Achieving the indirect agriculture lending target under the revised Reserve Bank of India guidelines on priority sector lending may prove to be an uphill task for banks.

The reason: loans for food and agro processing units will now be classified under the Micro and Small Enterprises (MSEs) category, provided the units satisfy the investments criteria prescribed for the latter, say bankers.

A manufacturing unit is classified as a micro enterprise if investment in plant and machinery does not exceed Rs 25 lakh. If investment in plant and machinery is more than Rs 25 lakh but less than Rs 5 crore then a unit is classified as a small enterprise.

The annual targets for both direct and indirect agricultural lending are set at 13.5 per cent and 4.5 per cent of (adjusted) net bank credit (obtaining as on March-end of the preceding year), respectively.

Bankers fear that the re-classification of loans to food and agro processing units as loans to MSEs will mean that banks’ indirect agriculture lending portfolio will get whittled down.

The repercussion of this move will be felt by banks if they are not able to build up their indirect agriculture lending by March-end 2013 to the prescribed level.

They will have to make up for shortfall, if any, in the indirect agriculture lending target by parking funds in low-yielding deposits with National Bank for Agriculture and Rural Development/ Small Industries Development Bank of India/ National Housing Bank.

So far, banks have been comfortably meeting the indirect agriculture lending target as it included loans to food and agro-based processing units with investments in plant and machinery up to Rs 10 crore.

Agro processing units, among others, comprise rice mills, sugar mills, and edible oil mills. Food processing units encompass units which add value to fruits and vegetables, dairy, meat, poultry, fishery as also units producing consumer food, alcoholic drinks, aerated water and soft drink.

According to a Ministry of Food Processing strategy paper, food processing industry in India is increasingly seen as a potential source for driving rural economy as it brings synergy between industry and agriculture.

A developed food processing industry leads to an increase in farm gate prices translating into increased rural incomes, reduce wastages, ensure value addition, promote crop diversification, generate employment opportunities as well as export earnings.

Priority sector lending is a statutory dispensation aimed at ensuring that vulnerable sections of society get access to credit at an affordable pricing.

Further, the dispensation also seeks to ensure that there is adequate flow of resources to those segments of the economy — agriculture, and micro and small enterprises, among others — which have a higher employment potential and help in making a large impact in poverty alleviation.

kram@thehindu.co.in

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