Active Stocks
Tue Mar 19 2024 14:51:11
  1. Tata Consultancy Services share price
  2. 3,984.95 -3.86%
  1. Tata Steel share price
  2. 149.50 -0.07%
  1. Bharti Airtel share price
  2. 1,231.40 0.52%
  1. Power Grid Corporation Of India share price
  2. 260.20 -1.81%
  1. ITC share price
  2. 409.95 -1.78%
Business News/ Market / Mark-to-market/  Why RBI had to protect small farmers
BackBack

Why RBI had to protect small farmers

The RBI norms towards targeted marginal lending for the small farmer is a structural solution to aid themunlike bailout packages, which provide only short-term relief

The central bank has, in its latest overhaul of priority sector lending rules, stipulated that lenders should funnel at least 8% of their credit to small and marginal farmers. Photo: BloombergPremium
The central bank has, in its latest overhaul of priority sector lending rules, stipulated that lenders should funnel at least 8% of their credit to small and marginal farmers. Photo: Bloomberg

In its latest overhaul of priority sector lending rules, the central bank has stipulated that lenders should funnel at least 8% of their credit to small and marginal farmers. While the overall agriculture loan growth has galloped over the past decade, the chart shows why the Reserve Bank of India (RBI) has taken this step.

There has been a sharp increase in the size of large-sized loans. Yes, the average loans generally have got larger, but that would only be a partial explanation. In other words, these loans are predominantly going to large and richer farmers. Not only are the small farmers getting the worst part of the bargain, any signs of distress owing to a poor monsoon or crop failure typically leads them to moneylenders.

Data from the National Sample Survey Office provides evidence. It shows that except for the top two decile classes in terms of assets, the percentage of rural households indebted to non-institutional agencies is higher than those who borrow from formal sources such as banks, insurance companies, finance companies and self-help groups. Moreover, as much as 69% of all non-institutional finance is given at interest rates of 20% and above.

The RBI norms towards targeted marginal lending for the small farmer is a structural solution to aid them—unlike bailout packages, which provide only short-term relief.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 26 Apr 2015, 09:05 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App