Money & Banking

Banks should ensure end use of crop loans: RBI

PTI Mumbai | Updated on November 09, 2012 Published on November 09, 2012

Banks should ensure that all crop loans are being used for the stated purpose and there is no diversion of funds, the Reserve Bank said here on Friday.

“Banks should not claim any interest subvention for loans not meeting the criteria as these will not be treated as ’agricultural’ loans,” RBI said in a notification.

For disbursal of agricultural loan, RBI said the banks must ensure that the borrower is an agriculturist; the rate of interest is not above the rate stipulated by the government, and the amount of loan is fixed as per the prescribed scale of finance for agricultural loans and the loan is used for stated purpose.

Moreover, the banks should ensure that seasonality is observed with regard to both disbursement and recovery of loans.

The government in 2006-07 had introduced interest subvention scheme during the budget to ensure availability of short-term crop loans up to Rs 3 lakh to farmers at a reduced rate of 7 per cent.

With an additional 3 per cent subvention for timely repayment, the effective cost of short-term crop loan stands at 4 per cent.

RBI said that it was brought to its notice that banks in various parts failed to ensure the end use of funds disbursed ostensibly for crop loans.

“As a consequence, the expenditure incurred by the Government of India with an intention to help small and marginal farmers has not reached the intended beneficiaries,” RBI added.

RBI has also advised the banks to strengthen their systems for pre-sanction scrutiny and post-disbursement supervision as well as carrying out post-disbursement audits to ensure that all crop loans for which interest subvention is being claimed are being used for the stated purpose and there is no diversion of funds.

Government has released Rs 10,901 crore to banks as interest subvention for giving crop loans up to Rs 3 lakh to farmers in the current fiscal.

Agricultural credit target for 2012-13 is Rs 5,75,000 crore, up from Rs,4,75,000 crore a year ago.

Published on November 09, 2012
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