State Bank of India is betting big on priority sector lending.

It plans to lend Rs 11,000 crore (Rs 110 billion) under this head for the current financial year compared with Rs 7,700 crore (Rs 77 billion) disbursed in the previous financial year.

SBI is gung-ho about lending to the priority sector as interest rate charged ranges between 8.5-11.5 per cent. With big corporates making do without the assistance of banks, the latter are reeling under surplus liquidity.

Deploying the excess liquidity in the call money market fetches only 4.25 per cent and parking funds at the repo window of the Reserve Bank of India earns 4.50 per cent. Faced with barely positive returns, banks, including SBI, find lending to the priority sector quite an attractive proposition.

Priority sector lending currently accounts for 39 per cent of the banking behemoth's net bank credit of Rs 1,32,000 crore (Rs 1,320 billion).

If the Rs 11,000 crore (Rs 110 billion) lending target is achieved, then disbursements by SBI under this category will cross the Rs 60,000 crore (Rs 600 billion) mark in FY05.

Lending to agriculture, small-scale industry, small business, transport operators, village and cottage industries, rural artisans and other weaker sections, education, housing etc constitutes priority sector lending.

The target for priority sector lending for banks is pegged at 40 per cent of their net bank credit.

Within priority sector, SBI wants to ramp up its lending to agriculture by a whopping 133 per cent to Rs 2,800 crore (Rs 28 billion) compared with Rs 1,200 crore (Rs 12 billion) disbursed in the previous year. This is in tune the Centre's resolve to give a leg up to the agriculture sector.

The target for lending to the small-scale industries, pegged at Rs 1,500 crore (Rs 15 billion), is a massive 131 per cent jump over the previous year's disbursement of Rs 650 crore (Rs 6.5 billion).

Under the head of small businesses, the advances target is set at Rs 1,120 crore (Rs 11.2 billion) compared with Rs 800 crore (Rs 8 billion) in the year-ago period.

The bank expects to lend Rs 6,000 crore (Rs 60 billion) to the housing sector this year compared with Rs 4,800 crore (Rs 48 billion) in the previous year. A good chunk of this lending (advances up to Rs 10 lakh) qualifies for treatment as priority sector lending.

That lending to the sector can be attractive has been vouchsafed by A S Ganguly, chairman of RBI's working group of flow of credit to the SSI sector.