Farm credit set to rise 40% under new Priority Sector Lending norms

New Delhi(PTI): The new priority lending norms issued by the Reserve Bank will ensure a 40% increase in credit flow to the under-funded segment of small and marginal farmers at Rs 85,000 crore this fiscal, the economic research department of SBI said today.

Under the priority lending norms, it wants banks to lend 7% of their total advances to small and marginal farmers.

“As per our estimates, if banks have to meet the 7% target by March 2016, an amount of Rs 85,000 crore needs to go to the small and marginal farmers considering a credit growth of 15% in FY 2016, which will be 40% more than last fiscal’s.” it said in a note.

In the revised guidelines on the priority sector lending (PSL) made effective last week, the Reserve Bank has asked for a staggered increase in credit to the small and marginal farmers under the mandatory credit outgo to weaker sections of the society.

The small and marginal farmers is a newly-introduced segment which will be a part of the overall 18% credit allocation for agriculture. The RBI has dispensed away with the earlier distinction between direct and indirect lending.

“A target of 8% of annual net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher, has been prescribed for small and marginal farmers within agriculture, to be achieved in a phased manner i.E., 7% by March 2016 and 8% by March 2017,” the RBI said in its new PSL guidelines last week.

It can be noted that recent events like the unseasonal rains in central and northern states have aggravated the stress among the farmers.

“Overall, the new rules are positive and could be a game changer for banks with more focused and inclusive lending,” the SBI note said.

It noted that as per the bank’s suggestion, agri infrastructure, including construction of storage facilities, watershed development has been added to the priority sector lending.

That apart loans to food and agro processing units, which were a part of micro and small enterprises earlier, will now be a part of agriculture and will encourage banks of covering the entire agricultural value chain, it said, adding this will result in an improvement in productivity, storage and distribution.

Posted by on April 29, 2015. Filed under Editorial. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.