Advances to weaker sections would now be 12 per cent of credit for scheduled commercial banks, and 12 per cent for small finance banks.
The guidelines should enable more credit flow to small and marginal farmers, who are largely outside the ambit of the formal credit system and will also boost credit to the farmer-producer organisations and companies, experts said.
Within agriculture credit, 10 per cent should be mandatorily given by banks to small and marginal farmers over the next three years, starting 2020-21.
However, as pointed by the NK Jain Committee on Agriculture Credit which submitted its report last year, though, small and marginal farmers, constituted 86.21 per cent of total operated holdings and have 47.34 per cent share in the operated area, but just 40.90 per cent of them were covered by scheduled commercial banks.
“This gradual increase in PSL guidelines for small and marginal farmers will enable NBFC and MFIs which are today main avenues for credit to rural India to increase their lending,” said Pravesh Sharma, former Managing Director of Small Farmers Agribusiness Consortium (SFAC) and Co-Founder and CEO of Kamatan FarmTech Private Ltd.
According to Sharma, banks may not lend more to small and marginal farmers which they presently don’t find comfortable dealing with as their cost of getting a customer is far higher due to several reasons such inadequate papers etc, but they can increase their lending to non-banking finances companies (NBFCs) and microfinance institutions (MFIs) who can help meet banks their priority sector targets. At the end of the month, banks buy the portfolio back from these firms and meet their lending targets.
These agents of banks “have become one the main instruments for rural credit could find it now more comfortable to lend to small farmers who actually need the fund,” Sharma said.
"On the whole it seems to be a good move forward, particularly the focus on districts in eastern India etc, but my only concern is implementation as many times we have seen that PSL norms aren't fulfilled entirely. But, at the same focus on new sectors such as solar energy etc. is welcome," said Mahendra Dev, Director of Indira Gandhi Institute of Development Research (IGIDR).
Total priority sector lending for primary urban cooperative banks (UCB) will be raised to 75 per cent of their books by March 2024, from the existing 40 per cent target. This rule had already been notified after the PMC Bank fiasco. Advances to weaker section would be 12 per cent for UCBs from 2023-24, from 10 per cent now. Small and marginal farmers should get 10 per cent of the total loans from 8 per cent now.
Farmers producers organisations (FPO) that undertake farming with assured marketing of their produce at a pre-determined price can now get loans up to Rs 5 crore. At the same time, crop loans to farmers can go up to Rs 2 crore per borrowing entities for medium- and long-term loans for agriculture and allied activities. The farmers can get loans up to Rs 50 lakh for 12 months against their warehouse receipts.
FPOs are always in need of capital to increase their benefit for the members, and this move by RBI is highly encouraging, Sharma said. The banks can tap into the NBFCs for lending to FPOs, instead of directly lending, Sharma said.
Loans towards agriculture infrastructure can go up to an aggregate sanctioned limit of Rs 100 crore per borrower.
The RBI also doubled credit limit for health infrastructure, including for ‘Ayushman Bharat’. Banks can now give loans of up to ₹5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at household level, etc. and loans up to a limit of ₹10 crore per borrower for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres, the central bank said.