and small categories and the produce from such activities helps them merely maintain subsistence levels of living. The small and marginal farmers constitute a highly impoverished group. Hardly having any form of organization they lack a common forum to articulate their problems and often issues of concern to them are not addressed adequately. These categories of farmers have limited access to credit facilities. This The National Agricultural Policy of 2000 observed "Agriculture has become a relatively unrewarding profession due to generally unfavourable price regime and low value addition, causing abandoning of farming and increasing migration from rural areas….".

2)High level of Indebtedness- Leading to Suicides

Small and marginal farmers' households need credit to meet both consumption needs to maintain subsistence levels as well as for production purposes to meet the increasing costs of cultivation. Increased indebtedness is noted as a major reason for the spurt in farmer suicides during recent times the economic status of the suicide victim was very poor, being small and marginal farmers. Among the reasons for suicides, indebtedness featured as the prime reason. Although a direct link between distress and indebtedness has not always been established, the spate of suicides has been associated with it . After the Green Revolution agricultural activities have become cash based individual enterprises requiring high investment in

modern inputs and wage labour .This is evident from the list of states with high incidence of farmer suicides, which are not necessarily backward or

predominantly agrarian or with low income. A common feature that we discern is the high level of commercialization of agriculture and the trend towards cash crops in these states. Increased liberalisation and globalisation have in fact lead to a shift in cropping pattern from staple crops to cash crops like oilseeds and cotton, requiring high investment in modern inputs and wage labour, and increasing credit needs but when the prices declined farmers had no means to supplement their incomes . When crops failed and or prices went down they had no means to repay the loans, which drove them to the wall, as the saying goes. Desperate as they were and further burdened by a sense of social shame, ending one's own life might have provided an easy exit. With mounting debt burden along with the rising risks in production and price fluctuations leading to low remuneration, it is no wonder that a lot of distress is generated among the farmers. Incidence of indebtedness among farmer households was the highest in AndhraPradesh (82 per cent), followed by Tamil Nadu (75 percent) and Punjab (65 per cent).

3)Farming – Acute and Pressing Problems

Being a nature-based activity, cultivation is a highly risky. Further, in the liberalized scenario price risks have also increased . Heightened dependence on market has exposed the farmers to fluctuating price regimes, more so in the areas of commercial farming. This is of particular concern for the small and marginal farmers who do not have the means to cope with such shocks, either through market support or through insurance. The entire crop of the small holders comes to the market at one time. The small cultivator, who is often heavily indebted, has poor bargaining strength to get a favourable deal from the more resourceful traders. In such a situation the state support price system is of prime importance in protecting the interest of the farmer. However, the government's attempts to mitigate these risks through such measures as the Minimum Support Price (MSP) have also not been very successful as the coverage of the scheme in terms of crops and area is small. The small farmer is thus not assured of a minimum return on his labour and investment. The now dilapidated public extension support system has increased the dependence of the farmer on private dealers, often resulting in inappropriate choice of crops and inputs

Inadequate crop insurance cover: In case of crop failures, insurance is important. However, crop insurance has made little headway except where it is built into other transactions such as cooperative credit. Insurance is an uncommon practice with only 4 per cent farmers having ever insured their crop. Compared to 14 per cent of the large farmers, only around 2 per cent of the submarginal farmers, 2 per cent of the marginal farmers and 5 per cent of the small farmers had crop insurance.

4)High costs-low returns-Nearly half the farmers dislike their occupation

Economic organisation of farmers, particularly the marginal and small farmers, which could have helped them overcome the size constraint, is extremely insignificant. Rising costs of cultivation, low remunerations, high risks with frequent crop failures, declining agricultural growth, and mounting debts have all led the farmer to a distress like situation. Nearly 40 per cent of the farmer households disliked their occupation. The disinclination to farming is higher among smaller farmers. While nearly 44 per cent of the sub-marginal and marginal farmers reported they disliked farming, only 28 per cent of the medium and large farmers said so. The main reasons for this disinclination were the lack of viability of farming, followed by its perceived risks. It is important to ensure the protective social security of the landless and marginal and small farmers. Given the high risk and low profitability of the farmer's activities, social security measure that provides for health expenses, life and unemployment insurance and old age pensions is important. Presently, there have hardly been any welfare provisions for farmers.

