RRB On-Lending to Agriculture: Classification as Indirect Finance
Current · Source: Reserve Bank of India · RBI/2007-08/209 · issued 12 Dec 2007 · ~2 min read
Quick answerLoans from sponsor/commercial banks to RRBs for on-lending to agriculture and allied activities now count as indirect agricultural finance for the lending bank. RRBs must not classify these funds as their own priority sector advances or bank credit for priority sector targets.
The rule, in the simplest words
Loans that a sponsor or commercial bank gives to an RRB (Regional Rural Bank) for on‑lending to farmers count as indirect finance to agriculture for the lending bank.
The RRB must not add the amount it re‑lends to farmers to its own priority sector advances (loans to sectors the RBI wants banks to support) or its bank‑credit calculations.
The lending bank must report these loans separately under the head “Loans granted to RRBs for on‑lending to agriculture & allied activities” in its half‑yearly and yearly priority sector returns.
Banks should issue internal instructions to branches and controlling offices so everyone follows the same rule.
Both the lending bank and the RRB should acknowledge receipt of the circular to the RBI regional office.
How it plays out — a real example
Ramesh, a senior loan officer at a commercial bank in Jaipur, receives a request to fund the local RRB so it can lend to wheat growers. He records the amount as indirect agricultural finance, enters it under the specified head in the bank’s half‑yearly priority‑sector return, and informs the RRB that it must not count the re‑lent money as its own priority‑sector advance. This way the bank meets its target and the farmers get the needed funds.
What changed
RBI clarified that loans granted by commercial or sponsor banks to RRBs specifically for on-lending to agriculture and allied activities will be treated as indirect finance to agriculture in the books of the lending bank. Consequently, RRBs cannot classify the amount lent out of such borrowed funds as part of their own priority sector advances or bank credit for priority sector achievement.
What it means for you
This gives commercial and sponsor banks a clear route to meet priority sector lending targets by funding RRBs for agricultural on-lending, without RRBs having to double-count the same exposure. Banks can now report these loans separately in their half-yearly and yearly priority sector returns, improving transparency and incentivizing flow of funds to agriculture through RRBs.
What you must do
Classify all loans to RRBs for on-lending to agriculture and allied activities as indirect agricultural finance in your books.
Ensure RRBs do not include such on-lent amounts in their own priority sector advances or bank credit calculations.
Report these loans separately under the specified head in half-yearly (ad-hoc) and yearly (final) priority sector returns.
Issue internal instructions to controlling offices and branches for consistent implementation.
Acknowledge receipt of this circular; RRBs should acknowledge to respective RBI Regional Offices.
Who it affects
All scheduled commercial banks (including Regional Rural Banks), Sponsor banks of RRBs, RRBs themselves
❓ Common questions
Can RRBs count the funds borrowed from sponsor banks as their own priority sector lending?
No. The amount lent by RRBs out of funds borrowed from commercial/sponsor banks for on-lending to agriculture must not be classified by RRBs as part of their priority sector advances or bank credit for priority sector achievement.
How should commercial banks report these loans in their returns?
Commercial banks must report such loans separately under the head 'Loans granted to RRBs for on-lending to agriculture & allied activities' in the half-yearly (ad-hoc) and yearly (final) return on priority sector advances.
Does this circular apply to all types of loans from sponsor banks to RRBs?
No, it applies only to loans specifically granted for on-lending to agriculture and allied activities. Other loans to RRBs are not covered by this classification.
📜 Read the original circular — full text as issued by RBI
RBI/2007-08/209
RPCD.CO.Plan.BC.42/04.09.01/2007-08
December 12, 2007
The Chairman/ Managing Director/
Chief Executive Officer
[All scheduled commercial banks
(including Regional Rural Banks)]
Dear Sir,
Priority Sector Lending – Funds provided by sponsor banks/commercial banks to RRBs
Please refer to our Master Circular No. RPCD.CO.Plan. BC. 5/04.09.01/2007-08 dated July 2, 2007 on Lending to Priority Sector. The issue of providing incentives to commercial banks/sponsor banks for lending to RRBs for on-lending to agriculture sector has been examined by us and it has been decided that all loans granted by commercial banks/sponsor banks to RRBs for on-lending to agriculture and allied activities sector may be classified as indirect finance to agriculture in the books of commercial banks/sponsor banks. Consequently, the amount lent by RRBs out of funds borrowed from commercial banks/sponsor banks, may not be classified by RRBs as part of their priority sector advances. The RRBs need not also include such lending as part of their Bank Credit for the purpose of computing achievement level under priority sector lending.
2. The commercial banks may report such loans separately under the head "Loans granted to RRBs for on-lending to agriculture & allied activities" in the half-yearly (Ad-hoc) [under 1 (vi)] and yearly (final) [under 12 (a)] return on priority sector advances.
3. You may please issue necessary instructions to your controlling offices/branches for appropriate action.
4. Please acknowledge receipt (RRBs may acknowledge receipt to our concerned Regional Offices).
Yours faithfully,
(C S Murthy)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2007-08/209 · issued 12 Dec 2007. The plain-English explanation above is BankPulse’s own independent summary.
Issue internal instructions to controlling offices and branches for consistent implementation.
📜 Compliance
Classify all loans to RRBs for on-lending to agriculture and allied activities as indirect agricultural finance in your books.
Ensure RRBs do not include such on-lent amounts in their own priority sector advances or bank credit calculations.
Report these loans separately under the specified head in half-yearly (ad-hoc) and yearly (final) priority sector returns.
Acknowledge receipt of this circular; RRBs should acknowledge to respective RBI Regional Offices.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All scheduled commercial banks (including Regional Rural Banks), Sponsor banks of RRBs, RRBs themselves), your first concrete step on “RRB On-Lending to Agriculture: Classification as Indirect Finance” is: “Classify all loans to RRBs for on-lending to agriculture and allied activities as indirect agricultural finance in your books.” (RBI issued this 12 Dec 2007).
Circular: RBI/2007-08/209 -- RRB On-Lending to Agriculture: Classification as Indirect Finance
Issued: 12 Dec 2007
Action required: Classify all loans to RRBs for on-lending to agriculture and allied activities as indirect agricultural finance in your books.
Action required: Ensure RRBs do not include such on-lent amounts in their own priority sector advances or bank credit calculations.
Action required: Report these loans separately under the specified head in half-yearly (ad-hoc) and yearly (final) priority sector returns.
Action required: Issue internal instructions to controlling offices and branches for consistent implementation.
Action required: Acknowledge receipt of this circular; RRBs should acknowledge to respective RBI Regional Offices.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=3984&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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