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The overall number of small borrowal accounts (with credit limit up to Rs 2 lakh) contributed 87.0 per cent of total number of accounts as against 88.4 per cent in 2008, while the share of outstanding credit of small borrowal accounts was 12.3 per cent as compared to 13.7 in 2009. |
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However, the share of credit with credit limit above Rs. 25 crore increased to 41.2 per cent in 2009 from 35.6 per cent in the previous year. |
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The share of small agri loans up to Rs.25,000/- ,to small land holders, has fallen from 52% in 1995 to 8% in 2009 and the share of big agri loans of over Rs 1 crore during the same period increased by 400%.
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| 1. |
| Broadening the definition of Agri finance since1990s resulted in overestimation of credit to agriculture: |
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i.Dr.Y.V. Reddy, when he was Dy. Governor of the Reserve Bank of India (RBI) stated that, “…coverage of definition of priority sector
lending has been broadened significantly in the recent years, thus overestimating credit flows to actual agricultural operations in recent years.” “…the distortions and outdated policy approaches to the deployment of credit to agriculture must be recognised and the institutional as well as instrument changes urgently needed should be spelt out, but this would need governmental intervention.” (“Indian Agriculture and Reform: Concerns, Issues and Agenda,” RBI Bulletin, May 2001, p. 5 and 8). |
| ii. |
Observations in the XI Plan Document
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“At present direct finance to agriculture under priority sector lending includes credit for the purchase of trucks, mini-trucks, jeeps, pick-up vans, bullock carts, and other transport equipment to assist the transport of agricultural inputs and farm produce.
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Direct finance also includes credit for the construction and running of cold storage facilities, warehouses and godowns. As alternate formal sources of finance are available for these activities, their inclusion under direct finance for agriculture needs to be reconsidered.”
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| iii. |
Arjun Sengupta Commission Report made trenchant observations:
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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.
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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.
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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 unfavorably the credit flow to the needy sector. |
| iv. |
The National Commission on Farmers, headed by Dr M.S. Swaminathan, also pointed out that removal of the lending facilities and concessions of banks during the post-reform period has accelerated the crisis in agriculture. |
| v. |
Meghnad Desai: “Banks were nationalised not to serve the people but to serve the politicians”: “Banks, I am told, manipulate their targets for agricultural lending by loaning to fertiliser corporations! The lack of credit for farmers and for small businesses has been shown by many reports. Farmer suicides in the middle of the last decade were caused by the high cost of credit, among other reasons. These farmers were still relying on moneylenders”. Excerpts from:PSU banks are smug but small, FE 19010 |
| vi. |
F.P. Sainath: Several of the loans disbursed as “agricultural credit” are in excess of Rs. 10 crore and even Rs. 25 crore. And even as loans of this size steadily grew in number between 2000 and 2006, agricultural loans of less than Rs. 25,000 fell by more than half in the same period. |
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2. Major changes introduced in the definition of indirect finance |
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From the 1990s onwards, the definition of what constitutes indirect finance to agriculture has been widened and diluted drastically. This enabled banks to show higher level of growth of indirect finance from the mid-1990s. |
| A. |
A.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 added in the priority sector target. |
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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 |
| B. |
About one-third of the increase in credit flow to agriculture between 2000 and 2009 was on account of the increase in indirect finance. 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: |
| i. |
The addition of new forms of financing commercial, export-oriented and capital-intensive agriculture; and |
| ii. |
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. |
| C. |
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 2009, indirect finance with credit limit above Rs 25 crore accounted for 62% per cent of the total indirect advances to agriculture. |
| D. |
There was a major rise in the share of direct advances with a credit limit of more than Rs 1 crore between 2000 and 2009. The amount of direct advances with a credit of more than Rs 1 crore formed 5 per cent of total direct advances in 2000; the share more than doubled by 2009 at 10.2 per cent |
| E. |
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 2008-09, and the loan per account increased phenomenally since the late 1990s.All this happened at the cost of reducing credit to small farmers. |
| F. |
