With more and more farmers committing suicide under mounting debt owed to moneylenders, it appears that NABARD (National Bank for Agriculture and Rural Development), an apex regulatory body for regional rural and cooperative banks, has failed to live up to expectations. Founded in 1982, it hasn’t been able to make available subsidised institutional credit to small and marginal farmers.
Mandated to provide and regulate credit for agriculture, NABARD has deviated from its objectives by investing in private corporations. Therefore, it’s time to consider a separate ‘Rashtriya Kisan Bank’ that is completely dedicated to agriculture and rural development.
To provide adequate assistance to the agriculture sector, the Centre every year raises the subsidised credit target. In the last 10 years, agriculture credit has increased by more than 350 per cent — from ₹4.75-lakh crore in 2011-12 to ₹16.50-lakh crore (targeted) in 2021-22; the allocated subsidy being ₹20,875 crore and ₹18-lakh crore (for FY22-23), respectively.
Unfortunately, the agriculture sector’s performance has not been commensurate with the subsidised credit that it has received.
The big question is where are the credit and subsidies going? Is it benefiting farmers? The subsidy on interest has led to increased arbitrage, and with no provision for audit, there has been misuse of agricultural credit over the years. The subsidised credit has not reached even 20 per cent of the 12.56 crore small and marginal farmers in the country. The RBI has also questioned why agricultural households with lowest landholding (up to two hectares) get only about 15 per cent of the subsidised outstanding loan from institutional sources (banks, co-operative societies).
A review by the RBI’s internal working group in 2019 found various inconsistencies. In some States, credit disbursal to the farm sector was higher than their agriculture gross domestic product (GDP), and the ratio of crop loans disbursed to input requirement was highly uneven.
In Punjab, it was 231 per cent and in Haryana, it was 196 per cent, which shows the diversion of credit for non-agriculture purposes. One reason for this diversion is that subsidised credit, at 4-7 per cent interest, is being refinanced to small farmers in the open market at 18- 24 per cent. Even today, about 90 per cent of tractors and other agricultural implements are being financed by NBFCs (non-banking finance companies) at 18 per cent interest, whereas banks’ long-term rate of interest on loans for purchasing the same is 11 per cent.
NABARD has lost the plot as it is investing in private corporations and funding NBFC-MFIs (microfinance institutions). The investment in NBFC-MFIs has also turned bad. NABARD, which had almost nil NPAs (non-performing assets) till 2018, had to provide ₹703.90 crore for NPAs and ₹564.86 crore for non-performing investments.
The Rural Infrastructure Development Fund (RIDF) is administered by NABARD. Why should NABARD fund States for infrastructure projects, mostly in urban areas, and in the bargain become a commercial banker for the state — and that too not for agriculture and allied activities, rural/cottage industries?
It undertakes more treasury business (pure financial operations) than refinancing of cooperative banks and regional rural banks(RRBs) at very soft rates, and through them lends to farmers of all hues. The objectives have been compromised and that’s why mismanaged RRBs and cooperative banks are facing a financial crunch, and have almost stopped fresh lending to farmers.
As NABARD and public sector banks have failed to fulfil their intended roles for priority sector lending, a new non-commercial apex institution is required to reorient the effective subsidised agriculture credit and recovery. This apex institution needs to be solely engaged in direct financing to farmers and refinancing RRBs, cooperatives and land development banks.
The need of the hour is for an innovative ‘Rashtriya Kisan Bank’ that provides technology-driven solutions to reduce financial exclusion of agricultural households. With mobile phone penetration among agricultural households being as high as 89.1 per cent, the prospect of improving institutional credit delivery to farmers through apps is huge.
A Rashtriya Kisan Bank will help fill the gap in institutional credit to both farmers and rural entrepreneurs, and thus help provide employment and income support to the rural workforce.
The writer is Vice-Chairman, Sonalika Group, and former Vice-Chairman, Punjab Planning Board