Bank Credit To Agricultural Sector Shows A Downward Trend

There is a feeling that agriculture does not offer the kind of business which commercial banks are accustomed to. These banks, therefore, have generally been neglecting this sector. To reverse the situation, and to give agriculture the boost it needs and deserves, the government has taken several steps.

Recently, banks were required to contribute to the Rural Infrastructural Development Fund (RIDF), newly set up within Nabard, an amount equivalent to the shortfall in the priority target for agricultural lending, subject to a maximum of 1.5 per cent of the bank's net credit. Such contributions, expected to provide Rs 2,000 crore during 1995-96, would also be treated as priority sector lending.

 

On the other hand, as per the proposals in the Union Budget 1996-97, an additional amount of Rs 2,500 crore was to be made available for financing rural infrastructure through the RIDF.

This is an analysis of the trends of bank credit at the macro level over the last seven years. An attempt has also been made to examine which sectors/industries enjoyed more bank credit during the period.

The data on sectoral deployment of credit as at the end of March 1990 to March 1996 in respect of 47 scheduled commercial banks, which account for about 90-95 per cent of bank credit of all scheduled commercial banks, are given in the accompanying table. These are collected from the RBI's reports on currency and finance.

The table shows that the share of priority sector credit in total gross bank credit steadily decreased from 39.3 per cent at the end of March 1990 to 36.4 per cent by the end of March 1991. It rose to 39.5 per cent by the end of March 1992. By March 1993, the share had declined to 30.9 per cent. However, by the end of March 1994, the share rose to 34.3 per cent, and after that it steadily declined to 31.7 per cent by the end of March 1996.

The share of public food procurement credit was 1.9 per cent in March 1990, which rose to 6.9 per cent by March 1994, and thereafter declined to 4.2 per cent by March 1996.

The share of credit to the medium and large industry rose from 37.3 per cent in March 1990 to 40.2 per cent in March 1996. The share of wholesale trade declined from 5.3 per cent in March 1990 to 5.2 per cent in March 1996.

Within the priority sector, outstanding advances to agriculture at Rs 27,085 crore at the end of March 1996 constituted 36.9 per cent of total priority sector advances and 11.7 per cent of gross bank credit. At the end of March 1990, outstanding advances to agriculture at Rs 16,526 crore constituted 40.9 per cent of total priority sector advances and 16.1 per cent of gross bank credit.

During 1995-96, agricultural advances moved to Rs 3102 crore from Rs 230 crore in the financial year 1990-91. Advances to small-scale industries at Rs 31,884 crore in March 1996 accounted for 13.8 per cent of total gross bank credit compared with 15.1 per cent in March 1990. The share of small-scale industries in total priority sector advances at 43.4 per cent in March 1996 was higher than that at the end of March 1990 (38.5 per cent).

The increase in non-food gross bank credit during 1995-96 at Rs 37,196 crore was larger compared with that of Rs 12,552 crore in 1990-91.

Of the incremental non-food gross bank credit of Rs 37,196 crore in 1995-96, the priority sector's share was Rs 9,230 crore or 24.8 per cent. The share of agriculture in incremental credit to the priority sector was 33.6 per cent and that of small-scale industry was 46 per cent. Other priority sectors accounted for the balance 20.4 per cent.

However, during 1990-91, the share of agriculture in incremental credit to the priority sector was 9.2 per cent and that of the small-scale industry was 64.4 per cent. Other activities in the priority sector accounted for only 26.4 per cent.

Similarly, medium and large industry's share in incremental non-food gross bank credit during 1995-96 at 49.6 per cent was much higher than that of 39.2 per cent in 1990-91. The share of outstanding advances of medium and large industries to gross bank credit was more than 36 per cent throughout the nineties. If one includes the growth in gross bank credit to small-scale industries too, the banks' lending to the industrial sector in the country has indeed been impressive.

Further, the advances to other priority sectors also would have an indirect beneficial impact on the industrial units. These sectors comprise small businesses, transport operators and other traders who are in effect marketing outlets for the products of industrial units.

