The Reserve Bank of India [Get Quote] has asked banks to act on the basis of local rules when sanctioning loans for farmers to build houses on agricultural land.

In a circular to the banks, the central bank has clarified that the directions of gram panchayats and municipal councils will not apply to such houses as they neither sanction plans nor issue completion certificates for the same.

The central bank cited the recommendations of the Monitoring Committee, constituted by the Delhi High Court, which clarified that the agricultural land is outside the purview of gram panchayats and municipal councils and hence they have no say in the matter.

The Monitoring Committee issues guidelines to financial institutions and banks regarding unauthorised construction, misuse of properties and encroachment on public land. RBI had approached the committee to seek clarifications from it over its recommendations on farmhouses built on agricultural land.