Investments in RIDF can be counted towards priority sector lending: RBI
RBI has now allowed banks to include the outstanding deposits in RIDF as part of indirect agriculture lending
Mumbai: The Reserve Bank of India (RBI) on Thursday said banks can count investments made in the Rural Infrastructure Development Fund (RIDF) maintained with the National Bank for Agriculture and Rural Development (Nabard) as part of their indirect agriculture lending under the so-called priority sector lending target.
Banks are required to lend 40% of their loans to agriculture, small industries and other economically weaker sectors. Of this, 18% should be for agriculture, with a break-up of 13.5% as direct lending to farmers and the remaining 4.5% as indirect lending.
When banks fail to meet the target, they invest an amount equal to the shortfall in RIDF. They earn a lower interest of about 6.5% on such investments, compared with the rate at which they give loans.
RBI has now allowed them to include the outstanding deposits in RIDF as part of indirect agriculture lending. Accordingly, the deposits as on 31 March under RIDF and a few other funds with Nabard will be treated as part of indirect agriculture loans and will count towards their overall priority lending target, RBI said in a notification. Nabard has an RIDF outstanding of about ₹ 75,000 crore on 31 March.
The new guidelines will give banks some relief.
“This is indeed a relief, as banks are struggling to meet the priority sector targets. However, they will have to continue to meet the direct lending obligations prescribed under the norms," the head of rural business at a state-run bank said, requesting anonymity.
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