What changed
Earlier, only loans to entities other than individual farmers for food and agro processing were treated as indirect agri finance. Now, the RBI has explicitly extended this treatment to all credit supporting dairy business development, covering activities like procurement, storage, processing, collection, and transportation. The key condition is that the ultimate beneficiaries must be farmers engaged in dairy farming.
What it means for you
Banks can now classify loans to dairy-related enterprises—such as collection centers, processing units, or transport firms—as indirect agriculture finance, helping them meet priority sector lending targets more easily. This is especially beneficial for lending in rural and semi-urban areas where dairy is a major livelihood. However, banks must verify that the credit ultimately supports small/marginal farmers and tiny units, not just large processors.
What you must do
- Update internal priority sector lending classification guidelines to include all dairy development activities as indirect agri finance.
- Ensure loan documentation captures the ultimate beneficiary as dairy farmers to comply with the RBI condition.
- Train credit officers to identify and classify dairy-related loans correctly under the new indirect finance category.
- Monitor end-use of such loans to confirm they benefit small/marginal farmers and tiny units.
Who it affects
All scheduled commercial banks (excluding RRBs), Priority sector lending teams, Rural and agri lending departments, Dairy cooperatives and processing units seeking bank credit
Does this circular apply to Regional Rural Banks?
No, the circular is addressed to all scheduled commercial banks excluding Regional Rural Banks.
What activities are covered under dairy development for indirect agri finance?
Activities include procurement, storage, processing, collection, transportation, and any other credit that contributes to dairy business development, as long as the ultimate beneficiaries are dairy farmers.
Can a loan to a large dairy processing company be classified as indirect agri finance?
Only if the loan primarily benefits small/marginal farmers and tiny units engaged in dairy farming. Banks must exercise due care to ensure the ultimate beneficiaries are farmers.