CREDIT FLOW & RELATED ISSUES 24 September, 2008 D.P.MISRA GENERAL MANAGER NATIONAL BANK FOR AGRICULTURE & RURAL DEVELOPMENT

Credit Flow to Agriculture Prior to the Farm Credit Package CAGR (%) to Comm Banks Coops RRBs Total * Rs Crore * Includes credit disbursed by Other Agencies Source : NABARD

Farm Credit Package, June’04  Agrl credit to be doubled in 3 years (base )  Rescheduling of loans - farmers in distress/arrears - fresh credit  OTS for SF/MF  50 lakh new farmers to be financed each year  1000 agriclinics to be set up each year  Investment credit flow emphasised - each branch to finance 2-3 new projects (CBs);  Relief Package for farmers in distress/arrears & OTS for small farmers;  Financial support for redemption of informal debts

Credit Flow to Agriculture after Farm Credit Package YearTargetAchievement% Achvmt % Growth Rs. Crore Source : NABARD

Credit Flow to Agriculture – vs YearCBsRRBsCoopsTotal TargetAchmtTargetAchmtTargetAchmtTargetAchmt (Apr-Jul) (Apr-Jul) (Rs. Cr.) Source : NABARD

Agency Wise Agri-Credit Flow YearCBsRRBsCoop BksTotal (53%) 3172 (7%) (40%) (65%) (10%) (25%) (70%) (8%) (22%) (72%) (10%) (18%) (72%) (10%) (18%) CAGR29.04%26.00%11.84%24.80% Rs. Crore Source : NABARD

Region Wise Agri-Credit Flow Region North (25.64%)50448 (27.95%)63458 (27.67%) North East 407 (0.32%)936 (0.52%)825 (0.36%) East 7238 (5.78%)12216 (6.77%)15393 (6.71%) Central (13.68%)23134 (12.82%)31293 (13.64%) West (11.26%)26178 (14.50%)33521 (14.61%) South (29.39%)63512 (35.19%)80213 (34.97%) Others 17455* (13.93%)4062 (2.25%)4697 (2.04%) Total (100.00%) (100.00%) (100.00%) * Includes Private Sector CBs Rs. Crore Source : NABARD

Agri- Credit – Number Of Accounts/Farmers Financed YearCBsRRBsCoop BksTotal Nos. in lakh Source : NABARD

New Accounts Financed YearCBsRRBsCoopsTotal Nos. in Lakh Source : NABARD

Production vs. Investment Credit YearProdn CreditInvst CreditTotal (63%)32004 (37%) (59%)51245 (41%) (58%)75136 (42%) (60%)90945 (40%) (71%)69829 (29%) Rs. Crore Source : NABARD

Agri-Credit (Direct) Flow by SCBs – Size of Credit Size A/cAmt O/s A/cAmt O/s A/cAmt O/s A/cAmt O/s < ,000 to 2 lakh Sub- Total (% to total) 193 (98) (77) 194 (98) (77) 198 (98) (73) 201 (97) (66) Grand Total A/cs. in lakh & Amt. in Rs. Crore Source : CMIE Bulletin, Money & Banking, Sept., 2008

Agri-Credit (Direct) Flow by SCBs – Size of Credit Size A/cAmt A/cAmtA/cAmt < ,000 to 2 lakh Sub-Total (% to total) 252 (97) (67) 273 (96) (61) 310 (95) (56) Total A/cs. in lakh & Amt. in Rs. Crore Source : CMIE Bulletin, Money & Banking, Sept., 2008

Agri-Credit Flow vs. Foodgrains Prodn. IX th PlanX th Plan YearCredit % of agri credit to Agri GDP Food Grain Prod. Mill TonnesYearCredit % of agri credit to agri GDP Food Grain Prod. (Mill Tonnes) NA230 Population increased from 839 million in 1991 to 1019 million in 2001 Rs in Crore Source : NABARD & Economic Survey

