Indianfarmers

Lag in Agri Credit again by Rs 60,000 crore: K.Ramasubba Reddy

The RBI in the First Quarter Review of Monetary Policy 2010-11observed that credit growth to all major sectors such as agriculture, industry, services and personal loans had begun to improve from November 2009 onwards.

This does not appear to be borne by facts in so far as agri credit is concerned. On year-on-year basis, while 17% of incremental credit was registered by agri sector in the year ending 22nd May 2009, only 15% of incremental credit was extended in the year ending 21st May 2010.

Agri credit lagged again by Rs60, 000 crore as on 21st may 2010. As against mandated agri credit of Rs4,60,000 crore, at the stipulated 18% of net bank credit, agri credit stands at Rs 3,99,000 crore thus depriving much needed credit to farm sector to the extent of Rs 60,000 crore.

This lagging trend continuous year after year (Pl. see Annexure) and no efforts are made by the RBI and the Govt. to ensure that banks do lend to the mandated agri credit level of 18%.

Share of agri credit in incremental non-food credit-Rs in crore- %

	Outstanding 21st May 2010	Incremental Credit y-o-y -21stMay09 %	Incremental Credit y-o-y- 22nd May10 %
Non-food Gross BANK credit	30,21,481	383,512	463,235
Agri Credit Share in Incre credit	3,99,494	65,345 (17%)	69,362 (15%)

Source: RBI

On one hand Govt exhorts farmers to produce more but does nor exhort banks to extend requisite credit to farmers to increase production. It is high time that the RBI and the Govt. make sure that banks lend to agricultural production to the required level. Otherwise this year too the agri GDP growth may lag behind like last year and may not be to the extent of 4.5% as estimated by the PMEAC.

Lower annual growth rate of 3 per cent in agriculture estimated by the PMEAC recently compared to the target of 4 per cent should underline the need for urgent remedial steps including augmenting agri credit, as lower agricultural growth may result in food security problems and will lead to further increase in food prices.

Agflation-causes: In agriculture a scissors effect seems to be at work. On the one hand, productivity growth, especially in pulses, is anaemic and possibly weakening further. On the other hand, purchasing power and hence demand are accelerating, courtesy the NREGS (which is increasingly looking like a pure cash-transfer programme). Arvind Subramanian, B S 280710

SMALL FARMERS DO NOT GET ADEQUATE CREDIT

Percentage share of small loans of Rs 25000 declined from 50% in 1990 to mere 10% in 2008. And loans of over Rs one crore skyrocketed by more than 400% during the same period.

According to RBI data, institutional credit flow to farmers registered a compound annual growth rate of 47% between 2003 and 2007, but the number of farmer accounts grew just by 22% and average loan per account increased by 20% only.

According to the latest data, only 27% of cultivator households get formal credit. The rest, comprising mainly small & marginal farmers, have no access to credit, though their landholdings constituted nearly 80% of total holdings and 36% of area. NABARD Report].

The loaning should be extended to cover all these farmers in the next five years. By 2012, credit needs of agri sector are estimated at Rs 6 lakh crore by the study group of Planning Commission. Financial institutions should be strengthened to meet this requirement of Rs 6 lakh crore agri credit needed by farm sector by 2012.

Inadequacy of farm credit continues to be one of the major bottlenecks hindering the growth in investment and growth in agriculture. The growth of direct finance to agriculture declined in 1990s (12%) as compared to 1980s (14%) and 1970s (around16%). The average share of long-term credit also declined from over 38% to around 36%, adversely affecting capital formation in agriculture.
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Annexure:

Mandated 18% credit not met- Shortfall Rs 60.000 Crore-March 2009
Trends in Agri credit flow FY 2008-09 (Rs.in Crore)

	NFBC	Agriculture	Industry
Mar 2008	22,03,038	2,73,658	8,71,900
Mid-Aug 2008	23,14,897	2,62,481
Mid-Dec 2008	24,70.164	2,89,501	10,18,564
Mid-Feb 2009	24,92,165	2,97,753	10,39,831
Mar 2009	26,02,290	3,38.656	10,54,390

Figures in brackets indicate % growth over Mar 08 figure.

As per above data, between Mid feb-Marc 2009, the banks are shown to have given agri loans amounting to a huge sum of Rs 41000 crore out of total increase in credit of Rs 63,000 crore, constituting about 2/3rd of total annual disbursals, at the fag end of the year in just one and half months. As khariff and rabi seasons were over by then, it is intriguing as to what purposes such huge agri loans were disbursed in just one and half months. Definitely it is not for production purpose as both kharif and rabi lending seasons are over by then. The growth figures of increase in agri lendings to an extent of Rs 41,000 is unlikely, unless indirect advances for huge amounts are given in March and shown as agri advances which does not help in production increase anyway.

AT THE STIPULATED 18% FIGURE OF NET BANK CREDIT, THE AGRI CREDIT SHOULD HAVE BEEN Rs 4 LAKH CRORE BY MARCH 09. AS OF MARCH09, THERE WAS A SHORTFALL OF Rs 60,000 CRORE IN AGRI LENDINGS AND THIS AMOUNT COULD HAVE BEEN LENT TO THOSE FARMERS WHO BORROWED AT VERY HIGH INTEREST FROM MONEY LENDERS THUS RELEVING THOSE FARMERS FROM DEBT TRAP.

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