5)Adverse changes in the banking policy since the economic reforms of 1991, reducing loan availability

One of the key policy instruments to provide access to credit to the small industries was the RBI directions on 'priority sector' lending. The commercial banks were asked to advance 40 per cent of their net bank credit to the priority sector. This included the small and tiny enterprises for which, however, no separate targets were specified. In the case of co-operative banks the priority sector lending was to be 60 per cent. However, there has been a change in the banking policy since the economic reforms of 1991. The concept of priority sector lending itself has come under attack, with the suggestion by the Narsimhan Committee Report (1993) that the 40 per cent direct credit to the priority sector should be phased out. While this recommendation has not been implemented, there has been a dilution of the priority sector lending policy. The operational relevance of the priority sector lending has been weakened by the inclusion of a vast number of items, including agricultural machinery, direct finance to the housing sector etc.

It needs to be noted that the growth in agriculture in the early periods was facilitated by the spread of rural credit institutions and improved access to

credit. A step in this direction was the nationalisation of banks in 1969 and making imperative that the banks expand their rural coverage. The Commission is concerned that the position of institutional credit with respect to agriculture, and more so, with respect to marginal and small farmers continues to be extremely unsatisfactory. The share of agricultural credit in the Net Bank Credit (NBC) declined from 17per cent in 1994 to 9 per cent in 2004. Agricultural credit as a percentage of NBC it still stands at a

low 11.9 per cent in 2006.

Between 1972-1983 there were 21.2 million additional bank loan accounts in the aggregate given by the banks, of which 19.9 million, or 93% were accounts with credit limits of Rs10, 000 or less. This trend continued for another decade. Between 1992 and 2001 , however, there has been an absolute decline of 13.5 million in the aggregate bank loan accounts. This has happened entirely because of a larger decline 25.3 million accounts for the redefined small borrowal accounts of Rs.20,000 or less.

In the post banking sector reforms period, during 1992-93, small  borrowal accounts(Rs.25000 and below) went down from 62.55 million  in March 1992  to only 38.73 million by March 2005.

The number of commercial banks branches in rural areas declined  from 35,134 in March 1991 to 30,572 in March 2006.A large number of staff vacancies remain unfilled for quite some time.

6)Apathy and dilution at policy level

A close look at RBI guide lines/directives to banks, reveal that apathy either deliberately or by mistake also exists at the top and policy planning level…as the credit system operating under the existing guidelines of RBI. It emerges that small borrowers are competing with large and strong borrowers. The coverage under priority sector lending has increasingly been diluted, enabling big borrower loans at the direct expense of small borrower loans.

As part of the so-called process of” aligning  bank credit to the changing needs of the society”, the scope and definition of the priority sector, once dominated by small farm related loans ,were fine-tuned by including new items and enhancing credit limits of constituent sub-sectors to more than Rs.40 lakh..Over the years particularly after the mid-nineties,relatively high credit worthy activities like housing,education,transportation and loans to professionals have been included in the priority sector.

This has affected unfavourably the credit flow to the needy sector.

7)Reduction in Credit for Marginal-Small Farmers

Surveys such as the Situation Assessment Survey of Farmers (2003) bring out their dismal state as the following statistics show:

1)Percentage of non-institutional credit, with  very high rate of interest, is taken more by Marginal and Small Farmers than by other farmers with larger land holdings whose share in institutional credit ,with normal interest ,is more.

