Revised RBI norms: Indirect agriculture lending target - difficult to achieve

http://www.thehindubusinessline.com/industry-and-economy/banking/article3687583.ece

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.

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.

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.