RBI said in a letter issued last week (August 23): "A time period of two years was stipulated in April 2001, within which private sector banks should achieve the target of 18 per cent of net bank credit for lending to agriculture (as also the target stipulated for lending to priority sector and weaker sections). Banks were advised to step-up lending to priority sector (including agriculture) so as to reach the stipulated targets by March 2003."
RBI added, "However, the data for March 2002 shows that there has not been much improvement in the level of achievement vis-a-vis the stipulated target. In view of this, banks will have to ensure growth in agricultural credit at a much faster rate and will have to focus increasingly on direct lending to agriculture so as to reach the targeted level."
The meeting is likely to discuss the problems faced by banks and various strategies adopted by them for improving credit flow to agriculture sector.
Private sector banks are likely to put forward a demand for exemption banks from direct agricultural lending obligations.
However, they are willing to meet their quota through indirect credit. Several banks, including private sector and foreign banks, have reportedely taken the easy way out by placing their priority sector shortfalls in the rural infrastructure development fund, and thereby earning an interest too. In the past too, the central bank had asked these banks not to continue with this practice, but rather step up direct lending.