.“Between 1995 and 2005, the share of agricultural credit supplied by urban and metropolitan bank branches in India increased from 16.3 per cent to 30.7 per cent. As a consequence, there was a sharp fall in the share of agricultural credit supplied by rural and semi-urban branches from 83.7 per cent in 1995 to 69.3 per cent in 2005. In 2008, the share of rural and semi-urban branches in total agricultural credit was 66 per cent.” (*Please see Note at the bottom) |
3A. 1/3rd of Agri loans are given in Urban and metro areas
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| Farming takes place in rural areas, but , for reasons unknown to us, 1/3rd of Agri loans are given in Urban and metro areas and rural areas got less than 40%. More than half of indirect loans are given in metro areas mostly to corporate concerns and categorised as loans to agriculture. |
| Agri loans-PERCENTAGE SHARE ACCORDING TO POPULATION GROUP-Mar 09 |
| Ag Loans |
Rural |
Semi-urban |
Urban |
Metro |
Total |
| Total |
38.7 |
27.8 |
15.5 |
17.9 |
100 |
| Direct |
47.3 |
31.9 |
13.5 |
7.3 |
100 |
| Indirect |
9.8 |
14.1 |
22.4 |
53.7 |
100 |
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| 3B. |
Indirect advances constitute 1/4th of the total agri advances |
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Of the total bank loans, only 8% is given as direct agri advances and another 2.5% as indirect agri advances, half of it in metros mostly to corporates. |
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Accounts Amount (Rs. In Crore)
Ag Loans 3,99,80,000 3,09,469 Percentage
Direct 3,92,56,000 2,38,702 77%
Indirect 7,24,000 70,767 23% |
| 3C. |
Small loans of Rs 25,000 and below account for only 8% |
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Agri advances of Rs. 1 crore and above constitute 27% of the total agri advances where as small loans of Rs 25,000 and below account for only 8% and the share of small loan dwindling year after year from 52% in 1995 to 24% in 2003 and further drastically reduced to 8% in 2009. |
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Rs 25,000 1,88,07,000 24,681 8.0%
And less
Rs.25,001- 1,88,09,000 1,12,335 36%
Rs 2 lakh
Rs. 1 crore 10,700 82,638 26.7%
and over |
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| T1.The number of small loans to farmers reduced by 80 lakhs (reduced by 30%) |
| No. of year |
A/c in lakhs A/cs |
| 1992-93 |
267 |
| 2005-06 |
178 |
2007-08
2008-09 |
196
188 |
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| T2. The amount of loans to small farmers is reduced drastically. |
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No. of A/cs |
Amount (in crores) |
Small loans upto Rs.25,000-2005-06
Mar 2009 |
1.78,00,000
1,88,000 |
22,976
24,681 |
Loans Rs.1 crore and above-2005-06
March 2009 |
7,300
10,700 |
50,969
82,638 |
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| T3. % of Decline in small loans to farmers (Rs.25,000/- and less). |
| 1985 |
1990 |
1995 |
2003 |
2007 08 09 |
| 50% |
59% |
52% |
24% |
11% 10% 8% |
Source: RBI- BSR, NABARD |
| 4A. |
CIFA’s Suggestions: In post reform era, there has been studied indifference of financing priority sectors. Neither the Government nor the RBI, bothered to reverse the trend. Very silently definition of priority sectors was broadened which allowed big loans also to be included under this category. |
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It is very clear that during the decade commencing from 1993, that the loaning to agriculture sector has been neglected, the RBI was a party to this, wittingly or unwittingly, and banks took cue from this and reduced the share of small loans to priority sectors. |
| 4B. |
Provide 10% of total credit to small farmers and tenant farmers |
| i). |
The recommendations of NCEUS that 10% of bank credit should be given to small land holders should be implemented forthwith to better their lot, who constitute 84% of all the farmers. Presently their share is less than 5%. |
| ii) |
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. Indirect finance should not be included in 18% target for agricultural credit. |
| iii) |
Higher agri credit limits exceeding Rs I crore should be categorised as agri business loans and extended as part of other business loans. |
| iii) |
Constant effective monitoring of agricultural credit should be made by the RBI and the Government to ensure that mandated 18% of net bank credit does reach the farmers. |
| iv) |
As of March 2009, while Statutory Liquidity Ratio requirement is only 24%, Investment-Deposit Ratio was 28%. Thus a whopping sum of Rs 1.70 lakh crore is excessively invested in government securities, instead of lending to agriculture and small enterprises which so far received only half the mandatory credit. |
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Krsr/Article/060910 |
| *NOTE: Pallavi Chavan, How ‘rural' is India's agricultural credit? The Hindu, 13-08-2010 |
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| It may be argued that credit taken, whether in metropolitan or rural areas, would ultimately benefit the agricultural sector. What is missed in this argument is that an urban and metro-centric supply of agricultural credit would only benefit large corporations with their headquarters in cities and engaged in agricultural production. |
| The actual farmer in the villages, particularly the small and marginal ones, would benefit the least from the non-rural nature of growth of agricultural credit. Regionally speaking, farmers from Vidarbha in Maharashtra, the region from where a large number of farmers' suicides have been reported, are likely to be the section that has the least benefit. |
| The increasing concentration of agricultural credit in the urban and metropolitan areas offers a missing link in the discussion on the persistence of agrarian distress despite the revival in agricultural credit in the 2000s. |
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