Rural and Agricultural Loans

Rural and Agricultural Loans

The rural and agricultural loan portfolio of banks comprises loans to farmers, small and medium enterprises in rural areas, dealers and vendors linked to these entities and even corporates.For farmers, banks extend term loans for equipments used in farming, including tractors,pump sets, etc. Banks also extend crop loan facility to farmers. In agricultural financing, banks prefer an 'area based' approach; for example, by financing farmers in an adopted village. The regional rural banks (RRBs) have a special place in ensuring adequate credit flow to agriculture
and the rural sector. The concept of 'Lead Bank Scheme (LBS)' was first mooted by the Gadgil Study Group, which submitted its report in October 1969. Pursuant to the recommendations of the Gadgil Study Group and those of the Nariman Committee, which suggested the adoption of 'area approach' in evolving credit plans and programmes for development of banking and the credit structure,
the LBS was introduced by the RBI in December, 1969. The scheme envisages allotment of districts to individual banks to enable them to assume leadership in bringing about banking developments in their respective districts. More recently, a High Level Committee was constituted by the RBI in November 2007, to review the LBS and improve its effectiveness, with a focus on financial inclusion and recent developments in the banking sector. The Committee has recommended several steps to further improve the working of LBS. The importance of the role of State Governments for supporting banks in increasing banking business in rural areas has
been emphasized by the Committee.