Farm credit poser

Focus on targeting instead of quantum

Going by official claims, institutional credit to the farm sector is set to exceed the target of Rs 10 trillion for the current year, conforming to the sustained trend of actual loan disbursements outstripping the liberally hiked annual targets year after year. Yet neither agrarian distress nor farmers’ dependence on moneylenders is showing signs of easing. Nearly 40 per cent of rural credit demand is still met by the informal sector, including commission agents and moneylenders, though the total credit flow has surged over 10-fold since the early 2000s. Clearly, the purpose for which institutional credit to the farm sector was stepped up steadily has not been served adequately. Cheaper bank credit, thanks to interest subvention by the government, is not reaching the genuinely needy — small and marginal farmers — in full measure due to large-scale diversion to other destinations.

Various studies and surveys, including those by the National Sample Survey Office and a recent one by the Tata Institute of Social Sciences, have captured numerous indications to this effect. For one, the proportion of loans of less than Rs 200,000, which normally go to genuine farmers, has shrunk sharply from over 90 per cent in the 1990s to less than half of that now. Correspondingly, the share of larger loans of up to Rs 10 million and more has surged. Besides, roughly about half of the total farm credit is disbursed between January and March when farmers’ loan requirements are the least with rabi sowing already over and kharif planting being months away. Equally oddly, nearly a fourth of direct agricultural lending is accounted for by bank branches located in semi-urban, urban and metro towns. Evidently, banks find it much safer and convenient to lend to agri-related enterprises rather than to the more risk-prone farmer. Frequent waivers of farm loans, which have marred the loan repayment culture in rural areas, have made banks all the more wary of lending to farmers. Many of the highly subsidised agricultural loans are consequently going either to non-farmers or to the same set of farmers who have a good repayment record.

On the other hand, the cooperative credit sector, which is better equipped to cater to the needs of cultivators, is in a pathetic state. Recently released data by the Reserve Bank of India shows that non-performing assets of the primary cooperatives and the agricultural and rural development banks have risen to 37 per cent by the end of 2015-16. Political interference in the day-to-day functioning of these bodies is adding to their woes. The finance ministry has, therefore, done well to seek a fresh assessment, ahead of the forthcoming Union Budget, on the health of the cooperative credit institutions from the National Bank for Agricultural and Rural Development (Nabard), which supports them financially, and the state governments. This should help the Centre to reorient its strategy. Unless such issues confronting the cooperative and the commercial banking sectors are suitably addressed to ensure better targeting of agricultural lending, increasing farm credit is unlikely to help.