Agro sector may get more loans

Mumbai: The RBI, in a letter to private banks, has asked them to step-up their lending to the agricultural sector.

In the letter, the RBI said: "We had previously advised on several occassions to take new steps to improve lending to agriculture. You will agree that due to favourable monsoon in the current year, demand for agricultural credit is likely to increase and, to capitalise on this, banks need to have plans [and] strategies in place."

The RBI has also asked the banks to ensure that during the year 2001-02, lending to agriculture is stepped up sizeably so that the target of 18 per cent of net bank credit to agriculture is reached positively by March 2003.

The RBIs move to ask private bankers to increase lending to the priority sector was prompted by concerns raised by MPs in the parliamentary committee meetings that not enough is being done by the private banks towards lending to the priority sector.

Private banks were initially given some breather to reach the priority sector-lending target to 40 per cent as lending to this sector was considered risky and these banks did not have the infrastructure for conducting such lending. Instead, private banks were permitted to park their funds into bond offerings of the National Bank for Agriculture and Rural Development, the Small Industries Development Bank of India and in the Rural Infrastructure Fund, where money was safe and is guaranteed by the government.

The above facilities will now be gradually withdrawn.