                                  Size of land holding (Ha)                   

2) About 1/3rd of  loans obtained are used for no-productive purposes like  consumption, marriage etc;

3)Population Distribution

Average monthly per-capita consumption expenditure(MPCE)2004-05.The poor and vulnerable constitute 77% of the total population .The share of poor in monthly consumption expenditure has come down  by 50% during economic reforms period., while mpce of middle and high range people increased.by 15%. 

4)Average monthly income per family household(Rs./Month) from cultivation 2003

The monthly income from cultivation derived from cultivation by marginal and small family holdings in not sufficient to eke out lively hood by marginal and small farmers. (Rs/Month)

 

MF:Marginal  less than 1 Ha, SF:Small1.01-2.00 Ha,SM:Small medium 2.00 -4.0 Ha

M;Medium 4 – 10 Ha, L:Larger Over 19 Ha..

The Commission is of the view, that in addition to the steps already taken by Government and the banking system, the following measures need to be initiated:

8)Commission’s recommendations

(1)Change in the priority sector guidelines with a target of 10 per cent needs to be fixed for marginal and small farmers. , the agricultural quota includes direct agricultural loans to corporate entities up to Rs.10 million and for even higher amounts for indirect agricultural activities. The limit of loan for activities eligible for direct agriculture has been raised to Rs.2million. The Commission recommends that the priority sector guidelines of the RBI be amended and a 10 per cent quota, out of the 18 per cent presently assigned

(2) Close monitoring by RBI of the credit flow to this segment of farmers i.e. marginal and small farmers.

for agriculture, be fixed for farmers with land holdings below 2 hectares

(3) Measures to extend credit to the 20 – 40 per cent of the marginal and small farmers who are excluded from the formal financial sector due to lack of patta and title deeds.

The Commission is of the view that the Government may set up a Credit

Guarantee Fund in NABARD, on the lines of the CGF set up by the Ministry of Micro, Small and Medium Enterprises which provides guarantee cover on loans to small units.

Banks are directed to extend mandatory credit to priority sectors which was initially focused on hitherto needy and neglected sections especially to small land holders and small enterprises. Ever-since reforms have started in 90s the definitions of priority sectors have been periodically widened to include other sections with relatively high credit worthiness and deepened to include big loans. Thus the coverage under priority sector lending has increasingly been diluted, crowding out small borrowers and opening gates for big borrowers. The present paper details how the initial objective has been diluted and defeated over a period. CIFA urges that the original objective of giving priority to small loans be restored by doing away with the concept of indirect finance , prescribing ceilings on loans extended under priority sectors and fix sub-targets for weaker sections so as to sub-serve the original objective.

Observations of NCEUS-Apathy at policy level

In the Report of National Commission for Enterprises in Un-organised Sector- NCEUS-2007, (Chairman: Arjun Sengupta) it is stated that:
‘A close look at RBI guide lines/directives to banks, reveal that apathy either deliberately or by mistake also exists at the top and policy planning level…as the credit system operating under the existing guidelines of RBI. It emerges that small borrowers are competing with large and strong borrowers. The coverage under priority sector lending has increasingly been diluted, enabling big borrower loans at the direct expense of small borrower loans.

As part of the so-called process of” aligning  bank credit to the changing needs of the society”, the scope and definition of the priority sector, once dominated by small farm related loans, were fine-tuned by including new items and enhancing credit limits of constituent sub-sectors to more than Rs.40 lakh. Over the years particularly after the mid-nineties, relatively high credit worthy activities like housing, education, transportation and loans to professionals have been included in the priority sector.

This has affected unfavourably the credit flow to the needy sector.’

A] The process of diluting the spirit of financing hitherto neglected and needy sectors by periodically changing definitions of priority sectors by the RBI, in the name of ” aligning  bank credit to the changing needs of the society”, is detailed hereunder:

1) Introduction

With a view to extend credit to hitherto neglected sectors  with higher employment elasticity and potential,  it was decided in 1985 that Banks should  extend credit  to an extent of 40% of net bank credit to priority sectors like agriculture and Small Scale Industries. Sub-targets were also fixed details of which are given below.

