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P. Devarajan

A foreign bank, Rabo Bank, is reported to have on hand detailed studies on the working of mandis and marketing of various crops across the country while no nationalised bank has even thought of working on the idea.

BANK chairmen seem to have at last started talking of pushing farm credit, with some keen on exceeding the target of 18 per cent of net credit to the farm sector in the current year. Most, if not all banks, have not been able to touch the target though they have been meeting the 40 per cent priority sector norm.

Over the years the definition of priority sector has been diluted with IT advances becoming a part of priority lending.

Top bank executives privately admit to the rusting of the Lead Bank scheme and the Service Area Approach over the years.

The co-operative sector is in poor shape and is not in a position to finance farm and farm-related activities while the Regional Rural Banks (RRBs) have no point to make.

Nabard, the lead farm credit agency, is stuck in a rain-shadow area with banks not interested in refinancing.

With no retail chains to tap cheap public deposits, Nabard is unsure of its standing in the rural economy. Over the last few years, Nabard has never been anyone's concern including its owner, RBI.

Then there are the Special Agricultural Credit Plans under which banks self-set financial lending targets for the year.

In addition are the many yojanas, including the Rural Infrastructure Development Fund, with unutilised funds as State Governments have not been able to come up with projects.

The Reserve Bank of India and banks have been only looking at touching financial targets under various approaches, with no study publicly available over the quality of utilisation of funds.

That the rural credit delivery system is in tatters is clear from the admission in the RBI Annual Report that "sharp fluctuations in agricultural activity in India have characterised the past decade, with agriculture making negative contribution to real GDP growth for the fifth year since1990-91.

Gross domestic capital formation in agriculture has undergone a secular decline brought about by steady erosion in the share of public investment.

The increase in private capital formation has been concentrated in areas where water, power and other inputs are available uninterruptedly and with large subsidy."

To prove the point, contract farming with private sector has been taking place largely in Punjab.

Some time ago New Delhi got banks to snip interest rates to 9 per cent on farm loans up to Rs 50,000.

That leaves banks to charge PLR (11 per cent) on loans up to Rs 2 lakh. If banks can price bigger corporate loans at 6 per cent, why should farm loans up to Rs 2 lakh attract PLR?

While restructuring corporate loans, banks cut interest rates to 10 per cent and below with none bothered about pressure on bank spreads. Why this aversion for the farm sector?

A foreign bank, Rabo Bank, is reported to have on hand detailed studies on the working of mandis and marketing of various crops across the country while no nationalised bank has even thought of working on the idea.

One understands RBI has called a meeting of bankers on September 16 to discuss the shift to a single PLR.

Recently, a top bank executive admitted that banks could easily bring down PLR to 10 per cent following cruel cuts in deposit rates.

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Farm credit stuck in target talk

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