The Hindu Business Line : Re-laying credit lines to farms

NEGLECT OVER 15-20 years has run the rural credit delivery system to seed, going by the Report of the Advisory Committee on Flow of Credit to Agriculture. For bankers, in the Reserve Bank of India and outside, re-laying lines of rural credit to farmers is a dismal chore casually undertaken, when there has been no change in the proportion of working hands dependent on farms and when the share of agriculture in GDP has dropped from 44.5 per cent in 1970-71 to 22.2 per cent in 2003-04. According to the Report, farming is the single largest private sector occupation and in 2002-03, the first year of the Tenth Plan, about 30,000 rural and semi-rural branches of commercial banks, one lakh outlets of co-operative banks and the 14,000-strong Regional Rural Banks lent Rs 69,560 crore against the projected Rs 82,073 crore, a shortfall of 15.2 per cent when the banking system was awash with rupee funds.

Important changes have happened in the patterns of landholding with the latest available figures showing that nearly 36 per cent of agricultural land is now owned by small (19 per cent) and marginal (17 per cent) farmers and this trend, the Report thinks, is on the up. For the banking system, it could mean tending to the fund needs of farmers with diminishing collaterals. A few of the strategies, such as the norm of 18 per cent of net bank credit for agriculture and the Special Agricultural Credit Plan (SACP), have not clicked. Under the SACP, banks are required to set down annual disbursement targets with a 20-25 per cent mark up every year. But the Report notes a drop in the annual growth rate in loans disbursed in 2002-03 to 15.64 per cent over 18.97 per cent in 2001-02. Bank funds, which go to service production and investment credit, have been less for investment. The Report, not unusually, wants banks to touch the 18 per cent norm as otherwise they may shy away from the farm sector, and pleads for lifting credit under the SACP to small and marginal farmers to 40 per cent of all disbursements.

Is farming per se an unviable banking proposition for mandatory targets to be slapped on the system? Though the ratio of farm credit to agricultural GDP moved up from 5.4 per cent in the 1970s to 8.7 per cent in 2001-02, farm credit, as a proportion to total lending, dipped from 20.5 per cent to 10.5 per cent during the same period. There has been a mark-down in the number of accounts and the quantum of loans to small farmers. Banks cannot be into commodities trading without altering the Banking Regulation Act. With the RBI declining the job of fixing interest rates, banks could be more sensitive by matching interest rate on farm credit with urban retail loans and corporate loans. How can banks justify 6-7 per cent on retail loans to city folk and crib over earning just 9 per cent on a Rs 50,000 farm loan? It is doubtful if banks have credit rated the farming community or those in the services sector to offer preferential rates to the best loan books. This hurting and haunting unconcern has not engaged the working group.

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