Reflections on Agriculture Credit in India

With the opening of Indian economy in early nineties, a sharp fall in growth of agriculture credit has been established over the years, which remained relentless untill2004, when UPAI came out with some concrete measures to change the impression. All India Debt and Investment Survey {AIDIS} reveals many striking realities; from formal financial sources, the share of total debt of cultivator households declined from 64% in 1992 to 57% in 2003, consequently moneylenders stake grown from 10.5% to 19.6% during same time line. Such state of affairs given smooth passages to exploitative indebtedness and hold the persistence of agrarian distress.
Though after year2000, things have started changing albeit its resultant were yet far from being effective; in next half decade, the growth of agriculture credit from Commercial banks and Regional Rural Banks{RRBs},jumped from abysmal 1.8% through the whole nineties to 19.1%. The share of credit supplied by same both in total agriculture credit increased from 30% in year 2000 to 52% in year2007, although such impressive mark of agriculture credit under the Priority Sector Lending{PSL}hardly left any positive impacts for the shake of crisis ridden farming sector.

Since year2004, conception of PSL underwent a radical shift with greater focus over the export oriented and capital intensive agriculture financing. Now under PSL, an individual can be financed up to Rs1 Crore and joint venture up to Rs.25 Crore; broadening of credit limit further emphatically embarrass the agriculture credit, but the centre of attraction now is the urban-metropolitan areas unlike the erstwhile rural hinterlands of the country. This change could be easily noted by the expansion of urban and metropolitan bank branches during 1995-2005; their footprints amazingly gone up from 16.3% to 30.7%. Between the same timeframe, proportion of rural-semi urban branches plummeted from 83.7% to 69.3% and even further deep to 66% in 2008.
Consistent marginalization of agriculture credit in rural areas for the leeway of urban counterparts introducing an unhealthy trend within the Indian banking system that infact leaves innumerable adversities for farming growth. In present circumstances, except RRBs, not even a single Commercial bank is close to follow properly the RBI guidelines on PSL. Its mandate instructs that Commercial banks have to earmark the 40% of their bank credit towards Priority Sector, which include agriculture, Small Scale Industries {SSIs}, education and advances towards weaker sections; within this limit, banks have to allocate 18% for agriculture and set aside 10% for weaker sections. Albeit in actuality, statistical numbers are unfortunately swapped for big favour of SSIs, on the cost of rest two vulnerable peers…nowhere, I am citing anything against the SSIs finance but my contention is to retrieve the due attention for feeble farming sector on which the real growth of nation depends.

Until recently, Commercial banks are targeting indirect finance to met with RBI’s directives of 40% spending on Priority Sector…either they have been buying the debt of RRBs or participate with investment in Rural Infrastructure Development Fund {RIDF}, that itself mark the lack of seriousness among them for rural business. Such practices were alarming for the sake of RRBs relentless progress, so eventually finance ministry has issued some directives to curtail the hide& seek game of Commercial banks in rural segment. Today, 79 RRBs out of total 82 are profitable; the losses of other three dropped to merely 6 Crore from 36 Crore in 2008-09. Defying all adverse predictions, RRBs are emerged as ineluctable component within the Indian banking…among mainspring, with 15,475 branches, the profits of RRBs have increased to1970 Crore in 2009-10 from 1371 Crore in 2008-09.
Accumulated losses down to 1808 Crore at the end of March2010 from 2300 Crore a year back. Moreover, average net NPA’s of RRBs gone down 1.62%in 2009-10 from 1.81% in previous year and 53RRBs had a Capital Adequacy Rotation of more than 9%. Besides RRBs are an alone entity that reached so close to the mark at 34,456 Crore as against of target set at 35,000 Crore…the RRBs are only ray of hope in the rural financing and indeed its business model needs all round attention and replication by the other institution in the fray. The other financial institution’s feeble doing is not inexplicable as they are running short of responsibility in their rural business…robustness of Indian banking at large is hard to see in these hinterlands, where life still proceeding with severe operational frills, though an exception here still exists!
Atul Kumar Thakur
August 29th2010, Sunday, New Delhi
atul_mdb@rediffmail.com