Helping hands

For agriculture reforms to happen, banks should work towards financial reinforcement of villages. Ranbir Singh discusses ways of wooing the Indian farmer

The Government of India, during the ‘70s and ‘80s identified the credit needs of people living in rural India and framed policies conducive for flow of institutional credit to the farm sector. This period also saw an unparalleled expansion of banking services in rural areas. While institutional set up was strengthened for flow of credit to rural sector, banks, on the other hand, were advised to step up direct finance to agriculture (including the allied sectors). This was done with an objective to reach 16 per cent of their total outstanding credit by March 1987, 17 per cent by March 1989 and 18 per cent by March 1990 respectively. After the introduction of financial sector reforms in the nineties, the Reserve Bank of India (RBI) directed these banks to lend 18 per cent of net bank credit to agriculture (including indirect finance not exceeding 4.5 per cent of total credit). With a shift in priorities, these banks failed to see a viable proposition in financing agriculture and as such they were able reach an estimated outstanding agriculture credit to a level of Rs 80000 crores constituting 14 per cent to net bank credit. Since corporates view rural markets with a huge potential for growth, the government and policy makers should consider giving agricultural lending a boost in order to create a huge market for other industries too. Accordingly, the new government has announced that agriculture credit provided by banks should be increased by 30 per cent and reach an outstanding level of Rs 1,05,000 crore by March 2005. Banks have been advised to provide farm loans to additional five million farmers during the current financial year 2004-05. Each of the rural and semi-urban branches of the commercial bank is expected to bring into its fold, at least 100 new farmers during the current year. As against the ambitious announcements of the government of doubling agriculture credit in next three years, it is essential to take an overview of trends of flow of institution credit to agriculture during last 5-7 years. Institutional credit has grown at the rate of 13 to 14 per cent in the recent past. Learning from past experiences, agriculture financing needs a marketing outlook by the banks as agriculture is under transformation in the backdrop of the Agreement on Agriculture (AoA) under WTO. International trade in agricultural products is poised for faster growth and this sector offers big opportunity for banking business, with the focus being on retail banking in the changing competitive economic environment. The first basic principle in marketing is scanning the business setting under the changing political, economical, social and technological .

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