New Delhi, Aug. 20 -- The government has asked public sector banks (PSBs) and the Indian Banks' Association (IBA) to develop a standard loan product and uniform documentation for contract farming, including financing for farm machinery, within 6-12 months, according to two people close to the discussions and a document reviewed by Mint.

"The proposed contract-farming framework envisages an anchor buyer or processor tie-up, with buyer payments routed through an escrow account with a defined waterfall. It would include sub-limits for input finance, procurement advances, warehouse receipt finance and processing capex," said one of the persons.

The second person said lending decisions would be based on the reliability of the buyer's purchas...