{note: NBC denotes net bank credit}

Priority sectors initially comprised of:

(i) Agriculture (Direct and Indirect finance)

(ii) Small Enterprises (Direct and Indirect Finance)

(iii) Retail Trade

(iv) Micro Credit:

1b)Subsequently, relatively high credit worthy activities like housing, education, transportation and loans to professionals have been included in the priority sector diluting the spirit of financing hitherto neglected and needy sectors for productive purposes

2) Widening definition of indirect Agri finance 1990s further diluting the scheme:

From the 1990s onwards, the definition of what constitutes indirect finance to agriculture has been widened and diluted drastically by the RBI. This enabled banks to show higher level of growth of indirect finance from the mid-1990s. The major changes introduced in the definition of indirect finance are as follows:

i) Up to 1993, only direct finance to agriculture was considered as a part of the priority sector target of 18 per cent for agriculture and allied activities. From October 1993, direct and indirect finances have been considered together for meeting the priority sector target. It was stipulated that indirect finance to agriculture only up to one-fourth of the total agricultural advances would be considered while meeting the priority sector target of 18 per cent for agriculture. However, the indirect finance over and above one-fourth of total agricultural advances was allowed to be reckoned while meeting the overall target of 40 per cent for priority sector advances.

3) DILUTION PROCESS FROM 1994 ONWARDS (Reform period):

ii) Loans up to Rs 5 lakh for financing distribution of inputs for allied activities in agriculture, such as cattle feed and poultry feed, were considered as indirect finances to agriculture. The upper limits were revised and fixed at Rs 15 lakh in April 2000, Rs 25 lakh in April 2002 and Rs 40 lakh in October 2004.

iii) Loans to dealers in drip irrigation systems, sprinkler irrigation systems and agricultural machinery were considered as indirect finances to agriculture. From October 2002 onwards, the credit limit to these dealers was raised from Rs 10 lakh to Rs 20 lakh; it was further raised to Rs 30 lakh in October 2004. Till April 2003, only loans to those dealers located in rural or semi-urban areas were under the ambit of indirect finances. However, from April 2003 onwards, all dealers, irrespective of their location, were treated as eligible for such advances.

iv) Loans from banks to non-banking financial companies (NBFCs) for on-lending to agriculture were considered as indirect finance to agriculture. 

v)Loans extended to state electricity boards (SEBs) for reimbursement of expenditure towards providing low-tension connection to individual farmers from step-down points for energising wells were always classified as indirect finance to agriculture. From 2001 onwards, loans to SEBs for systems improvement under the Special Project Agriculture (SI-SPA) were also considered as indirect finance to agriculture. From July 2005 onwards, loans to power distribution corporations or companies, emerging out of the bifurcation or restructuring of SEBs as part of power sector reforms were also considered as indirect finance to agriculture.

vi) Loans extended under the scheme for financing “agriclinics” and “agribusiness centers” were considered as indirect finance to agriculture.

vii) Subscription to the bonds issued by the rural electrification corporation (REC) exclusively for financing the pump set energisation programme in rural and semi-urban areas was considered as indirect finance to agriculture.

viii)  Loans for the construction and running of storage facilities (warehouse, market yards, godowns, silos and cold storages) in the producing areas and loans to cold storage units located in rural areas, which were used for hiring and/or storing mainly agricultural produce, were considered as indirect finance to agriculture. However, from May 2004 onwards, loans to storage units, including cold storage units, that were designed to store agricultural produce, irrespective of their location, were treated as indirect finance to agriculture.

ix) If the securitised assets of a bank represented indirect finances to agriculture, Investment by banks in such assets was considered as indirect finance to agriculture.

x)Two-thirds of loans given to corporates, partnership firms and institutions for agricultural and allied activities(such as beekeeping, piggery, poultry, fishery and dairy) in excess of Rs 1 crore in aggregate per borrower was considered as indirect finance to agriculture.

xi) Loans to food and agro-based processing units with investments in plant and machinery up to Rs 10 crore (other than the units run by individuals, self-help groups and cooperatives in rural areas) were considered as indirect finance to agriculture.

