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April 5, 2016

Whether loans to commission agents/ Arthi / Aarthi will be included in agriculture advance?

Before examining the question let us examine the instructions available.
RBI issues separate Master circular for Priority Sector lending – Targets and Classification in which priority sector lending includes
(i)            Farm Credit (which will include short-term crop loans and medium/long-term credit to farmers)
(ii)           Agriculture Infrastructure and
(iii)         Ancillary Activities.

IRAC norm circular of RBI specifies provisioning on standard asset as follows:-

a)    Farm Credit to agricultural activities and Small and Micro Enterprises (SMEs) sectors at 0.25 per cent;

Thus it can be noted that although priority sector lending covers 3 categories however for provisioning purpose the benefit of lower provision is available two category i.e Farm Credit and SME.

The definition of Farm Credit has been given in both the circulars separately but by and large remains same. I am not copy pasteing the definition here but on analysis of the same you will observe the key ingredients as

a)    Loan should be given to Farmer  AND
b)    Should be directly for purpose of agriculture or agriculture produce should be held as security (loans upto Rs 50 lacs).

As  per internal ccirculars of Banks, Loans to Commission Agent/ Aarthi/ arthi have been classified as SME therefore they make provision of 0.25% on the same.


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