Single Window Food Credit May Be Scrapped

The single window system of food credit is likely to be dismantled once the government decides to replace the existing food procurement arrangement with a system of direct cash subsidy to farmers.

Once the government exits from the business of food procurement, the consortium system of food credit will be dismantled, senior bankers said.

Under the current system, food credit is extended through a single window consortium led by the State Bank of India (SBI). The rate of interest charged for the lending is the average prime lending rates of five leading public sector banks.

Food Corporation of India (FCI) and some state governments raise food credit every year up to a limit fixed by the Reserve Bank of India. The SBI disburses the credit on behalf of all public sector banks as well as a few private and cooperative banks on a risk sharing basis.

A senior banker said, "We have not been formally told about the new system. We are comfortable with the existing arrangement where RBI fixes the limit and the banks do not need to assess the creditworthiness of FCI or individual states. Once, this is dismantled, individual banks will be required to assess the risk if they are asked to disburse cash subsidy payments on behalf of the government."

Up to October 19, the food credit offtake was at Rs 10,289 crore, up from Rs 8,153 crore in the comparable period of the last fiscal. The food credit extended by the commercial banks in the last fiscal year went up by 55.7 per cent to Rs 14,300 crore reflecting an increase in food procurement and decrease in food offtake during the year.

Even though no margin is fixed for food credit, the RBI gives a guarantee for 25 per cent of the credit. Once the credit is disbursed for a seasonal crop, the RBI sets the adjustment date, when the banks stop disbursing the facility and start collecting the quarterly repayments. The incidence of non-performing assets (NPAs) is neglible in food credit.

Acccording the proposed system, the government will fix up the minimum support price, but will not buy foodgrain at that price. Rather, the government will make cheque payments to the farmers to cover the difference between the support price and the market price.

The foodgrain required for the public distribution system will be purchased commercially from the market through open tender. The system will take away the burden of purchasing, trading, sorting and distributing foodgrain from the government, but will keep the farmers' income unaffected. The new system is expected to save the government Rs 21,000 crore annually.