RBI nudges banks to hike lending to distressed farmers

Reserve Bank of India (RBI) has directed banks to ensure that their overall direct lending to non-corporate farmers does not fall below the system-wide average of the last three years achievement, in view of the uncertain rains.

RBI said it would shortly notify the figures and any failure to achieve the target would attract the usual penalties for shortfall, the central bank said.

RBI also directed banks to 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 RBI directive to banks follows concerns expressed by the government 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 target for direct lending by banks to agriculture under the priority sector norms aims to increase the flow of credit directly to farmers.

Direct lending to the most disadvantaged farmers, the small and marginal farmers, has been around 6 per cent of adjusted net bank credit (or credit equivalent amount of off-balance sheet exposure, whichever is higher.

In an effort to increase direct lending to agriculture, the target for direct lending to small and marginal farmers under the recently revised priority sector norms has been increased to 7 per cent for 2015-16 and to 8 per cent for 2016-17.

Furthermore, a variety of corporate loans have been precluded from getting direct lending status. This should ensure that overall direct lending to agriculture, including medium and large farmers, will increase, RBI said.