Strengthening our roots
AR
Patel gives a detailed assessment of the current rural credit scenario
in India, and airs his views on the measures proposed in the Union
Budget, 2004-05, to remedy the existing situation
The
rural credit scenario in India has been quite dismal during recent
times. In fact, the current profile of commercial banks as on March
31, 2003 reflected a low credit-deposit ratio of 42 per cent in rural
areas, and 35 per cent in semi-urban centres (against the stipulated
ratio of 60 per cent) as compared to 69.5 per cent in urban and metropolitan
centres and 59.3 per cent at the national level. The credit-deposit
ratio at the metro and top 100 urban centres was as high as 83 per
cent and 74 per cent respectively. This declining ratio clearly reflects
the flight of rural and semi-urban savings to metro and urban centres,
despite the fact that tremendous potential and opportunities for deploying
the mobilised savings exist in these centres.
The growth of commercial banks that lend towards agriculture and allied
activities witnessed a substantial decline during the post-reform
period.
Advances to the farm sector progressively declined from 16.4 per cent
in 1991 to 15.3 per cent in 1994 and further to 10.8 per cent in 2002
as against targets of 18 per cent of net bank credit. Direct agricultural
credit was 9.5 per cent in 2002, well below the target of 13.5 per
cent of net bank credit.
The amount from private sector banks as well as direct lending to
the farm sector accounted for only 10.8 per cent and 6.3 per cent
of net bank credit, which were far short of the stipulated 18 per
cent and 13.5 per cent of net bank credit as prescribed by the Reserve
Bank of India.
The number of bank branches at rural centres declined from 35,329
as on March 31, 1994, to 32,481 as on March 31, 2002, indicating the
closure of 2,848 branches; during the same period, 7,253 new branches
have opened in semi-urban, urban and metro centres.
The budget for 2004-05 focuses on policy prescriptions, increasing
the funds for and conducting pilot studies for the development of
the farming sector, directions to banks for increasing flow of credit,
bringing additional farmers within Agriculture has initiated necessary
steps to improve governance and appoint the chief of the SFAC, while
the government will provide additional capital to SFAC for aggressively
promoting agribusinesses.
RISK MITIGATION
The Agricultural Insurance
Company (AIC) was established in December 2002. The National Agricultural
Insurance scheme, which insures the yield of crop, has been in operation
since Rabi 1999-2000. While the AIC is redesigning the scheme, the
scheme will be continued and evaluated. Meanwhile, a pilot scheme
insuring farm income (as opposed to crops) has been launched in 19
districts across 12 states during Rabi 2003-04.
This scheme will be extended during Kharif 2004 in order to assess
its feasibility. It is felt that a weather insurance scheme appears
to be more promising.
The AIC is introducing the scheme on a trial basis in 20 rain-gauge
stations in the current season.
Agricultural insurance as well as livestock insurance are complex
products and have to be designed with care. The government is, however,
committed to providing insurance cover to crop and livestock farming.
CREDIT DISBURSEMENT PROGRAMME
Since the seventies,
the decadal average growth rate of the volume of short-term institutional
credit to agriculture has stagnated at around 15 per cent, whereas
the growth rate of the volume of long-term credit has, in fact, declined
from 20.2 per cent in the seventies to 11.9 per cent in the nineties.
As on March 31, 2003, all domestic public sector commercial banks
had extended credit to the extent of 6.76 per cent to the weaker sections
as against the target of 10 per cent of net bank credit. In the light
of this unsatisfactory performance of credit institutions in supporting
farm sector development, the Finance Minister has announced a number
of policy stipulations to be implemented by the management of commercial
banks, RRBs, and co-operative banks during the current year.
MICRO-FINANCE
The micro-finance programme
holds the promise of empowering the rural poor – especially women
– and of drastically effecting a positive change in the rural
areas. Under the leadership and with the support of the National Bank,
it has made significant progress in the short period from 1993 to
2002. However, it is still unfortunate that, out of ten lakh self-help
groups, only 4,61,478 have so far been linked with 444 bank branches.
NEED FOR BANKS’ INITIATIVES
In order to ensure the smooth flow of credit to
the farming sector, banks need to initiate focused measures and to
commit to put in place the required machinery to implement, monitor
and evaluate the tasks assigned to rural and semi-urban branches.
Bank branches have been financing farming and rural sectors in their
service areas since April 1989 through the preparation of a service
area credit plan under the technical guidance of the district development
manager (DDM) of the National Bank. For every district, a five-year
perspective plan and an annual potential-linked credit plan is prepared
by the DDM.
The bank staff is expected to be fully familiarised with the rural
environment, technological changes taking place therein, and expectations
of rural clients. The problems and prospects of supporting development
through the provision of credit and counselling, and coordination
between other development agencies , that include government departments
and Panchayati Raj institutions.
This experience should enable them to deepen and widen credit flow
by significantly increasing the number of borrowers, and increasing
credit allowances to meet their changing needs and rise in input costs.
In fact, by now most of the branches should have covered all eligible
borrowers from every village in their service area. Besides, banks’
professional experts should have guided branch staff to study the
factors contributing to rural clients becoming ineligible borrowers,
and how, ....
contd...
TO
READ FURTHER... SUBSCRIBE TO
YOUR COPY TODAY!!!
