Measures to spur rural lending

RBI ANNUAL POLICY 2004-05/ MARKET MEASURES

Rural lending is set to get a big boost. The Reserve Bank of India (RBI) has allowed investment by banks in securitised assets representing lending to agriculture to be treated as their lending to agriculture under priority sector.

With a view to fine-tune the credit delivery mechanism, banks have also been asked to waive margin/security requirements for agricultural loans up to Rs 50,000 and Rs 5 lakh for agri-businesses and agri-clinics.

"With increasing emphasis on securitisation of agricultural loans, investment by banks in securitised assets representing direct (indirect) lending to agriculture would be treated as their direct (indirect) lending to agriculture under priority sector, provided the securitised loans are originated by banks and financial institutions," Y V Reddy, governor, said in the RBI's annual policy statement for 2004-05.

In order to align the repayment dates with harvesting of crops, the RBI said a loan granted for short duration crops will be treated as a non performing asset (NPA), if the instalment of the principal or interest thereon remains unpaid for two crop seasons beyond the due date.

A loan granted for long duration crops will be treated as an NPA if the instalment of the principal or interest thereon remains unpaid for one crop season beyond the due date.

All the above prescriptions of crop loans would also be applicable to agricultural term loans.

The central bank said that the micro-finance institutions will not be permitted to accept public deposits unless they comply with RBI's regulatory framework.

This step has been taken with a view to protect the interests of depositors, on the basis of the recommendations of the Vyas Committee's Interim Report.

Loans extended to storage units, including cold storage, which are designed to store agricultural produce/products, irrespective of their location, will be treated as indirect agricultural finance under priority sector. This is to further enhance credit flow to build up storage facilities.