4) ADVERSE IMPACT

i) Promotion of indirect finance should not lead to an undermining of direct finance. The RBI’s advisory committee on flow of credit to agriculture and related activities in 2004 noted that “indirect lending needs to be subject to

certain limitations, lest banks neglect direct finance for agricultural production, which may jeopardise the goal of achieving annual growth of 4 per cent in agricultural production” 

ii) Indirect finance to agriculture expanded at a rate of about 33 per cent per annum since the late 1990s, thus showing higher growth of total agricultural credit artificially. These changes in definition which either widened or hiked the limits of loans, made it easy for banks to show that there is big hike in loaning since 2004 and the task of banks to follow the government’s directive in 2004 to double agricultural credit in three years is made easier.

With the changes introduced in the late 1990s, the meaning of indirect finance itself has undergone a major change. The traditional components of indirect finance to agriculture did not show much increase. Instead, loans under the category “other types of indirect finance” recorded a phenomenal rise in the levels after 2000.One estimate shows that the share in total indirect finance of “other types of indirect finance”, which was 56 per cent in 1999 increased to 76 per cent in 2006.

5) Changes in the definition of direct finance

Changes were made in the definition of direct finance too to enable banks to give large loans and show that targets are achieved.

i)One-third of loans given to corporates,  partnership firms and institutions for agricultural and allied activities (such as beekeeping, piggery, poultry, fishery and dairy) in excess of Rs 1 crore in aggregate per borrower was considered as direct finance to agriculture ( the remaining two thirds were considered as indirect finance).

ii) The upper limit for loans given against the pledge or hypothecation of agricultural produce (that includes warehouse receipts) was raised from Rs 5 lakh to Rs 10 lakh. Till 2007, the above type of loans was given only to individual farmers who had sought crop loans from banks. From 2007 onwards, these loans were given to individual farmers, irrespective of whether they had sought crop loans.

6) ADVERSE IMPACT

Reduction in institutional credit to small holders and small enterprises:

Surveys such as the Situation Assessment Survey of Farmers (2003) bring out sorry state as the following statistics show:

a) Percentage of non-institutional credit, with very high rate of interest, is taken more by Marginal and Small Farmers than by other farmers with larger land holdings whose share in institutional credit, with normal interest, is more.

 Size of land holding (Ha)                

b) RICH FAMERS ARE PREFERRED AGAINIST POOR FARMERS FINANCE AND AGRICULTURE-DECLINING TREND EVERSINCE REFORMS ARE INITIATED FROM 1990s

bi) A -75% decline in the share in amount of small Agri. loans is noticed (Rs.25,000 and less) compared to share in 1990) (percent)

 

* Decline by -75% compared to 1990

Bii) Yet during the same period, share of Agri advances of Rs.1 Crore   and above increased by a whopping 400%.

March2006 –amount of agri loans  (Rs.in Crores)

                                                No. of A/Cs                   AMOUNT

: Small loans unto RS.25,000         1,78,00,000                22.979                         

: Loans Rs 1 crore and above                   7,300                50,969                               

Biii) Decline in loan accounts by 33% - credit limits of Rs 25,000 and less..

 

AGRICULTURE 

** Decline by 1/3rd, 33%, over 92-93

ci) DECLINING RURAL CREDIT/DEPOSIT RATIO DURING ECONOMIC REFORMS PERIOD

The agri credit as well as rural credit deposit ratio sharply declined during the period:

cii) As on march 2001, outstanding credit of commercial banks in rural and semi-urban areas was 21.6% which declined by one fourth, to 17.6% by March 2007.During the same period, credit outstanding in metro cities increased from 61.65 to 66.1%, clearly indicating diversion of funds from rural and semi-urban areas to metros.(RBI MB JUN 08)

During pre-reform period, RBI stipulation was that Rural credit/deposit ratio should not be less than 60%,rural credit would have been 50% more than what was advanced, had this stipulation been adhered to by banks in 90s,thus depriving development of rural economy considerably. 

