 12. priority sectors broadly include agriculture and allied activities, micro and small enterprises, education, housing and micro - credit. all domestic commercial banks are required to allocate 40 per cent of their lending to the priority sectors. for foreign banks, the requirement is 32 per cent and export credit is also included in their case. credit extended by banks to shgs, micro finance institutions, to nbfcs for on - lending to priority sector, and to regional rural banks for agriculture and allied activities have been included in the definition of priority sector. investments made by banks in securitised assets, representing loans to various categories of priority sector which are originated by banks and financial institutions, are also included in priority sector. a bank can also purchase priority sector lending from another bank though participatory notes. any shortfall in priority sector lending is required to be deposited in special funds maintained by nabard / sibdi / nhb, which are used for funding rural infrastructure / micro - enterprises / housing sectors. as on march 31, 2009, the coverage under priority sector was to the tune of 51 million loan accounts. while it could be argued that mandated credit distorts allocative efficiency of the banking system, i would like to emphasise that no subvention is involved as interest rates are deregulated and all the usual prudential norms for income recognition, asset classification and provisioning, as also standard risk weights are applicable, which ensures that such loans do not add undue risk to the bank ’ s balance sheet. linking branch licensing approval

on the basis of credit worthiness of the borrower but also the relationship between the banks and their borrowers. financing through corporate bonds might remove such distortions to a large extent as investors will demand higher coupon for issues with lower credit worthiness, while borrowers with strong fundamentals and sound business get rewarded by lower cost of financing. thus there are many advantages of an efficient, well developed and liquid corporate debt market. 11. the importance of a developed debt market viz., the corporate debt market for a country like india, which has an huge and ever growing capital funding requirement is widely acknowledged and although various measures on the regulatory and policy front have been introduced in recent times, concerted efforts from all market participants is required to develop and grow the largely untapped potential of the country ’ s corporate debt markets. expert committees 12. in india, progressively, a number of committees and groups were set up by rbi to study the bank financing / funding patterns vis a vis the corporate funding requirements. prominent among them were the tandon committee, chore committee, etc. the committees uniformly recommended that corporate reliance on bank finance for short term recurring expenses need to be brought down. chore committee specifically recommended the need for reducing the over - dependence of the medium and large borrowers – both in the public and private sectors on bank finance. 13. more recently, a high level expert committee on corporate bonds was set up under the chairmanship of shri r. h patil which submitted its report in december 2005 and made several recommendations including the need for rationalisation of stamp duty structure and issuance costs, tax deducted at source, encouraging securitization, repos and cds in corporate bonds, enhancing issuer and investor base, simplifying issuance procedures, etc. 14. in the year 2009, the committee for financial sector reforms ( cfsr ) ( chairman : dr. raghuram g. rajan ) also looked into the issues inhibiting the corporate debt market and made several recommendations on similar lines. some of the highlights were to bring all trading related regulation within the purview of sebi, improve coordination between various concerned agencies where multiple regulators share concern, set up a working group on bis central bankers ’ speeches financial sector reforms with finance minister as chairman, the committee, had recommended the sequencing approach for corporate finance, which entails developing a number of missing markets as well as complementary development of other sectors in the economy for a healthy development of the corporate bond