The top management in banks is largely occupied with meeting priority-sector targets (40 per cent of total lending) and sub-targets in various segments (agriculture/ export/ weaker sections among others). And with good reason. If they don't meet the targets, they are forced to park the money in a specially earmarked fund — Rural Infrastructure Development Fund (RIFD), for a coupon rate of 2-3 per cent.
The objective is two-fold — encourage banks to allocate higher amounts to needy sections of society; and ensure adequate disincentives for those who don't comply.
Yet, many banks have consistently failed to meet the targets. While nationalised banks claim they surpass the priority-sector lending targets, at least 11 private banks have not met the target under ‘agriculture' advances. (Bankers say the direct agriculture advance target is 13.5 per cent, while it is 4.5 per cent for indirect advance, totalling 18 per cent.)
Short-term farm loans
Until two years ago, the private banks could not claim the 2 per cent interest subvention on short-term farm loans. Though the Government later extended the farm loan sop to private banks too, bankers say the interest subsidy ‘became applicable only for loans made after April 1, 2009', and despite submitting returns to the Reserve Bank, the Government had not released the subsidy
According to the RBI report on ‘Trend and Progress of Banking in India 2009-10', only two (Bank of Rajasthan and SBI Commercial and International Bank Ltd) out of 22 private banks failed to achieve the overall target, while close to 70 per cent of them did not meet the target under ‘weaker sections'.
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