The Hindu Business Line : Credit squeeze may hit agri-lending target

New Delhi, Nov. 5 The ongoing liquidity squeeze could affect one of the ruling United Progressive Alliance (UPA) Government’s top accomplishments - the significant step-up in institutional credit flow to agriculture.

The first half of the current fiscal has seen scheduled commercial banks (SCB), cooperatives and regional rural banks (RRB) extend credit totalling Rs 95,064.16 crore to the farm sector in the form of fresh short-, medium- and long-term loans.

This is lower than the Rs 101,021.59 crore lent out over the corresponding six months period of 2007-08. At this rate, meeting the targeted credit flow of Rs 2,80,000 crore for the full 2008-09 fiscal seems a tall order, though the Finance Minister, Mr P. Chidambaram, is confident that it would be achieved.

“We are well on the way to achieving the target (of Rs 280,000 crore). The banks have assured me that the target will be achieved”, he told presspersons following a meeting with the chiefs of public sector banks here on Tuesday to review the overall credit situation.

During the UPA Government’s tenure, total flow of institutional credit to agriculture has registered an increase - from Rs 86,981 crore in 2003-04 to Rs 125,309 crore in 2004-05, Rs 180,486 crore in 2005-06, Rs 229,400 crore in 2006-07 and Rs 243,570 crore in 2007-08.

The Government had originally, in June 2004, had targeted doubling the flow of bank credit to the farm sector in the ensuing three years, whereas it actually ended up doing so within two years. The emphasis on expansion of rural credit, in turn, helped boost sales of tractors and fertilisers. Tractors sales alone nearly doubled between 2003-04 and 2007-08.

The current fiscal, however, has so far witnessed a negative growth in farm credit though a Finance Ministry official said that the April-September 2008 numbers are provisional. “Some of the data, especially from private commercial banks, is not fully updated. So, the Rs 95,064 crore figure could be an underestimate”, he told Business Line.

The official further said that the real pick-up in credit takes place in the second half. “The total credit figure includes both direct credit to farmers and also lending to fertiliser and seed dealers, self-help groups, the National Cooperative Development Corporation (NCDC) and other agri-related institutions. All these will get reflected in the coming months and we will somehow meet the Rs 280,000 crore target”, he added.

Moreover, he pointed out that the negative growth in credit this year has been mainly on account of cooperatives and RRBs, whereas lending by SCBs has actually gone up by over Rs 4,000 crore.

“The debt waiver programme had mainly affected the cooperatives and RRBs since, unlike commercial banks, they have limited income streams outside of agriculture. But with the first instalment of Rs 25,000 crore under the farm debt waiver scheme being released, of which Rs 15,000 crore would go to the cooperatives and RRBs, they too will have more funds now to lend”, the official noted.

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