RBI nod for new SHG norms

Mumbai, Nov 28 | Updated: Nov 29 2006, 08:41am hrs
With a view to helping banks to achieve the stipulated target of 18% direct lending to agriculture, the Reserve Bank of India (RBI) has permitted banks to classify loans granted to the self-help groups (SHGs), engaged in agriculture and allied activities, as direct finance to agriculture.

This move has come against the backdrop of several leading banks failing to achieve the stipulated target of 18% direct lending to agriculture last year. As a result, RBI has also been receiving requests from various banks for treating loans granted to SHGs engaged in agriculture and allied activities, as direct finance to agriculture within the priority sector.

Brahmanand Hegde, joint general manager- rural & microbanking said, Close to 65% of our total lending to SHGs is for agriculture and related activities. Currently, micro-finance as a percentage of our total loan book is very small. However, this proportion is expected to increase in the future and as a result RBIs move will help banks to increase their direct exposure to agriculture.

Earlier, loans provided by banks to non-government organisations (NGOs)/SHGs for on-lending to SHGs/discrete individuals or small groups which are in the process of forming into SHGs were eligible for classification as priority sector advances.

However, classification of loans SHGs, engaged in agriculture and allied activities, as direct finance to agriculture, is expected to give a big boost to micro-finance related activities of banks. Bankers have cheered the apex banks move to classify loans granted to such SHGs as direct finance to agriculture.