RBI asks banks to review lending to commodities sector

Reserve Bank asks banks to review lending to traders of agri commodities and advances against warehouse receipts to ascertain finances are not being used for hoarding which can fan inflation.

Reserve Bank on Tuesday asked banks to review lending to traders of agri commodities and advances against warehouse receipts to ascertain finances are not being used for hoarding which can fan inflation.

HT Image

"Right now we do not have any evidence. We have asked the banks to review their lending (to traders) so that we know that they are not taking undue advantage of bank finances," RBI Governor YV Reddy said at his customary post Annual Monetary Policy news conference.

Through the review, the apex bank seeks to compare if there has been any significant rise in lending in these categories compared to that in previous years.

"If we find there has been a significant rise, we will go deeper and carry out supervisory review of banks' exposure to the commodity sector," he said.

Reserve Bank also said that banks should exercise caution while extending such advances to traders in agri commodities like rice, wheat, oilseeds and pulses to ensure bank finance was not used for hoarding.

Banks have been asked to submit first such review to the apex bank by May 15.