Mumbai: The Reserve Bank on July 16 directed banks to ensure that their overall direct lending to farmers should not fall below the average of last three years, as government has expressed concerns over impact of recent adverse weather conditions.
RBI said government has expressed concerns over adverse impact of any reduction in direct credit to individual farmers given the recent weather related difficulties faced by the agricultural sector.
"Banks are, therefore, directed 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 (to be notified shortly, and henceforth at the beginning of each year), failing which they will attract the usual penalties for shortfall," RBI said in a notification.
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, it said. After a good start, the south-west June-September monsoon has weakened in mid-July, including in Rajasthan and Himachal Pradesh.
In an effort to increase direct lending to agriculture, the target for 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.
In its revised priority sector lending norms announced in April, RBI also widened the definition of priority sector by including medium enterprises, social infrastructure and renewable energy while retaining the lending target to the sector at 40 per cent.
Also, the distinction between direct and indirect agriculture has been dispensed with and loans to food and agro processing units will form part of agriculture. Banks' overall target for agriculture is at 18 per cent.
The target for direct lending by banks to agriculture under priority sector norms are aimed 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.
Among others, a variety of corporate loans have been precluded from getting direct lending status so as to ensure that overall direct lending to agriculture, including medium and large farmers increases.
