RBI Working Group Suggests Reforms To Boost Agri Credit 

To boost formal credit to the agriculture sector, an internal working group of the Reserve Bank of India has recommended revisions to priority sector lending limits for deploying credit to small and marginal farmers.

This was among regulatory and governance reforms recommended by the internal working group chaired by MK Jain, deputy governor of the RBI, according to its report published on Sept. 13. Among other things, it suggested a credit guarantee scheme for farmers and digitisation of land records.

While there are over 12.56 crore crore small and marginal farmers, only around 5.14 crore have accounts as per the priority sector lending returns of scheduled commercial banks for 2015-16, said the report of the working group set up in February. This translates to only 41 percent of small and marginal farmers being covered by public and private sector banks, it said.

“Though at the aggregate level, banks have been able to achieve the overall PSL (priority sector) target of 40 percent, so far they have failed to achieve the agriculture target of 18 percent at the system-wide level,” the report said. While public sector banks have achieved their target of 18.12 percent, private ones achieved 16.3 percent in 2018-19, it said.

The internal working group recommended:

• Priority sector lending guidelines should have a separate definition for lending to small and marginal farmers based on their land-holding size.
• Banks should not insist on land records for borrower seeking credit of up to Rs 2 lakh.
• Revise the sub-target for small and marginal farmers from the existing 8 percent of the banks’ adjusted net bank credit to 10 percent with a road map of two years.
• Bank loans to farmer producer organisations and co-operatives should be eligible for the priority sector status with a credit cap of Rs 5 crore.
• Banks should be allowed to give consumption loans to farmers up to Rs 1 lakh under priority sector lending, provided banks are able to obtain collateral security.

Improving Institutional Credit Reach

While non-institutional or informal sources of financing dominated rural India’s access to credit at as much as 90 percent, formal or institutional sources provide 72 percent of the average loan taken by agricultural households as of 2016-17, the report said.

The internal working group recommended:

• Digitise land records so that banks can create charges against landholdings, which will reduce instances of double or multiple financing on the same piece of land.
• State governments should encourage land consolidation so that farmers achieve economies of scale and make long-term investments.
• State governments should reform their legal framework on the basis of the Model Land Leasing Act proposed by NITI Aayog, which will make it easier for farmers to lease land for cultivation and therefore avail credit.
• A federal institution, like that of the GST Council, should be set up with members from the central government and state governments to implement agricultural reforms.

Kisan Credit Card Scheme

The report said there are 66.2 million operative Kisan Credit Cards against 145 million land holdings as per the Agriculture Census 2015-16. That implies that even after close to 20 years of the scheme, only 45 percent of farmers possess the cards.

Moreover, just 10.5 percent of agricultural households were found to have a valid cards, necessitating the need to improve the penetration of the scheme. The working group recommended:

• Banks and their branches should monitor the issuance of KCCs in a uniform manner for both crops and allied activities.
• To curb the misuse of interest subsidy, banks should provide crop loans, eligible for interest subvention only through the cards.
• Waiving collateral security under scheme should be increased from Rs 3 lakh to Rs 5 lakh.

Other Recommendations

• The National Bank for Agriculture and Rural Development should design a financing model for credit requirements of food producing organisations and companies.
• Central and state governments should set up a credit guarantee scheme on the lines of credit guarantee schemes for micro-small-medium-enterprises
• Banks should flag agricultural loans sanctioned against gold as collateral in their core banking system to effectively monitor end use of funds
• Interest subvention scheme should be replaced with direct-benefit-transfers to mall and marginal farmers, tenant farmers, sharecroppers, oral lessees and landless labourers as individual borrowers or through self-help-group model up to a limit of Rs 3 lakh.