7) Changes brought in RBI Credit policy 2008-09 and its adverse impact:

i) With a view to augmenting RRBs' funds/resource base, commercial

Banks/sponsor banks have been allowed to classify loans granted to RRBs for on-lending to agriculture and allied activities as indirect finance to agriculture in their books. These SCBs are required to lend at least 18 per cent to the agriculture sector and 10 per cent to weaker sections. However, such lendings should not be reckoned by RRBs as part of their priority sector advances.

Adverse impact: It is unfair to bar such loans given by RRBs from being classified as priority sector advances. It is the RRBs which sanction, follow up and recover these advances from borrowers deploying additional staff and incurring expenditure. It gives unfair unearned credit to commercial banks, while RRBs which actually provide finance directly are not given credit for the same. 

ii) At present, domestic SCBs having shortfall in the priority sector lending target and/or the agriculture sub-target are allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) maintained with the National Bank for Agriculture and Rural Development (NABARD). It is, therefore, proposed to take into account shortfall in lending to weaker sections also for the purpose of allocating amounts to the domestic SCBs for contribution to RIDF or funds with other financial institutions as specified by the Reserve Bank, with effect from April 2009.

Adverse impact:

This allowance enables banks to avoid lending to weaker sections by conveniently transferring the required amount to RIDF which will not directly benefit weaker sections by any stretch of imagination. This leads to avoiding purposive duty to finance weaker sections and this easy facility of transfer to RIDF should not be allowed. 

iii) In terms of the revised guidelines on lending to the priority sector, SCBs can undertake outright purchase of any loan asset eligible to be categorized under the priority sector from other banks and financial institutions and classify the same under the respective categories of priority sector lending (direct or indirect), provided the loans purchased are held at least for a period of six months. To enable greater flow of credit to the priority sectors, it is proposed: to allow RRBs to sell loan assets held by them under priority sector

Categories in excess of the prescribed priority sector lending target

Of 60 per cent.

ADVERSE IMPACT:

RRBS are started expressly with the purpose of lending to agriculture and rural artisans. Earlier, the lending target was higher. Subsequently, it is reduced to 60%, thus diluting the very purpose of creation of RRBs. Now, allowing selling of such loans above 60% to other banks is very convenient for other banks to purchase en-block, thus avoiding purposive responsibility of direct lending to farmers, and also reducing simultaneously amount already lent by RRBs.

This facility is negation of the spirit of opening RRBs and therefore should not be allowed.

iv) At present, 50 per cent of the credit outstanding under General Credit card (GCC) is allowed to be classified as indirect finance to agriculture under the priority sector. It is proposed: to permit banks to classify 100 per cent of the credit outstanding under GCC and overdrafts up to Rs.25,000 against 'no-frills' accounts in rural and semi-urban areas as indirect finance to agriculture under the priority sector.

ADVERSE IMPACT:

As it is; counting 50% of such loans as finance to agriculture is wrong, as these are not directed towards either production or investment purposes. Now allowing counting 100% of such advance as agri finance is DOUBLY WRONG. This facility, therefore, should not be allowed.  

