RBI proposes tighter farm loan verification, new PSL calculation norms. (IANS Photo)
New Delhi, November 7 (IANS): The Reserve Bank of India (RBI) has proposed tighter documentation requirements for agricultural loans and changes to priority sector lending (PSL) calculations with implications for treatment of certain trade-credit exposures.
The report said the proposals in the draft Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2026 aim to strengthen oversight of agricultural lending and comments on the draft are invited until November 26.
The proposals include stricter verification of gold-backed agricultural loans with banks maintaining details such as the location of land under cultivation, crops grown and hypothecation of crops, wherever applicable.
Further, the proposal envisages a change in manner of banks accounting for trade bills discounted under letters of credit (LCs) while calculating their priority sector lending obligations.
Banks must ensure that the sanctioned loan amount is based on the applicable scale of finance and a proper assessment of the credit requirements for the agricultural activity, rather than solely on the type or value of collateral.
Further, banks must maintain records of field visits by officials to oversee the end use of loans. Banks must maintain alternative verifiable documents in case of landless agricultural labourers and sharecroppers without land records or lease deeds, to establish their eligibility for PSL classification.
“Bank loans extended for agricultural activities do not become ineligible for priority sector classification merely because the underlying collateral is in the form of gold jewellery or ornaments,” the draft said.
Bills purchased, discounted or negotiated by banks under letters of credit should not be excluded from ‘bank credit in India’ while calculating net bank credit (NBC) and adjusted net bank credit (ANBC) for PSL purposes, the draft said.
Banks can treat these exposures as interbank exposures for the limited purposes of exposure and capital adequacy calculations, rather than excluding them from the PSL calculation.
