Reserve Bank Deputy Governor S S Mundra called for increasing the credit absorption capacity of the farm sector to make agri-lending more sustainable.
"In agriculture, there is a year-by-year increase in targets which are accepted and are being achieved. But I'd believe that there is a limit to it," he said at the annual Fibac conference here.
"Unless there is an improvement in the credit absorption capacity of the farm sector, it (agri-lending) would be risky," he warned.
It can be noted that every year, the government sets a direct agri-lending target for banks. The Narendra Modi administration has set a target to double farm income by 2022.
Though typically farmers get crop loans of up to Rs 3 lakh at 7 percent interest, the effective rate for them is only 4 percent as the rest is subsidised by the government.
The 2016-17 Budget had set a target to double farmers income by 2022, and had allocated nearly Rs 36,000 crore for the farm sector while raising agri-credit target to Rs 9 trillion for this fiscal, from Rs 8.5 trillion in 2015-16.
Banks are also supposed to ensure 42 percent of their overall advances is towards priority sector lending (PSL). As the overall credit growth increases, the quantum of funds going to the farm sector also goes up, Mundra said.
He also said land reforms, investments, a full ecosystem which involves insurance schemes, value chain, distribution and supply can help in increasing the capacity of agriculture sector to absorb credit.
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