Charting the course

Dr Deepali Pant Joshi gives an insight into the directives laid down by the Reserve Bank of India to smoothen and ensure timely supply of agriculture credit

The Indian economy is largely agrarian; as a result, the importance of agriculture is immense. Though the contribution of agriculture and allied sectors to the GDP has declined to 22 per cent, the percentage of the population engaged in agriculture and allied activities continues to be 67 per cent. Keeping this in view, long-term growth of the agriculture sector is necessary to achieve self-reliance at the national level, generate employment opportunities, and bring about equity in the distribution of income. Domestic scheduled commercial banks (SCB) have been directed to meet a target of 18 per cent of net bank credit for lending to agriculture under the system of direct lending. There is a further stipulation that indirect lending should not exceed 4.5 per cent of net bank credit, or one-fourth of the credit target of 18 per cent, to ensure that banks concentrate on providing direct advances to agriculture. Indirect finance to agriculture in excess of 4.5 per cent of net bank credit is, however, taken into account while reckoning the banks’ total priority-sector lending.
Although most public and private sector banks have not met this target, advances to agriculture in absolute terms have steadily increased over the years. The target of 18 per cent of net bank credit for lending to agriculture was introduced in 1989 and banks were required to meet it by March 1990.
Agricultural credit provided by banks in the country, however, has so far not reached the level of 18 per cent. Private sector banks were also asked to meet the target of 18 per cent of net bank credit for lending to agriculture, in 2001, within the next two years. The time frame was extended subsequently to public sector banks.
Agriculture has received indirect finance from public and private sector banks to the extent of 4.5 per cent and 8.6 per cent of their net bank credit respectively. New private sector banks have lent more (12.1 per cent) than the older ones (4.5 per cent), raising the figure for all private sector banks.
Banks that have failed to meet the target for advances to priority sectors and agriculture have been directed to contribute an amount based on their shortfall to the Rural Infrastructure Development Fund (RIDF). Cumulative sanctions and disbursements under the RIDF had amounted to Rs 34,678 crore and Rs 21,067 crore respectively, till the end of March 2004.

 

TABLE 1: OUTSTANDING CREDIT TO AGRICULTURE BY PUBLIC AND PRIVATE SECTOR BANKS
	March 1994	March 2003	Rs crore Annual compounded growth rate (%)
Public sector banks
Net bank credit	1,40,914	4,77,899	14.5
Total agri advances outstanding	21,204	73,507	14.8
Direct agri advances	19,256	51,799	11.6
Indirect agri advances	1,949	21,708	30.7
Private sector banks
Net bank credit	9,545	71,761	25.1
Total agri advances outstanding	591	11,873	39.6
Direct agri advances	515	5,201	29.3
Indirect agri advances	76	6,671	64.4

 

SPECIAL AGRICULTURAL CREDIT PLANS
As instructed by the Reserve Bank, public-sector banks have been formulating Special Agricultural Credit Plans (SACP) since 1994-95. Under SACPs, banks are required to fix a target for themselves for disbursement during the year.The Reserve Bank has advised banks to fix targets that are about 20-25 per cent higher than the disbursement of the previous year. Under SACPs, the credit to the agriculture sector by public sector banks has increased from Rs 10,172 crore in the year, 1995-96 to Rs 33,921 crore in 2002-03.
Commercial banks, co-operative banks and regional rural banks (RRBs) are the main providers of agricultural credit under the multi-agency approach. They have established a branch network, comprising about 47,000 branches of SCBs and over 1,00,000 co-operative outlets in ...

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