RBI says agri loan classification issues bank specific, no system-level concerns

Mumbai: The Reserve Bank of India today said that the recent issues flagged by the top three private sector banks regarding the priority sector loan (PSL) classification of certain agriculture loans are bank-specific and do not raise system-wide concerns.

“As far as I am concerned, it is not at a system level. These are issues which keep getting flagged in bank-to-bank individual cases at a system level. There is no cause for concern,” governor Sanjay Malhotra said in the post-policy conference on Friday.

In its Q3 earnings conference on 17 January 2026, ICICI Bank had said that following RBI’s annual supervisory review for FY25, the regulator had directed it to make additional provisions of ₹1,283 crore on its agriculture priority sector loan portfolio.

Executive director Sandeep Batra had then said that the impacted loan book is between ₹20,000-25,000 crore, which means that the portfolio for which RBI has asked the bank to set aside more provisions is 24-30% of its rural loans as on 31 December. “We have been doing this portfolio since 2012, and RBI has made an assessment that the terms of the facilities were not fully in compliance with the regulatory requirement for PSL,” Batra had then said.

Under RBI’s priority sector lending norms, banks must set aside 40% of their total credit for sectors such as agriculture, small businesses, education, and renewable energy, among others. HDFC Bank too reported additional provisioning of ₹500 crore post the annual inspection.

Loan classification

The issue first came to light when Axis Bank, as part of its Q2 earnings, flagged regulatory concerns regarding two agri-loan products it had been offering since 2015 and 2021. The bank has since discontinued the two product variants, made additional provisions of ₹1,231 crore, and declassified them from priority sector loans, chief financial officer Puneet Sharma had said on 15 October 2025.

On Friday, RBI deputy governor Swaminathan J. said that the RBI had found certain deviations in the PSL classification of certain banks, not on a ‘system-wide basis’. “These are some outlier classifications that we call out, and the banks accordingly do a reclassification. So you can be assured that there is no system-level issue,” he said.

Meanwhile, RBI today said that it has comprehensively reviewed the Kisan Credit Card (KCC) scheme with a view to expanding coverage, streamlining operational aspects and addressing emerging requirements.

The central bank will issue a revised set of guidelines that will include standardizing the crop season, extending the KCC tenure to six years, aligning the drawing limit with the Scale of Finance (SoF) for each crop season, and including expenses on technological interventions.

KCC loans are provided by banks to give timely, subsidized credit to farmers for agricultural, animal husbandry, and fishery needs, often at an interest rate of 4% per annum, with prompt repayment. The scheme offers up to ₹3 lakh (or higher, depending on land) for crop cultivation, post-harvest expenses, and allied activities, typically for five years.

Swaminathan said that the review of KCC loans is part of the central bank’s periodic review of all guidelines, during which KCC loans have not been reviewed for almost five years. “We are also modifying certain contours as regards the crop season, the time allowed per season and also the overall validity period of the KCC,” he said, adding that this review is not related to the recent incidents of variance in the classification of agriculture loans.