Loans to commodity traders not farm credit

MUMBAI: The Reserve Bank of India has objected to private banks classifying loans to commodity traders as part of the mandated farm credit, in a move aimed at ensuring that banks reach out to genuine farmers.

This could result in several private banks missing their priority sector lending target as they will have to re-classify loans to commodity traders as normal lending to companies or individuals and lend afresh small loans to farmers to meet their target.

“The RBI inspectors are going hammer and tongs in the wake of large ticket commodity transactions like funding of basmati exporters and mustard seeds,” said a banker with knowledge of the development.

“They have raised objections to banks classifying these as priority sector loans as here the direct beneficiary is not the farmer. Additionally, these are large-ticket transactions of around Rs 250 crore,” said the banker. An e-mail sent by ET to the central bank did not elicit any response.