Loan limit increased for dealers in agricultural machinery

MID-TERM REVIEW OF ANNUAL POLICY 2004-05/ FINE-TUNING CREDIT DELIVERY

Private sector banks directed to formulate special farm credit plans from FY06.

The central bank has increased the limit on advances under the priority sector for dealers in agricultural machinery from Rs 20 lakh to Rs 30 lakh and for distribution of inputs for allied activities from Rs 25 lakh to Rs 40 lakh. The revision in the credit ceilings are in keeping with the Vyas Committee recommendations.

The Reserve Bank of India (RBI), in its mid-term review of the annual policy statement, today directed private sector banks to formulate special agricultural credit plans from next year (2005-06), targeting an annual growth rate of at least 20-25 per cent in credit disbursements to agriculture.

With a view to ensuring that banks meet with the priority sector lending targets, the central bank has extended the special agricultural credit plans (SACP) mechanism to private sector banks.

To improve the flow of credit to small and marginal farmers, the RBI has directed banks to hike their disbursements to such farmers to 40 per cent of their direct advances under the SACP by March 2007.

Similarly, to improve banks' credit delivery mechanism, the policy proposes to dispense with the restrictive provisions of service area approach, except for government-sponsored programmes.

However, modalities and operational guidelines to improve credit delivery channels will be issued in consultation with the government and the National Bank for Agriculture and Rural Development, the RBI said.

In addition, the RBI has also asked the Indian Banks Association to look into the findings of the survey of the Kisan Credit Card scheme and take remedial actions to improve the flow of credit under the KCC scheme.

The survey conducted by the National Council of Applied Economic Research suggested relaxation in restrictions imposed on the issuance of KCCs by security conscious banks, permission for usage of KCCs cards at all bank branches, reward points to borrowers for timely repayments and enhancements in credit limit for farmers.

Public sector banks have issued 14.42 million KCCs up to July 2004. With a view to bring the urban poor into the formal financial system, the RBI has allowed banks to advance loans to distressed urban poor to repay their debt to non-institutional lenders against appropriate collateral or group security.

To step up credit to agri sector and increase their penetration, most banks have been working with self-help groups. The RBI has asked banks to further strengthen the self-help group (SHG) model to enable credit linking of 5.85 lakh SHGs by March 2007.

As on March 2004, about 1.1 million SHGs were linked to banks covering 16 million poor families. The total flow of credit was Rs 3,900 crore with an average loan of Rs 36,000 per SHG and Rs 2,400 per family.

Key takeaways

• Directed push to increase the efficiency of priority sector lending.
  
  
• Bank lending to self-help groups promoted
  
  
• Private sector banks roped into special agricultural credit plans
  
  
• Banks have to improve the efficiency of the KCC scheme.
  
  
• Banks told to provide loans to the poor to enable them to pay off debts to non-institutional lenders.