Recent Policy Initiatives-GoI  Implementation of “Farm Credit Package”  GoI target for financing 50 lakh new farmers annually  Restructuring Package for ST(CCS) & LT(CCS)  Since Kharif , ST(SAO) loans upto Rs. 3 lakh provided at 7%  Various programmes launched - Rashtriya Krishi Vikas Yojana (RKVY), Accelerated Irrigation Benefit Programme (AIBP), Rainfed Area Development Programme, National Horticulture Mission, etc.  Preparation of Comprehensive District Agriculture Plans, by adopting a “bottoms up” approach

RECENT POLICY INITIATIVES – GOI  Debt Waiver and Debt Relief Scheme  loans for agriculture & allied activities provided by Scheduled CBs, RRBs, LABs & CCS to SF/MF disbursed upto 31 March, 2007,overdue as on 31 December, 2007 & unpaid upto 29 February, 2008, to be waived  Other Farmers - OTS for eligible overdue loans  Farmers entitled for fresh finance

IMPACT OF DWWR SCHEME  3-4 crore defaulting farmers expected to avail benefit & become eligible for fresh finance  Decline in credit flow - Agriculture credit declined from Rs. 66,888 cr., during Apr.-July ‘07 to Rs.54,179 cr., during the corresponding period of  No of farmers financed declined from 159 lakhs to only 98 lakhs during the same period  New accounts financed declined from 21 lakhs to 15 lakhs  Decline in recoveries leading to liquidity problem particularly for coop banks  Impacting recovery climate

Scope for Augmenting Credit flow  Ratio of production credit to value of agrl inputs at 20.8% in ; as proportion of value of agricultural outputs, agri-credit at 5.1% - scope.  Significant economic changes/increasing diversification in agriculture. Scope for inv. credit.  Of the apprx. 11 crore farmers, nearly 7 crore farmers issued KCCs, scope for issue of more KCCs.  Oral lessees constitute around 10% of total farming community (NCF), coverage of tenant farmers less than 2% (CBs) or 1% (RRBs/Coops)  SF/MF coverage hovering between 55% to 60% (CBs/Coops)

Issues Relating to Credit Flow Greater impact of risk of crop failure on SF/MF leading to non- wilful default & credit ineligibility/denial Small/fragmented land holdings High transaction costs for banks in servicing small loan accounts High transaction (non-interest) costs for the borrowers Absence of appropriate risk management systems Complex documentation procedures Poor health of RFIs with deeper penetration into rural areas Issue to be debated : whether farmers are interest rate sensitive or are more interested in availing adequate, hassle- free and timely credit without hidden costs

Issues (Contd..)  Recurrence of natural calamities  Rescheduling of loans and relief packages not helping farmers  Commodity Exchanges not helping  Crop Insurance not farmer friendly – contd Govt. Support needed  Difficult to sustain agricultural credit at 7% considering hardening of market interest rates, unless GoI continues to provide subvention.

Issues (Contd..)  Cooperative Banks suffer from structural and financial weaknesses, Governmental interference, lack of professionalism/ good governance/adequate infrastructure, etc.;  LTCCS has no resource base of its own, poor recovery/high NPAs, financial health deteriorating – implementation of Vaidyanathan Committee I & II.  Expansion/efficient use of credit dependent on the availability of adequate backward and forward linkages  Agri extension is a major issue  Capacity building of farmers (PNB Model/ Farm Field Schools) to orient farmers on production, integrated crop management, knowledge about marketing, etc.

Strategies for augmenting credit flow to Agriculture  Improving Credit absorption Capacity  Rural Infrastructure development  Extension Reforms  Capacity Building  Improving Recovery Environment  Making Rural Credit a business proposition  Designing innovative rural financial products to suit needs of rural masses  Institutional Initiatives/Strengthening RFIs  Simplification of lending Procedures  Remunerative prices for agriculture produce  Providing credit & credit plus services through Farmers’ Clubs, Farmers’ Associations, Joint Liability Groups, Self Help Groups;

Conclusions  Credit important, but not sole input for agriculture and rural development  For better credit absorption/utilisation, related infrastructure, extension and conducive policy climate necessary  Tremendous scope for Credit widening and deepening- Financial inclusion an opportunity for credit expansion  Innovative credit products need to be developed  Rural Credit needs to be viewed as business proposition rather than as directed lending  Conducive recovery climate  Effective Risk Mitigation Measures

THANKS