Banks Told To Beef Up Farm Credit

The RBI governor has directed the bank chiefs to raise farm credit by over Rs 2,500 crore in 1996-97 over the previous year's level. The flow of credit to the agriculture sector, which was Rs 8,225 crore in 1994-95 was increased to Rs 10,192 crore last year, registering a 23.2 per cent growth. Despite that, most of the banks failed to reach the stipulated 18 per cent target of agricultural lendings.

Prime Minister H D Deve Gowda last week hinted at taking "major policy steps" to reduce the interest rates on farm credit. Gowda has also made it clear that the UF government was committed to accord the highest importance to the agriculture sector.

 

The new government's concern for agricultural growth assumes significance against the backdrop of dismal growth in the farm sector in 1995-96. Between April 1995 and February 1996, agricultural crop production is estimated to have grown by 0.9 per cent against a 12.4 per cent growth in industrial production.

The agriculture ministry is drawing up state-wise and bank-wise agricultural credit plans with a special emphasis on small and marginal farmers and the neglected sub-sectors like dryland farming.

A section of the bankers are interpreting the Prime Minister's statement as a hint at reduction in the administered rate of interests on loans up to Rs 2 lakh. At present, banks are free to fix the PLR on advances over Rs 2 lakh but the small loans are still subjected to the administered rate of interests.

The banks charge 12 per cent interest on small loans up to Rs 25,000 and 13.5 per cent on advances between Rs 25,000 and Rs 2 lakh. "Both the slabs are mostly meant for priority sector advances. The central bank can slash the interest rate to benefit the farmers," one banker said.