How agri credit is missing those who really need it


The small and marginal farmers are missing out on the bulk of agricultural credit, as per information provided by the Reserve Bank of India, which showed they are receiving only 30-40% of loans meant for the sector.
As per a report submitted by the RBI to the Parliamentary Standing Committee on Agriculture in response to its queries, only 42.2% of agricultural credit disbursed in 2016-17 went to small and marginal farmers. The report was accessed by The Hindu.
“There are two ways of seeing this,” Bharat Ramaswami, Professor at the Indian Statistical Institute and agricultural economy expert said. “One is that it is not equitable, where some farmers, the larger ones and the ones closer to urban areas, are over-represented in terms of access to credit. Insofar as the priority sector lending mandates are concerned, the mandate is not to reach a particular type of farmer. So, the programme itself is not targeted.”
Lending costs
RBI’s rules are that 18% of a bank’s Adjusted Net Bank Credit must go to the agricultural sector and within this, 8% must go to small and marginal farmers. While the banking sector has overall met this limit, there is still an inherent targeting problem arising out of the costs of lending to the sector. “The priority sector lending mandate is in place because it is felt that banks would not otherwise lend as much to this sector,” Mr. Ramaswami added. “So, there are some costs of lending to this sector, and if they are not given this mandate, because of this cost they would not lend as much to the agricultural sector as the government would like them to.”
What then happens, he explained, is that banks choose to lend to those areas where the cost of lending is lower, such as those close to urban areas, or to those farmers who are more credit-worthy. That is, the medium and large farmers.
The RBI data backs up this assertion, showing that only 34.5% of agricultural credit outstanding as of 2017 has gone to rural farmers.


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