A Reserve Bank of India working group on priority sector lending has recommended doing away with the sub-targets for direct and indirect agricultural advances. Instead, the group, headed by Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, is understood to have pushed for fixing sub-limits only for lending to farmers in the small and marginal category.

Further, it wants loans given for setting up rural infrastructure to be classified as priority sector lending.

These suggestions come as more than half of the public sector banks and nearly half of the private sector ones have not achieved the agricultural advances target in the last financial year.

Uphill task

Bankers say it is an uphill task to achieve the total agricultural advances target. The reason: this target keeps climbing every year as it is calculated as a percentage of the Adjusted Net Bank Credit (as on March-end of the previous year), which in the case of public sector banks shows a sharp increase due to the tendency to book short-term business towards the financial year-end.

It would be appropriate to link the total agricultural advances target to the ANBC (net bank credit plus investments made by banks in bonds — other than government securities — held in the ‘held to maturity' category) or credit equivalent amount of off-balance-sheet exposures, whichever is higher, as on December-end of the previous year, said a Mumbai-based public sector bank official.

Of the total agricultural advances target of 18 per cent, direct and indirect agricultural advances targets are pegged at 13.5 per cent and 4.5 per cent respectively.

So, if a bank's ANBC works out to Rs 1 lakh crore in the previous year, then its agriculture credit target in the current year will be Rs 18,000 crore (direct advances: Rs 13,500 crore and indirect advances: Rs 4,500 crore).

Problems encountered

“For banks to lend more to the agriculture sector there has to be appetite for credit at the ground level. The share of agriculture in our GDP has come down to about 14 per cent from over 50 per cent in the last couple of decades.

“So, a holistic view of rural development needs to be taken so that opportunities outside pure farming such as food processing can give the much-needed fillip to the rural economy,” said an official with a Karnataka-based public sector bank.

Banks are having a problem meeting the direct agricultural advances target due to a host of factors, including the lurking fear among field staff that they could be held accountable if farmers, based on expectations that the government will announce a debt waiver and relief scheme, do not repay loans; difficulty encountered during recoveries; and shortage of specialist agriculture officers.

Direct agricultural advances, among others, include crop loans, advances up to Rs 10 lakh against pledge/hypothecation of agricultural produce for up to one year, and loans granted for pre- and post-harvest activities.

> kram@thehindu.co.in

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