RBI changes rules on priority sector lending

Mint  :Dinesh Unnikrishnan  :  Wed, Oct 17 2012. 11 42 PM IST
 Photo: Hemant Mishra/Mint


Move to encourage commercial banks to undertake more direct lending to farmers

RBI has included loans to corporations including farmers’ producer companies of individual farmers and cooperatives of farmers directly engaged in agriculture and allied activities under direct lending.

Mumbai: The Reserve Bank of India (RBI) on Wednesday amended its guidelines on so-called priority sector lending to encourage commercial banks to undertake more direct lending to farmers.

RBI has included loans to corporations including farmers’ producer companies of individual farmers and cooperatives of farmers directly engaged in agriculture and allied activities under direct lending.

Such loans can be short-term crop loans, loans for pre-harvest and post-harvest activities, and credit to farmers for exporting their own farm produce.

Also, bank loans to certain operations of micro and small enterprises, and loans to government agencies for construction of dwelling units and slum rehabilitation can also be termed priority sector, RBI said.

Under priority sector norms, banks need to set aside 40% of their total credit to agriculture, exports, microlending and other weak economic sections. Failure to meet this target will force banks to invest in the Rural Infrastructure Development Fund maintained by the National Bank for Agriculture and Rural Development. The changes will come into effect from 20 July, RBI said in a notification.

“The central bank is in favour of more direct lending by banks to the agriculture sector as farmers directly benefit from such lending and monitoring the end use is easier,” a senior official with a state-run bank said on condition of anonymity.