The Hindu : Centre, Reserve Bank blamed for poor credit flow to agriculture

Online edition of India's National Newspaper
Sunday, Dec 28, 2003

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Centre, Reserve Bank blamed for poor credit flow to agriculture

By Our Special Correspondent

NEW DELHI DEC. 27. A Parliamentary Standing Committee has blamed the Government and Reserve Bank of India for the dismal performance of banks in agriculture lending and the continuous decline in the share of direct credit disbursement of public and private sector banks.

It has suggested that direct credit flow be monitored closely by the Government, the interest rate of nine per cent be reduced further, banks restrained from compounding interest and be asked to open more branches in rural areas. Banks were resorting to indirect lending at the cost of direct lending to cover up the shortfall in the overall limit of 18 per cent despite "fairly satisfactory'' recovery. A National Agriculture Credit Relief Fund should be set up to give relief to farmers affected by continuous crop failure, it was proposed.

In its report on "Credit Flow to Agriculture — Crisis in Rural Economy and Crop Insurance Scheme,'' the Committee on Department of Economic Affairs has observed that most of the banks did not reach the prescribed target in farm lending by March 2003. The Credit Deposit Ratio (CDR) in rural areas for both public and private sector banks was substantially low compared to urban and metropolitan areas. As of June 2003, this ratio was 42.7 per cent for public sector banks and was lower at 33.32 per cent for private sector banks.

"The banks' unwillingness to step up agriculture credit disbursement and the Government and RBI's failure to exert pressure on them is revealed by the low CDR,'' the Committee headed by N. Janardhana Reddy has noted. It has recommended that the Government take measures to change the attitude of banks, who in turn must launch innovative products in rural areas specific to their needs and promote them.

The Committee rued that the new guidelines for banks to open 25 per cent branches in rural/semi urban areas was also being flouted resulting in failure of the banks to reach rural masses.

These banks have only 9.52 per cent branches in rural areas and the old private sector banks have only 24.23 per cent of such branches.

The Committee has suggested that the Banking Regulation Act, 1949 be amended to provide for nomination facility for farmers who pledge gold for obtaining loans and the valuation of the landholding mortgaged be at market price.

The documentation and stamp duty should be made concessional. Oral tenants — farmers who do not actually own land but cultivate the land of others without any legal documents — should be recognised and provided credit for agricultural activities.

On the Crop Insurance Scheme, the Committee has recommended that it be extended to all farmers, include all field crops, involve the banking industry, base the threshold yield to preceding three to five normal years instead of the immediate past three to five years and the premium subsidy and insurance claim be shared in the ratio of 2:1 between the Centre and the States, instead of the present 1:1.

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