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P. Devarajan

IN 1972, the Government and the RBI worked out a differential rate of interest (DRI) scheme to proffer funds to the poor at low interest rates of 4 per cent.

The RBI Report on Trends and Progress of Banking in India, 2002-03, is eloquent detailing the scheme: ``Under the scheme, bank finance is provided at a concessional rate of interest of 4 per cent per annum to the weaker sections for engaging in productive and gainful activities, thereby, enabling an improvement in their economic conditions."

Banks have to lend at least one per cent of their aggregate advances as at the end of the previous year under the scheme. Also, two-thirds of the total DRI advances must be routed through the banks' rural and semi-urban branches.

The annual income ceiling for eligibility is Rs 7,200 per family in urban or semi-urban areas and Rs 6,400 per family in rural areas.

The outstanding advances of public sector banks under the DRI as of end-March is put at Rs 300 crore in 3.70 lakh borrowal accounts. The DRI advances of the banks as of end-March came to 0.08 per cent of the total advances as at the end of the previous year, i.e. March 2002, "which is lower than the relative target of one per cent."

Surely a banking system, which is in ship-shape going by the report, could have at least touched the one per cent target.

But do the poor have space in the frame? Let's take some other indicators. Outstanding priority sector advances of public sector banks rose by 18.6 per cent in 2002-03.

At this level, priority sector advances formed 42.5 per cent of net bank credit, quite above the target of 40 per cent. Advances to agriculture came to 15.3 per cent against the 18 per cent norm.

Over the last many years since reforms were initiated by the former Prime Minister, Mr Narasimha Rao, and his Finance Minister, Dr Manmohan Singh, funding agriculture has not gone beyond talk and schemes which never were worked out to reach the farmer.

Even the two Narasimham Committee reports paid passing attention to improving the rural credit delivery system and the price of agri funds. Quite a few RBI reports have mentioned low capital formation (public and private sector), with the central bank doing little.

The recent edition of the Report on Trend and Progress of Banking in India, 2002-03, does not address the question of reaching easily priced funds to the rural areas. It is surprising that the current report and the annual report earlier have looked minutely into the ways the corporate or industrial sector funding. Fine.

But can not the same treatment be meted out to the small-scale and farm sectors? Dr Reddy, Governor, RBI, has promised an advisory committee "to suggest short-term and medium-term measures to enhance credit flow to this sector" in the credit policy. All this comes at a time when agriculture is poised to grow at 8 per cent thanks to a good monsoon.

Privately, bankers admit to farmers taking recourse to the village money-lender or trade and commission agents who generally advance funds against standing crops at a certain price, which promises the least to the farmers. After all there is no correlation between the farmyard and final destination prices for most farm commodities.

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