An internal working group of the Reserve Bank of India (RBI) to review agricultural credit has said loan waivers should be avoided and the focus should instead be on improving the viability and sustainability of agriculture.
There should also be a formal institution set up by the government, on the lines of the goods and services tax (GST) tribunal, which can suggest ways to improve credit to the agriculture sector, the group’s report said.
It also suggested higher scrutiny on loans raised against gold, and said banks’ systems should be able to flag such loans to enable close monitoring of end usage.
“The Government of India (GoI) and state governments should undertake a holistic review of the agricultural policies and their implementation, as well as evaluate the effectiveness of current subsidy policies with regard to agri inputs and credit in a manner which will improve the overall viability of agriculture in a sustainable manner,” said the internal working group, headed by RBI Deputy Governor M K Jain, adding: “Loan waivers should be avoided.”
The report also made a number of recommendations to improve credit to the agriculture sector, including giving consumption loans to the farmers.
The report suggested that the banks be allowed to give consumption loans to farmers up to a sanctioned limit of Rs 100,000 “provided banks are able to obtain collateral security and are satisfied with their repayment capacity based on the cash flows of the borrowers”.
Such loans won’t be considered for the purpose of calculating priority sector norms for banks.
But first the Central government and the state governments should complete the digitisation process and update of land records in a time-bound manner. Banks should be given access to the digitised land records in order to verify land title and create charge online. “In such states, banks should not insist on submission of land title documents.”
State governments having highly restrictive legal framework so that formal lending to tenant farmers can improve, the report said.
Technology should be used more rigorously, while banks should explore collaborations with agri-tech companies and start-ups to provide access to credit in an integrated, timely and efficient manner to the farmers.
The Indian Banks’ Association (IBA) can help in this manner by floating a technology driven platform.
“Innovations like movable warehouses/cold storages and mobile-based apps providing farm machineries on rental basis have been successfully operating but on a small scale. Hence, the GoI should identify the successful models in these areas which can be scaled up across the country,” the report said, adding banks should further encourage credit to such solutions providers.
The working group also recommended the sub-target for small and marginal farmers from the existing 8 per cent of net bank credit to 10 per cent with a road map of two years.
“At present there is no database of the Indian agriculture sector due to which the planning/ policy formulation lacks effectiveness and is difficult to monitor. GoI with the help of state governments should develop a centralised database capturing details related to crops cultivated, cropping pattern, output, sown/irrigated area, health of soil, natural calamity, etc.,” the group suggested, adding the database should also capture farmer-wise details like identity, land records, loan availed, subsidy given, insurance and details of crop cultivated, etc.
There should be a credit guarantee scheme for the agriculture sector as well, on the lines of those available for the micros, small and medium enterprises, it said.