B] Conclusion:

8) Doubling of credit in three years since 2004 is achieved quantitatively but without real benefit to the small holders and the needy .The extent of revival of credit flow to agriculture in the 2000s would have been far less in the absence of a sharp growth in indirect finance to agriculture. About one-third of the increase in credit flow to agriculture between 2000 and 2006 was on account of the increase in indirect finance. This growth did not originate from a growth in the traditional components of indirect finance, such as loans for the supply of inputs, power and credit to agriculture. The sharp growth in indirect finance in the 2000s was mostly a result of changes in definitions effected since late 1990s. These changes broadly involved (a) the addition of new forms of financing commercial, export-oriented and capital-intensive agriculture; and (b) raising the credit limit of many existing forms of indirect financing. Indeed, meeting the task of doubling agricultural credit appears to have become much easier for banks as a result of these definitional changes.

9) The entire growth of indirect finance to agriculture in the 2000s originated from a major expansion of loans with a credit limit of more than Rs 10 crore, and particularly, more than Rs 25 crore. In the year 2000, indirect finance with credit limit above Rs 25 crore accounted for less than one-third of the total indirect advances to agriculture. However, in 2006, indirect finance with credit limit above Rs 25 crore accounted for about 54 per cent of the total indirect advances to agriculture.

10) There was a major rise in the share of direct advances with a credit limit of more than Rs 1 crore between 2000 and 2006. The amount of direct advances with a credit limit of more than Rs 1 crore formed 5 per cent of total direct advances in 2000; the corresponding share in 2006 was 9 per cent. The share of direct advances with credit limits “between Rs 10 crore and Rs 25 crore” as well as “above Rs 25 crore” doubled between 2000 and 2006. Further, the most important beneficiaries of the increase in direct advances since the late 1990s were the big borrowers. The share of number of loans outstanding to big borrowers under direct finance increased between the mid-1990s and 2004-05, and the loan per account increased phenomenally since the late 1990s.All this happened at the cost of reducing credit to small holders.

11) Commission’s recommendations

National Commission for Enterprises in Un-organised Sector recommended as follows to restore primacy of priority credit to needy sectors.

(i)Change in the priority sector guidelines with a target of 10 per cent needs to be fixed for marginal and small farmers; the agricultural quota includes direct agricultural loans to corporate entities up to Rs.1 crore and for even higher amounts for indirect agricultural activities. The Commission recommends that the priority sector guidelines of the RBI be amended and a 10 per cent quota, out of the 18 per cent presently assigned for agriculture, be fixed for farmers with land holdings below 2 hectares. The weaker section quota for small and marginal farmers may then be released for other socio-economically weaker segments.

(ii) Close monitoring by RBI of the credit flow to this segment of farmers i.e. marginal and small farmers.

(ii) Measures to extend credit to the 20 – 40 per cent of the marginal and small farmers who are excluded from the formal financial sector due to lack of patta and title deeds.

The Commission is of the view that the Government may set up a Credit

Guarantee Fund in NABARD, on the lines of the CGF set up by the Ministry of Micro, Small and Medium Enterprises which provides guarantee cover on loans to small units.

12 )CIFA’s observations and Recommendations:

In post reform era, there has been studied indifference of financing priority sectors. Neither the Government nor the RBI, bothered to reverse the trend. The RBI also very silently re-defined definition of priority sectors and allowed loans given to big borrowers also to be included under this category. It is very clear that during the decade commencing from 1993, the successive governments neglected loaning to agriculture sector, the RBI was a party to this, wittingly or unwittingly, and banks took cue from this and decelerated the small loans to priority sectors.

i) The recommendations of NCEUS should be implemented forthwith to better the lot of Marginal and Small Farmers, who constitute 84% of all the farmers. In case of dry land farms, the ceiling may be raised to 4 hectares.

ii) Indirect finance should not be included in 18% target for agricultural credit. Finance to the extent of 18% of bank credit should be made available as direct agricultural finance for production and investment purposes as was the position obtaining up to 1993, with credit limits not exceeding Rs10 lakh coming under this category.

iii) Sub limit of 10% out of 18% should be fixed for marginal small farmers and lease holders, as recommended by Arjun Sengupta Commission.

iv) Higher credit limits exceeding Rs10 lakhs may be categorised as agri business loans and extended as part of other business loans.