Agriculture Loan

1. Own farm land? Get gold loan @1% Some banks have found a smart way to meet their target of giving loans to farmer. Agriculture loans come under the priority sector, and have to make up at least 20% of any bank's loan book. The government chips in up to 6% as interest in these loans, asking the borrower to pay just 1%. However, the banks are selling such loans to urban customers, inducing then to take advantage of a loophole in the system and get the discounted rate of interest while completing their quota of farm loans. This is happening in loans against gold, which many banks are actively pushing. Such loans are also classified as priority sector loans if given to a farmer to meet his expenses. Here is how it works. Banks have kiosks outside their premises advertising gold loans. As the executive approaches a prospective customer, inquiring about the requirement of a gold loan, he subtly asks if the latter can also provide a 7/12 document of any farm land. It will help in reducing the rate of interest, he says. The 7/12 is a proof of ownership of land provided by the revenue department. The 7/12 document helps the banker to book the loan as a farm loan, and also give the customer a concessional rate. At times, the customer does not even know it. TOI came across such offers in Axis Bank, IDBI Bank as well as HDFC Bank. However, the concerned official in HDFC Bank stressed at a later stage that the concessional rate would only be available if the loan was purely used for agriculture. At the Civil Lines office of Axis Bank, the executive said all one needs to do is come up with a 7/12 document. "If not in your name get one on your immediate kin's name. May be your brother could take the loan for you to use," explained the executive. He assured that the land can be of any size, even less than an acre, as the loan would be proportionate to the value of gold pledged, and the land itself is not the security. The 7/12 document is required just to fulfil the formalities to show that the loan is given to a farmer. Here, a loan was offered at 1% simple interest, which means for Rs 1 lakh loan the EMI would come to just Rs 100. The IDBI Bank has its rural branch in the Godhni suburbs. As TOI inquired about a gold loan, even the executive here suggested a similar idea, except that he insisted that the 7/12 document should show that the land is being cultivated. However, the Axis Bank executive said that was not a necessity. IDBI Bank executive director SKV Srinivasan said the bank has enough measures to check any misuse of such products. He said such loans are strictly given for end-use in agriculture. Random field visits are undertaken and the lending is proportionate to the land holdings. At Axis Bank, a senior official handling corporate communication sought time to come up with a reply to an e-mail sent a couple of days ago. An official in the same department at HDFC Bank denied there was any such practice.

2. Gold loans to farmers are given over and above the crop loan, which is pegged to the land holdings. For loans up to Rs 3 lakh, no documents are required. This can enable some banks to exploit the loophole, said a senior official in the rural and credit planning department of RBI. FARM ACT * Termed as priority agriculture loan have to make up at least 20% of any bank's loan book * Gold loans to farmers are given over and above the crop loan * Only the 7/12 extract is required to fulfil the loan formalities * Such loans are strictly given for end-use in agriculture. Bank officials take on surprise field visits. * The bank lends money proportionate to the land holdings Source: http://timesofindia.indiatimes.com/city/nagpur/Own-farm-land-Get-gold-loan- 1/articleshow/18508237.cms