National Australia Bank will stop charging farmers extra for defaulting on loans during droughts, after the banking royal commission heard the lender had heaped pressure on rural borrowers.

The bank has admitted it lost touch with farmers as it moves to relax rules around loan repayments and make it easier for drought-affect farmers.

NAB will allow primary producers to offset farm management deposits against loans, with other banks being urged to follow suit.

“The royal commission and other inquiries reveal that in some cases we have lost touch,” NAB CEO Andrew Thorburn said in Wagga Wagga on Monday night.

The bank will also no longer charge penalty interest payments on farmers who fall into debt on loans.

It comes after the bank was slammed during the royal commission for charging struggling Queensland cattle farmers more than $2.6 million in default interest over more than five years.

Chief Customer Officer Andrew Hagger tells Ross Greenwood “it’s just one step”.

“NAB wants to be the bank for regional and rural Australia.

“we’re making one announcement at a time and last night’s announcement in this area was about agriculture customers.

“But we absolutely, at our hearts, stand for small business and we’re the largest business bank in the country.”

Click PLAY below to hear the full interview