By Dr Gopal Kalkoti:
Recommendations of the Nair Committee on suggesting revised guidelines on priority sectors, if considered by the RBI, would facilitate banks to substantially increase the flow of agricultural credit in particular. As such policy interventions, viz. mandated agricultural credit targets and shortfall in achievement to be deposited with NABARD at very low interest rate towards Rural Infrastructure Development Fund thereby penalizing banks, increased disbursement by formulating annual special agricultural credit plans, fixing credit targets in absolute amount in annual union finance budget and doubling farm credit in three years have substantially increased the flow of credit to farm sector in 1990s and 2000s. The credit flow to agriculture increased from Rs.2,85,146 crore during the Ninth Plan [1997-2002] to Rs.6,85,146 crore during the Tenth Plan [2002-07]. Credit disbursement during the Eleventh Plan [2007-12] is estimated at Rs.19,59,524 crore of which Rs.13,87,633 crore have already been disbursed between 2007-08 and 2010-11.
Regional Imbalances
Since the country has just 33,489 branches of commercial banks in villages, covering only 5.2% of country’s 6,38,652 villages, the concentration of credit in these 33,489 villages plus four to five adjoining villages has deprived around 65% villages and has contributed to significant level of imbalances in the flow of agricultural credit within district, State, region and the country, making rich richer and poor poorer. This paper attempts to focus the need for studying the extent of imbalances already existing and likely to emerge and suggests measures to minimize the same between blocks, districts, states and regions in the country.
While appreciating the committee’s recommendation to periodically conduct impact evaluation studies of credit flows to different segments of priority sectors to arrive at various policy options, there is immediate need to scientifically assess at micro level [i] the extent of imbalance in the flow of agricultural credit from all formal sources between Blocks, districts, States and geographical regions as measured by Gini’s Coefficient [ii] the extent of statistically tested correlation between the agricultural credit from all formal sources and farm output and employment generation in Block, District, State and geographical Region. These studies should continue to be conducted every three years in order to understand the relationship as also extent of imbalances and evolving appropriate policy.
Focus in Twelfth Plan
What is significantly needed in this current decade and during the Twelfth Plan [2012-17] is to ensure that [i] all 6,38,652 villages of the country, rather than villages which currently have rural branches, should have reasonable share of agricultural credit [ii] existing and emerging imbalances in accessing agricultural credit within a Block/Tehsil, district, State and geographical region are significantly progressively reduced each year [iii] those currently ineligible borrowers are enabled to become eligible to access bank credit in all villages where banks have rural branches [iv] banks in each of the allocated villages under Service Area Approach provide savings and credit services to all rural households within three years.
It is worth appreciating that every development has a cost and that the Government, RBI and banks will have to seriously consider it necessary that commercial banks and regional rural banks open branches progressively at least in 25% of villages and each branch must necessarily by mandate serve other three villages. It is most essential and desirable that the cooperative credit institutions, Union and State Governments can speed up their efforts to revive 94,647 PACS and 697 PCARDB within three years in a time bound program that can supplement efforts of commercial banks.
The Government and RBI need to work out details for opening branches of 24 public sector,28 private sector and 82 regional rural banks in 25% of villages in five years.. The capital cost of opening branches can be shared among Union and State Governments and banks. Even the capital cost can be met out of unutilized funds provided to each member of both houses of parliament for area development on an annual basis. These branches need to adopt technology to reach unreached households for which the capital cost can be met out of Financial Inclusion and Financial Inclusion & Technology Fund already established which can be augmented by adding additional funds out of State and Union budgetary resources.
The RBI should liberalize rural branch licensing policy in consultation with banks, Union and State Governments. Since the response of 24 private sector banks to open rural branches has been lukewarm they have to demonstrate their concern and commitment in this critical area. The regional office of each bank has a primary role and responsibility to monitor the performance of its rural branches on a quarterly basis and the central office on a half yearly basis.
Government’s Initiative
State Governments and Union Governments have to create rural infrastructure for each village, block and district in 10 years in a time bound program. Besides, it has to create facilitating legal and regulatory framework that can, inter alia, substantially improve the credit absorption capacity and credit culture of the users and the agro-ecological regions of the country, build institutional capacity, strengthen rather than vitiating credit discipline and loan recovery climate, channel credit significantly and in a planned way in backward, tribal, hilly, desert, drought prone regions and to poor and vulnerable
Banks’ Commitment
Effectiveness of banks’ performance depends greatly on bank management’s commitment to put in place effective rural human resource development and training policy to match the requirements of rural areas, in sharp contrast to urban and metropolitan towns, and Government’s commitment to provide adequate autonomy to banks to operate professionally as business institutions, leaving the regulatory control to RBI. .
Banks cannot expect their each and every rural branch as a profit center and particularly branches in North-Eastern States, hilly, tribal and desert districts of the country. However, sustainable financial viability of bank at the aggregate level can be attained if enabling measures are initiated, viz. [i] Developing financial products [savings, credit, insurance, remittances etc.] based on local needs rather than country as a whole. Banks, except a very few, on their own have yet [after four decades of nationalization] to develop financial products for different agro-ecological regions. Banks have agricultural lending schemes with stereotype blueprints of terms and conditions for the country as a whole, but not loan products to suit clients of each agro-ecological region of the country. Even KCC & GCC designed by the NABARD has been one-fits-all and not developed to meet local needs. [ii] After developing product banks have to implement appropriate marketing strategy to make it reach to the expected clients.
About the writer:Â The writer is the Vice-Principal, Associate Professor & Head – Dept. of Business Economics; Member Board of Studies, Business Economics, Recognized Guide for Ph.D in Commerce at Nagindas Khandwala College, University of Mumbai.