RBI for more agriculture loans

Seeking a "comprehensive review" of setting of targets for lending to priority sector, including agriculture, a Reserve Bank of India-constituted committee suggested that all public and private sector banks should increase their direct lending to agriculture to 12 per cent of net bank credit within two years.

Setting target on the basis of disbursements would not establish a link between the total advances of a bank and lending to agriculture and hence it needs a comprehensive review.

Till such a review is attempted, the existing target of 18 per cent of net bank credit for lending to agriculture may continue, the vs Vyas Committee said.

It said they should increase their direct lending to agriculture to 12 per cent of net bank credit within two years and 13.5 per cent within the next two years thereafter.

The indirect lending to agriculture may be reckoned to the extent of 6 per cent for computing the performance of banks under the 18 per cent target during the first two years.

"Although the target for lending to agriculture has not been achieved by most banks, the amount of outstanding lending to agriculture in absolute terms has increased continously over years," the Committee noted.

Existing system of relating interest rates on deposits placed in RIDF inversely to shortfall in achieving the target provides adequate punitive measures, as banks with higher level of shortfall get lower rates of interest which would be less than their cost of funds, it said.