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LATEST NEWS UPDATES | Govt may hike annual agricultural lending target for Banks-Dheeraj Tiwari

Govt may hike annual agricultural lending target for Banks-Dheeraj Tiwari

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published Published on Jan 23, 2013   modified Modified on Jan 23, 2013
-The Economic Times

The government may increase the annual target of the banks for lending to the agriculture sector by 22% in the upcoming union budget to 7 lakh crore, in view of the revised classification of priority sector loans issued by the Reserve Bank of India.

"Banks will be pushed to achieve their direct lending targets and focus on the new improved Kisan Credit Card scheme," said a finance ministry official, who did not wish to be named.

The banks will be able to meet the new targets easily, the official said, since the revised classification includes companies of individual farmers and partnership firms directly engaged in agriculture and allied activities. By November-end, the banks had extended about 5.49 lakh crore to the sector against the target of 5.75 lakh crore for 2012-13. As per the RBI's norms , banks have to lend 13.5% of their adjusted net bank credit towards direct lending to the agriculture sector. The total mandated lending to the sector is 18%, including loans for investment in agriculture and allied activities.

A few banks, such as the Central Bank of India (-78.60%), IDBI Bank (-41.71%) and Canara Bank (-3.75%), had registered a decline in direct lending to the sector in the first half of the current fiscal. The government will also push the regional rural banks to open more farm loan accounts and meet the credit needs of farmers, the official said, adding, "The number of farmer accounts has not been growing as fast as the credit flow. Both commercial banks and RRBs will need to focus on the same."

The banking system covers about 50% farmers in the country.

The government will also continue with the interest subvention scheme, which provides 3% interest subvention to farmers who repay on time. The subvention is provided on short-term crop loans, for which the banks charge 7% interest rates.

"It is an effective mechanism to encourage farmers and will also bring down the bad loans in the sector," the official said. In addition, the farmers who park their produce at warehouses will also get 3% interest subvention, bringing the real interest rate to 4%.

Bankers said the RBI's guidelines would make it possible to meet the revised targets.

The Economic Times, 23 January, 2013, http://economictimes.indiatimes.com/news/economy/finance/govt-may-hike-annual-agricultural-lending-target-for-banks/articleshow/18142036.cms


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