Growth in absolute terms or even percentage increase over the years does not, however, mean much unless it is established that such growth is commensurate with the needs of the user community. Bank credit to industry is provided for both working capital and fixed capital needs of industrial units.

While fixed capital needs are financed by medium and long-term loans, working capital requirements are financed by cash credit advance and bill discounting facilities. Another feature is that the credit to Public Food Procurement declined during 1995-96 as against increases in earlier years. Gross bank credit to large, medium and small industry rose from Rs 53,805 crore at the end of March 1990 to Rs 1,24,992 crore by the end of March 1996, an increase of Rs 71,187 crore.

The increase in bank credit to industry was more than Rs 3,000 crore annually throughout the nineties except during the year 1993-94.

The share of credit to industry in total outstanding gross bank credit rose from 52.4 per cent at the end of March 1990 to 53.9 per cent by the end of March 1996, while the share of credit to agriculture in total outstanding gross bank credit declined from 16.1 per cent to 11.7 per cent during the same period.

Of the incremental credit of Rs 22,682 crore to industry during 1995-96, the other industry accounted for Rs 5,587 crore followed by the engineering industry (Rs 4,452 crore), chemicals, dyes, paints etc (Rs 3,634 crore), iron and steel ( Rs 1758 crore), electronics (Rs 1732 crore), cotton textiles (Rs 1681 crore) and other textiles (Rs 1225 crore). In 1990-91, out of the incremental credit of Rs 7771 crore, other industry topped the list with a share of Rs 3011 crore followed by engineering (Rs1430 crore), chemicals, dyes, paints etc (Rs 931 crore), other textiles (Rs 459 crore) and iron & steel (Rs 442 crore).

Credit to the coal industry, which had recorded a large increase of Rs 63 crore in 1990-91, moved up only by Rs 13 crore in 1995-96. On the other hand, credit to iron & steel, other metals & metal products, engineering, cotton textiles, jute textiles, tea, tobacco & tobacco products, leather & leather products and gems & jewellery increased by Rs 1758 crore, Rs 508 crore, Rs 4452 crore, Rs 1681 crore, Rs 98 crore, Rs 217 crore, Rs 155 crore, Rs 428 crore and Rs 424 crore respectively in 1995-96 as against Rs 442 crore, Rs 378 crore, Rs 1430 crore, Rs 404 crore, Rs 8 crore, Rs 4 crore, Rs 13 crore, Rs 65 crore and Rs 28 crore respectively in 1990-91.

Of the total outstanding credit to industry of Rs 1,24,992 crore at the end of March 1996, the share of other industry was the highest at 22.4 per cent followed by engineering (20.5 per cent), chemicals, dyes and paints (13.1 per cent), iron & steel (6.8 per cent), other textiles (6.2 per cent), cotton textiles (6.1 per cent) and electronics (4.2 per cent).

The share of industries such as coal, jute textiles, tobacco & tobacco products and petroleum in outstanding credit to industry was less than one per cent. However, at the end of March 1990, the share of credit to all engineering industries when compared with all industries credit was the highest at 23.2 per cent followed by the other group (20.7 per cent), chemicals, dyes and paints (12.6 per cent), cotton textiles (6.8 per cent), other textiles (6.1 per cent) and iron & steel (5.3 per cent). On the other hand, coal, jute textiles, tobacco and tobacco products, and petroleum had a share of less than one per cent during 1990.

The data on percentage share of major industries in total gross bank credit as at the end of March 1990 to March 1996 indicates that most of the industries such as coal (around 0.3 per cent), other metals (3 per cent), electricity (2 per cent), other textiles (6 per cent), tea (1.06 per cent), vegetable oils (1.3 per cent), petrochemicals (1.2 per cent ), drugs and pharma (1.8 per cent), gems and jewellery (2.2 per cent) and petroleum (0.2 per cent) kept their share intact