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Change the mindset on rural poor

P. Devarajan

THE Report of the Advisory Committee on Flow of Credit to Agriculture has taken a dim view of the operations of the rural credit system and is about the worst indictment to date.

Commercial banks, regional rural banks, co-operative banks - none comes out well as "the mindset that banking with the poor is not profitable" bugs every financial entity.

"Despite a wide network of rural bank branches which implemented specific poverty alleviation programmes seeking creation of self-employment opportunities through bank credit for almost two decades, a very large number of the poor continue to remain outside the fold of the formal banking system," says the report.

"It is also noted that the banking system and procedures, and deposit and loan products, are perhaps not ideally suited to meet the most immediate needs of the poor. There is a wide recognition of the fact that the poor need better access to timely financial services at affordable costs, rather than subsidised credit."

The Report refers to a recent Rural Financial Access Survey (RFAS-2003) conducted by the World Bank and NCAER which shows that only 19.4 per cent and 24 per cent of the rural households accessed credit from the formal sources in Uttar Pradesh and Andhra Pradesh respectively, as against 44.1 per cent and 32.6 per cent of such households depending on non-formal sources.

The share of formal sources in total debt of the borrowing households was again low at 55.7 per cent and 51 per cent respectively in U.P. and Andhra Pradesh.

Further, of the borrowing households, the access to formal credit by marginal and small-sized households was extremely low, partly explaining the large number of deaths of farmers in Andhra Pradesh.

Banks, under extant guidelines, are required to extend not less than 10 per cent of net bank credit to weaker sections such as small and marginal farmers, landless labourers, borrowers of Government-sponsored poverty alleviation programmes, etc.

Further, one per cent of net bank credit has to be provided to the very poor (income less than Rs 6,500 per annum).

As on March 31, 2003 as against 10 per cent, advances of public sector banks came to just 6.76 per cent (Rs 32,304 crore). Only six out of 27 public sector banks touched the 10 per cent mark with the remaining banks hovering between 9.4 per cent and 1.97 per cent.

Banks have been reporting a drop in the number of borrowers from 1.76 crore as on March 31, 2000 to 1.43 crore as on March 31, 2003.

The Report tracks the drop to write-offs, migration of small borrowers to higher loan brackets and the SHG-bank linkage programme. Yet it contends: "The disadvantaged sections of the society are increasingly getting sidelined when it comes to access to credit from the commercial banks."

Bank funding of farmers has not been alive to the problems of farmers. Sure, bank margins are under pressure especially those of the poorly managed co-operative and regional rural banks.

Yet, the Committee has not gone into the issue of commercial banks offering 6-7 per cent retail loans to urbanites while cribbing over nine per cent on farm loans up to Rs 50,000.

Again, banks rate corporate customers and the best rated get away with crores at around six per cent. Do banks credit-rate farmers, as it cannot be that all farmers are defaulters? Why should a farmer with a good credit record not get funds at six per cent?

The Report is not bothered.

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