What is the issue?
- There is a trend of actual loan disbursements to the farm sector outstripping the liberally hiked annual targets year after year.
- Yet agrarian distress and farmers’ dependence on moneylenders are showing no signs of easing.
What is the concern?
- The total credit flow has surged over 10-fold since the early 2000s.
- Institutional credit to the farm sector is set to exceed the target of Rs 10 trillion for the current year.
- However, nearly 40% of rural credit demand is still met by the informal sector, including commission agents and moneylenders.
- Clearly, the purpose for which institutional credit to the farm sector was stepped up steadily has not been served adequately.
- Interest subvention by the government has resulted in cheaper bank credit.
- However, it is not reaching the small and marginal farmers due to poor targeting and large-scale diversion to other destinations.
How is the credit distribution scenario?
- Credit scale - The proportion of loans of less than Rs 200,000 which normally go to genuine farmers has been over 90% in the 1990s.
- This proportion has now shrunk sharply to less than half.
- Contradictorily, the share of larger loans of up to Rs 10 million and more has surged.
- Time - Besides, roughly about half of the total farm credit is disbursed between January and March.
- But this is when farmers’ loan requirements are the least with rabi sowing already over and kharif planting being months away.
- Farmers - Nearly a fourth of direct agricultural lending is accounted for by banks located in semi-urban, urban and metro towns.
- Frequent farm loan waivers have marred the loan repayment culture in rural areas.
- Evidently, banks find it much safer and convenient to lend to agri-related enterprises rather than to the more risk-prone farmer.
- Highly subsidised agricultural loans are thus largely reaching only the non-farmers or the same set of farmers with good repayment record.
- Cooperative credit sector - Non-performing assets of the primary cooperatives and the agricultural and rural development banks have risen to 37% by the end of 2015-16.
- Political interference in the day-to-day functioning of these bodies is adding to their woes.
- Also, many of the CEOs in these have non-banking background which is contributing to the overall failures of cooperative banks.
What lies ahead?
- The finance ministry has sought a fresh assessment on the health of the cooperative credit institutions.
- The report, ahead of the forthcoming Union Budget, from the National Bank for Agricultural and Rural Development (NABARD) should help the Centre reorient its strategy.
- The issues confronting the cooperative and the commercial banking sectors need to be addressed.
- This is essential to ensure better targeting of agricultural lending to make meaningful the quantitative increase in farm credit.
Source: Business Standard
