The Hindu Business Line : Targets for priority sector lending need review: RBI panel

The RBI appointed advisory committee on flow of credit to agriculture feels that the fixation of targets for lending to the priority sector including agriculture needs a comprehensive review.

Until a review is attempted, the existing target of 18 per cent of net bank credit for lending to agriculture may continue.

The Committee, which submitted its report to the central bank, has also noted the difficulties faced by banks in achieving the target of 18 per cent, particularly in the context of faster growth in the quantum of net bank credit, the demand side constraints and the cap on indirect finance to agriculture for reckoning the performance of banks against the stipulated target.

There have also been suggestions to link the target to disbursements rather than outstanding advances.

According to the Committee, all public sector and private sector banks should increase their direct lending to agriculture to a level of 12 per cent of net bank credit within two years and to the level of 13.5 per cent within the next two years thereafter. Banks, which have already reached this level, may maintain or improve their position.

All securitised loans of direct advances to agriculture, the Committee feels may be treated as a bank's direct lending to agriculture under the priority sector. Similarly, if the securitised assets represent indirect finance to agriculture, the investment in such assets may be treated as indirect finance to agriculture.

At present, securitisation of assets by banks is not reckoned for the purpose of computing their priority sector lending.

The most important task, the Committee feels is to change the mindset of bankers. It needs to be emphasised that all over the world, retail banking is emerging as more profitable and less risky proposition. In the Indian context, there is hardly any better avenue for retail lending than agriculture, said the report.

Franchising village post offices to route bank credit, as announced in the 2003-04 Budget will also go a long way in associating these agencies. Similar to Nabard and SBI, which have taken up pilot programmes in this regard in Tamil Nadu, other commercial banks can also follow suit.

The Committee recommended the setting up of an "Agri-Risk Fund" with equal contribution from the Central and State Governments and the participating banks. Such a fund, the Committee feels, would mitigate risk of the lending banks.

The Committee suggested that the earlier delinquency norm of 180 days default for classifying a loan as NPA may be continued in respect of loans for activities allied to agricultureinstead of the present 90-day normsince it does not take into account temporary disruptions in cash flows at the farmer level.

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