Financial Daily from THE HINDU group of publications
Saturday, Jul 31, 2004
Financial Daily from THE HINDU group of publications Saturday, Jul 31, 2004 |
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Money & Banking
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Farm credit Agri-Biz & Commodities - Agricultural Institutions Columns - On Mint Street Timely Nabard credit line for farmers P. Devarajan
PERHAPS, for the first time, the National Bank for Agriculture and Rural Development (Nabard) is setting up a Rs 6,000-7,000-crore liquidity support facility to fund-distressed farmers. With the Central and State Governments gearing up for a drought, Nabard thinks a line of credit accessible by the farmers is a must and the funds will be routed through the co-operative banking channels as Nabard cannot lend directly. Nabard is trying to convince itself that the huge credit line will not be used by the co-operative banks to clean up their dirty books and that the monies will land in the bare hands of farmers in Maharashtra, Andhra Pradesh and other States. The Centre is not keen on putting up monies for the facility and Nabard could be accessing the market shortly to raise bonds; with bond yields going up, Nabard can raise 3-year money at around 6 per cent per annum, given the fact that it is wholly owned by RBI. The Finance Ministry is keen that the co-operative banks pass on the funds sans any charges; in other words, it wants farmers to get the funds at 6 per cent sans collateral. Even if this does not come to pass, the farmers will benefit if the rural credit delivery system prices the funds at around 9 per cent per annum. The board of Nabard is in broad agreement with the novel initiative, which can work if Nabard closely tracks the flow of funds. The standalone facility will have to be paid back by the farmers over a period of time and is apart from the normal refinancing operations of Nabard. In many ways, it could weave well into the two RBI schemes resetting the loan loads on a broke farming community. The Report of the Advisory Committee on Flow of Credit to Agriculture under Prof. V.S. Vyas has suggested banks starting a revolving credit facility for poor farmers for production and investment loans to meet temporary shortfalls in family cash flows and Nabard can push banks. The Vyas Commitee has said: "... for the poor the dividing line between production and consumption needs is very thin. In the absence of access to short-term consumption loans, the productive investments are impaired. It is, therefore, important to provide the small borrowers with a credit mechanism to fall back on for meeting their emergent and consumption needs. Further, it has also been brought out by various studies that the repayment of loans by the poor does not come necessarily from the "incremental" income from the investment alone, but also from their other sources of income." Most public sector banks could be shifting towards building strong agri loan books, as bond trading is unlikely to yield profits. A top banker remarked , "at last banks will now think of offering loans, their basic job. From a broker they will go back to being a banker." All farm loans above Rs 50,000 are priced at 11 per cent to 13 per cent while corporate loans are given at 8 per cent to 9 per cent; yet, for a farmer a loan at 13 per cent is better than that from a moneylender at 2 per cent per month. Also, the NPAs are less. Possibly, a farmer could turn a favoured borrower.
More Stories on : Farm credit | Agricultural Institutions | Rural Development | On Mint Street
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