Public as well private sector lenders are both urging Reserve Bank of India to raise the cap placed on indirect agricultural lending. The reason behind this is the fact that more than half of these banks have been unable to meet the target for total lending to agricultural sector set by RBI for this fiscal.

Agricultural loans comprise of crop loans, loans upto Rs 10 lakh against pledge/ hypothecation of agricultural crop production for atleast one year as well as loans for pre as well as post harvest activities.

There have been many factors coming in the way of banks in fulfilling this credit target. Amongst them include the fear of the consequences in case farmers do not repay the loans, problems in recovering such loans and chances of rising NPAs.

The target for agricultural lending is based on Adjusted Net Bank Credit (ANBC) (net bank credit plus investments made by banks in non-Statutory Liquidity Ratio bonds held in the ‘held to maturity' category).

This year, the target has been set at 18% of ANBC or OBE. Out of this, the fraction of direct lending accounts to 13.5% while that of indirect lending is set at 4.5%.