‘Lend directly to borrower in priority sector’ – RBI

‘Lend directly to borrower in priority sector’ – RBI Deputy Governor KC Chakrabarty says doing so through intermediaries is riskier, costlier.

The Reserve Bank of India (RBI) has said banks must lend directly to priority sector beneficiaries, not through intermediaries.

“Lending directly to the beneficiary will ensure the management of credit and help banks understand the risks associated with this. While routing money through financial institutions, it’s they who take the risk and not banks,” RBI Deputy Governor K C Chakrabarty said while addressing bankers.

Mr. Chakrabarty also added that if lending was done through intermediaries, the cost to the end-customer goes up as margins increase. Such lending through intermediaries was a risky affair, he said, and that was why RBI had taken away leeway from priority sector lending norms, except for the micro finance sector.

The Reserve Bank of India had formed a committee under the chairmanship of M V Nair, former chairman of Union Bank of India, to review the priority sector norms. The committee had suggested continuing the present practice of banks needing to extend 40 per cent of their net bank credit (of the previous year) to the priority sector, of which 13.5 per cent needed to be disbursed directly to the agricultural sector. The Reserve Bank of India (RBI) issued new guidelines on Priority Sector Lending in July 2012.

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