Chennai: Agriculture credit from the banking system has grown 30% in the last three years. That statistic, however, does not convince Reserve Bank of India (RBI) deputy governor Usha Thorat that farm loans have had an impact on agricultural production and productivity. “Where is the relationship between credit and investment, production and productivity? Where is the credit going?” she asked at a banking seminar organized here by Indian Bank. Five experts—four of them chairmen of public sector banks—fielded questions from the media regarding issues related to agricultural credit. Edited excerpts:
We have agricultural production of 212 million tonnes (mt) of food grain. What is the credit requirement for this much of production and are we able to fund that?
K.C. Chakrabarty, chairman and managing director (CMD), Punjab National Bank: All empirical studies say that only 46% of people are getting credit, both institutional and non-institutional. One thing that is not understood is that the poor do not require cheap credit; they need timely and adequate credit. Therefore, there is a need for research and empirical evidence to show the effectiveness of agricultural credit.
One good thing has happened in the last three years. Commercial banks have doubled agricultural credit. It is mainly because of agricultural credit that market is now determined. Previously, the deposit rate used to be at 11% and we gave agriculture credit at 9%, but now deposit rates have come down to 7%, but still we are giving (agriculture credit) at 9-10%.
Anything we try to subsidize, does not reach those targeted. These are all the hypotheses, but they need to be researched and tested.
In the last three years, agricultural credit has doubled. But still, the agricultural growth has been around 2-3%. How effective is this credit growth?
S.A. Bhat, CMD, Indian Overseas Bank: I would like to differ with what Chakrabarty has said. In the past, agriculture credit was mostly done by the moneylenders or by people who bought the goods. After the banking sector tried to give credit to the agricultural sector, we are witnessing areas where moneylenders were operating. Though we say agricultural credit has doubled, it is only for the banking sector. No one knows what the share was before.
Secondly, the increase in the credit requirement is there mainly because of inflation, the input cost has gone up. To that extent, the need for credit also has gone up.
Igniting change: RBI deputy governor Usha Thorat inaugurates the National Banking Conference and Research Seminar in Chennai on Friday. Also seen (left to right): K.C. Chakrabarty, CMD, Punjab National Bank, T.S. Naraynasami, CMD, Bank of India, S.A. Bhat, CMD, Indian Overseas Bank, and M.S. Sundara Rajan, CMD, Indian Bank. PTI Photo
The real increase in productivity can be obtained through initiatives like the green revolution. Research in agricultural universities is vital.
T.S. Narayanasami, CMD, Bank of India: The fact also remains that in rural and semi-urban areas, as envisaged by the finance ministry, the number of new crop loan beneficiaries should be increased and monitored.
Ultimately, this is the barometer to indicate whether more and more people are being brought into the banking space.
Also, the banks should take more interest and show more concern towards financing tenant farmers. The normal tendency for any branch manager is to give a crop loan to a man who already owns land. Conceptually, the culture should change. Banks should scout for tenant farmers and fund them.
Given that credit reach is low, is there any scope for banks to come together, so that they don’t overlap?
N.K. Thingalaya, former chairman, Syndicate Bank: Today, we have district credit plans covering all districts in India, and this has been going on for the past 10-12 years. The credit requirement is done for all the three sectors—primary, secondary and tertiary. Unfortunately, this has not been done on a scientific basis.
As there is no scientific study, we are unable to assess the requirement and change it when there is a change in crop pattern. What is required is the total study of credit requirements in various regions. People started cultivating vanilla some time back, and financing it became a craze, but nobody thought of the market which is going to crash because of this.
Of late, none of the banks are recruiting agricultural graduates. It is time to recruit a new breed of managers who are willing to work in the rural areas and who know the rural economy much better.
M.S. Sundara Rajan, CMD, Indian Bank: The incremental growth in agriculture is 2.7%, the banks have been giving increased credit to these farmers.
Originally, we were financing the small and marginal farmers. Now, the awakening has come, we are financing the tenant farmers and sharecroppers.
We are also introducing the concept of joint liability group. Recent statistics have shown that the banks’ share has gone up, but the cooperative banks’ share is a bit lacking.
Credit is only one input, the other inputs are modern techniques of farming, availability of counselling centres to increase productivity and to provide farmers with market information.
What we need now is bare-foot bankers in the rural and semi-urban areas, who will stay in a particular area, who will meet the farmer at 6am-7am. They also should become counsellors in addition to providing credit.
Chakrabarty: There is no question of duplication when the credit requirement is manifold. It is not that a farmer is getting two or three times his requirement.
You asked whether the credit goes to the right person. The credit only goes to the right person; it is the subsidies that go to the wrong person.
Also, we must understand that we have six lakh villages but only 37,000 rural branches. Theoretically, I am only covering 5% of the credit. Even if all these branches extend credit, it would not be enough.
The question now is, what is our delivery model? How to make credit available? This is where financial inclusion and technology come in. Today, it is possible with 50,000 branches and 100,000 touch points to cover 600,000 villages through the technology available and improved delivery models. The limitation is of delivery, not of money.
Narayanasami: To supplement what Chakrabarty said, the central bank’s policy of giving licences for branches is more for the under-banked sectors. That is why RRBs (regional rural banks) are asked to open more branches and it is also encouraged.
On recruitment of agricultural officers, the other side of the fact is that the outside market offers them better scope. The salary offered to them by banks does not match what they would get outside.