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
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.