Union Government directed PSBs to Boost Credit to Small Industry & Farmers

The Union government suggested the state-run banks to focus on traditionally-credit starved areas, such as small industry and agriculture, while credit demand from big industry moderates.
Reserve Bank of India revised the credit growth target to 18% from 19% in 2011-12 after it raised the key rates by sharp 0. 5 percentage points in its monetary policy review on 26 July 2011. The RBI raised the repo rate for the eleventh time since March 2010 to curb runaway inflation. Finance Minister, Pranab Mukherjee also raised the issue of increased lending in the agriculture sector.
Currently, the banking system only covers 50% of the farmers in India. The government set a target of Rs. 475000 crore bank credit for the farm sector in 2011-12. Banks that did not meet the targets for agriculture lending in the last three years were asked to step up their loan portfolios.

The government also asked chairmen of state-run banks to frame a mechanism to increase the number of farmers bank accounts. The growth in the number of farmers account was 14% in the last one year while the loan disbursal towards the sector increased by around 17%. Banks are expected to meet the direct lending targets towards agriculture sector. In 2009-10, only 13 banks were able to meet their targets.

There are 21 public sector banks in the country and five subsidiaries of SBI. According to the RBI guidelines, banks are required to lend 40% of their adjusted net credit to the priority sector, which includes agriculture (18%), small-scale industries and other weaker sections. In case the banks fall short of this target, they can buy the loans of RRBs or MFIs to meet the level.

The RBI mentioned that loans given to non-banking finance companies (NBFCs) will not be considered priority sector lending except to finance companies lending to microfinance institutions. Banks are therefore likely to face more pressure to step up lending in 2011.