The central bank RBI has proposed to slightly tighten the rules for loans given to farmers. The bank regulator wants changes in the rules for scrutiny of farm loans and calculation of Priority Sector Lending (PSL). Under the proposal, banks will now verify information related to land, crop and loan usage more closely while giving agricultural loans.
However, it is a matter of relief for the farmers that the loan given for agricultural work will not be out of the scope of PSL just because the farmer has pledged gold ornaments against it.
RBI has released the draft Priority Sector Lending (Targets and Classification) Guidelines for 2026. Suggestions and comments have been sought on this till 26th November. That means you have 19 days to give suggestions.
What relief will farmers who take gold loans get?
It has been made clear in the RBI proposal that if the bank has given a loan to a farmer for farming related activities, then that loan will not be taken out of the category of PSL i.e. priority loan just because of mortgaging of gold ornaments.
This means that the loan taken for farming can be included in PSL depending on the eligibility, even if the farmer has pledged gold with the bank.
However, the bank will have to ensure that the loan amount is in accordance with the actual need of farming and the scale of finance fixed for the related activity. The loan should not be decided only on the basis of the price or quantity of the gold pledged.
Now banks will also check land and crops
RBI has proposed to make the verification of agricultural loans given against gold more stringent. Under this, banks will have to keep some important information related to farming in their records.
- The land on which the farmer is cultivating.
- Which crop is being grown on the land?
- Where applicable, details of hypothecation of crops in favor of the bank.
- Assessment of farming and actual need of the farmer to decide the loan amount.
Bank officials will also have to visit the farms to monitor the utilization of the loan. The bank will have to maintain records of such field visits. Its purpose is to ensure that the loan taken in the name of farming is actually used for farming only.
Relief to landless farmers and sharecroppers also
Landless agricultural laborers and sharecropper farmers have also been taken into consideration in the RBI proposal. Many times such farmers do not have documents or lease deeds related to land ownership.
In such cases, banks will have to accept other documents to prove their eligibility. Due to this, eligible farmers should not face any problem in getting the benefit of priority sector loan due to lack of land records or lease deed.
Rules may change for PSL also
RBI has proposed to change another rule related to calculation of priority sector loans. It refers to trade bills purchased, discounted or negotiated by banks under Letter of Credit (LC).
According to the draft, such bills should not be excluded from bank credit in India while determining Net Bank Credit (NBC) and Adjusted Net Bank Credit (ANBC) for calculating PSL.
Banks may treat these exposures as interbank exposures for the limited purpose of calculating exposure and capital adequacy. But on this basis alone they will not be excluded from the calculation of PSL.
RBI has included these changes in the draft guidelines and has sought suggestions from stakeholders till November 26. Final rules will be issued after considering the suggestions.
Source: ndtv.in
