Weak rains force central bank to reverse farm loan norms

RBI goes back to direct agri loan target after govt expresses concern

 

With the government expressing concern over a weak monsoon’s impact on the agricultural sector, the Reserve Bank of India (RBI) has gone back to the policy of a direct agricultural lending target for banks.

In April this year, the RBI had announced revised norms for priority sector lending in which the distinction between direct and indirect lending was abolished. These norms had come into effect immediately.

But in a circular issued to banks issued on Thursday, the central bank has now asked lenders to beef up credit directly to the farmers so that they do not resort only to corporate farm loans to meet targets.

“(Banks) should also continue to maintain all efforts to reach the level of 13.5 per cent direct lending to the beneficiaries who earlier constituted the direct agriculture sector,” the circular said.

In addition, banks have to ensure that their direct lending to non-corporate farmers does not fall below the system-wide average of the last three years. The exact numbers of the last three years will be notified by the central bank shortly.

Earlier this year, the central bank had announced fresh norms which abolished the distinction between direct and indirect agricultural loans but set targets for loans to marginal farmers and a variety of corporate loans was precluded from getting direct lending status. The RBI had said that the move was aimed at increasing lending to farmers directly.

“The government has nevertheless expressed concerns about the adverse impact of any reduction in direct credit to individual farmers, given the recent weather-related difficulties the agricultural sector is experiencing,” the latest RBI notification said.

Under the April norms, the target for direct lending to small and marginal farmers was 7 per cent of total credit of the previous year for 2015-16 and to 8 per cent for 2016-17.

While the overall target of 40 per cent priority sector lending including 18 per cent for agriculture was retained in the new guidelines, there was no separate target for direct agricultural lending. Direct agriculture constituted loans to individuals involved in agriculture and allied activities like buying implements and machineries, short term loans to farmers for raising crops, among others. The new norms had set targets for marginal farmers and small and medium enterprises (SMEs).