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Banks to fund farm land buys

Rajalakshmi Menon

MUMBAI, Aug. 21

FARMERS can now get bank loans to purchase land for agricultural purposes.

The banks have evolved a scheme at the initiative of the Finance Ministry and with the approval of the Reserve Bank of India.

Hitherto, farmers could get loans only to buy farm equipment.

The guidelines of the scheme, worked out jointly by the RBI, Indian Banks' Association and Nabard, will be issued to commercial banks shortly. Bank officials said the plan was to introduce the scheme by September 1.

The scheme follows a recent directive from the Finance Ministry asking the banking industry to support small and marginal farmers acquire farm lands. The RBI is understood to have told banks that lending to farmers to procure agricultural land will be tr eated as direct lending to agriculture, i.e., these loans will be included in the 18 per cent priority sector lending towards agriculture. Nabard will also provide 100 per cent refinance to banks for such loans.

According to the draft guidelines, such loans can be availed by ``small and marginal farmers''. A small farmer must have an irrigated track of 2.5 to 5 acres and a marginal farmer is one with less than 2.5 acres.

Loans have been permitted for purchase of land for only agricultural purposes. Agricultural purposes included fisheries, dairy, animal husbandry, plantations, etc.

Though a Working Group of IBA is understood to have suggested a ceiling of Rs 10,00,000 for such loans, RBI has said that there should be no such ceiling. A farmer can purchase up to a maximum of five acres. For providing the loan, banks will have to ass ss the value of the land and then fix the loan amount.

The farmer has to make a down payment of 20 per cent of the loan amount.

``The basic idea is to provide small and marginal farmers with some viable land holdings and prevent them from going to the unorganised sector for loans. While money lenders charge 3-4 per cent monthly, around 36 per cent annually, banks will charge arou nd 13-14 per cent,'' said a bank official.

The repayment period set for farmers is a maximum of nine years with a grace period of one year.