The Reserve Bank of India (RBI) has revoked INR5,000 crore in loans granted by ICICI Bank, Axis Bank and HDFC Bank to commodity traders as decreed priority sector lending that were provided to non-farmers, according to The Economic Times.
The RBI went through the banks’ books to discover that some private sector lenders with no access to rural areas, where farmers could be given loans, have given funds to those who trade in commodities.
Lending to commodity traders does not fall under the definition of priority funding according to India’s central bank. In line with existing rules, lenders have to provide at least 40 percent of their total loans to priority sectors including agriculture, small scale industry, poultry and undertakings allied to core economic activity in rural areas.
Currently foreign banks have a 32 percent stipulation, which some want to be increased to 40 percent.
Failure to meet the mandated targets will lead to the bank having to invest in the Rural Infrastructure Development Fund administered by the National Bank for Agriculture and Rural Development (NABARD). Here are banks are paid six percent interest.
The RBI is trying to help priority sectors get funding in line with the government’s inclusion policy.