RBI to support farm produce aggregation to facilitate credit flow

This would provide an opportunity for foreign banks, which have limited branch base, to lend in agriculture, says RBI deputy governor

The Reserve Bank of India (RBI) will support arrangements for aggregating farm produce to facilitate credit flow to the sector, especially from foreign banks operating in India. The revised priority-sector lending (PSL) rules extend to foreign banks and the RBI has given a roadmap with timeframe for foreign lenders to meet PSL targets.

Speaking at a Nabard symposium on agrarian crisis here on Sunday, RBI Deputy Governor H R Khan said it would be a challenge for foreign banks to meet the PSL targets, especially in lending to the agriculture sector. Aggregating farm produce through Farmer Producer Organisations (FPOs) would give foreign lenders, which have limited branch presence in India, an opportunity to lend to the agriculture sector, Khan noted.

FPO is an initiative by the agriculture ministry to help farmers develop a professional attitude towards agriculture. Under this, farmers can form groups and register it as a company under the Indian Companies Act. The company can then extend technical and financial assistance to members and explore the market for their produce. In April, Prime Minister Narendra Modi had asked RBI to prepare a 20-year roadmap for financial inclusion. He had nudged banks to be considerate in giving loans to the poor farmers and also while making recoveries from them.

In his speech, Khan warned against frequent loan waivers saying debt burden is not the only reason for farmer suicides. Crop failures, social, cultural, ecological factors also lead to farmer suicides, he added. “Prevention is better than cure,” he said, adding there are occasions where loan waivers are needed, but in the long term it is important to ensure that such problems do not reoccur.

According to Khan, there is an inverse relationship between agricultural growth and farmer suicides.  “There is a sharp negative correlation between agricultural growth and farmer suicides. It is almost 0.72 per cent... When growth is there, (the number of) suicides is less.” He also noted the focus has largely been on agricultural production and not much importance has been given to increase the income of the farmers. “The 70th round of the NSS says an average farmer earns Rs 6,400 a month and on taking out expenses and consumption needs, is left with a surplus of a paltry Rs 200. How is he going to service a loan of an average Rs 4,700 a month?” Khan asked.