ACA-TM-37 (v Nov-10 ) OVERVIEW OF THE RURAL SECTOR & LENDING TO AGRICULTURE R N Panigrahi,GM & MoF

ACA-TM-37 (v Nov-10 ) Profile of the rural economy Characteristics of the rural economy – The agriculture sector Its importance in the economy Growth in agriculture production – The rural non-farm sector Diversification Emerging opportunities

ACA-TM-37 (v Nov-10 ) Some facts on agriculture Growth in agri-0.1%0.4%6.6%2.8% Contribution to GDP 15.7%14.6%14.4%14.0% Total GDP growth 6.8%8.0%8.5%6.5% Target for agri growth 4%

ACA-TM-37 (v Nov-10 ) Some more facts on agriculture  Growth in agriculture in to was 0.89%  Export contribution by agriculture—10.2  58% of population employed in agriculture  Provides demand for other sectors  Provides raw materials for some industries.  Vital for containing food inflation

ACA-TM-37 (v Nov-10 ) Problems of the rural economy Resource development – Land – fragmentation, low productivity, conversion – Water resources Dry-land agriculture – Manpower resources Low skill levels Low mobility/Migration Low productivity Non-availability – Capital scarcity

ACA-TM-37 (v Nov-10 ) Problems of the rural economy Infrastructure development – Rural roads, bridges, market yards etc. – Irrigation – Power supply – Communication network

ACA-TM-37 (v Nov-10 ) Problems of the rural economy Lack of access to financial services – Saving services – Insurance services – Remittance services – Credit services

ACA-TM-37 (v Nov-10 ) Policy for the rural economy The goal : Integrated rural development Role of the Government – Poverty alleviation / employment generation programmes – credit linked and others – Creating a conducive environment for development Role of non-governmental organisations (NGOs) Role of financial institutions

ACA-TM-37 (v Nov-10 ) Rural lending - Features Greater dispersion of the clientele Seasonality of rural activities Rigidity of agricultural cycles Small size of the transactions Lack of borrower assets Absence of standardized information Greater exposure to risk

ACA-TM-37 (v Nov-10 ) Rural credit The multi-agency approach to rural credit cooperatives, commercial banks, RRBs, LAB Credit from institutional and non-institutional sources – AIDIS 1991 Non-institutional sources – 30.6% – AIDIS 2002 Non-institutional sources –38.9% Change in policy stance since 2004 – Targets given for the banks – Interest subvention for Public Sector Banks – Extended to Pvt Sector scheduled commercial banks from

ACA-TM-37 (v Nov-10 ) Rural credit The cooperatives – strength and weakness The Commercial Banks – shift in priority ? The Regional Rural Banks (RRBs) – establishment, development and current position Consolidation of RRBs Local Area Banks – limited role ICT based BC model of banking

ACA-TM-37 (v Nov-10 ) Business distribution as on Aug 2011 CategoryBranchesDepositsAdvances Rural37.2%9.2%7.5% Semi-urban23.7%13.5%9.6% Urban20.7% 16.7% metro18.5%56.6%66.3% Total in absolute terms 86,96045,61,029 crore33,45,169 crore

ACA-TM-37 (v Nov-10 ) Rural credit - The commercial banks Lending to priority sector – Composition of the priority sector Agriculture MSE Other priority sector areas – Target and sub-targets Agriculture – Direct and indirect Weaker sections MSE targets in terms of y-o-y growth

ACA-TM-37 (v Nov-10 ) Lending to agriculture Achievement of target – Shortfall in achievement RIDF deposits Penalty provisions Reasons for non-achievement of target Focus on direct lending changes in PS guidelines since July 2012.

ACA-TM-37 (v Nov-10 ) Ground level credit flow in Agriculture AgencyNo of A/Cs (in lakh) Amount (in crore) No of A/Cs (in lakh) Amount (in crore) No of A/Cs (in lakh) Amount (in crore) CBs (44) 2,28,951 (76) (43) 2,85,800 (74.3) (41) 3,32,706 (74.4) Coop (39) 45,965 (15) (42) 63,497 (16.5) (46) 70,105 (15.7) RRBs75.47 (17) 26,764 (9) (15) 35,217 (9.2) (13) 44,702 (9.9) Total456.1 (100) 3,01,908 (100) (100) 3,84,514 (100) (100) 4,47,513 (100)

ACA-TM-37 (v Nov-10 ) Lending to agriculture Special Agricultural Credit Plans (SACP)(since ) – Performance monitored on the basis of disbursements, not outstanding credit – Detailed state-wise and activity-wise plans – Production credit, investment credit and indirect finance – Self-set targets for disbursement – Targets fixed by showing an increase of about 20 to 25 per cent over the disbursements made in the previous year – Reviewed by RBI

ACA-TM-37 (v Nov-10 ) Steps in Budget for promoting agriculture  Agri target for increased to 7,00,000 crore.  Interest subvention scheme for crop loan to continue.  Interest subvention extended to SCBs in pvt sector.  Matching equity grant to be provided to Farmers Producer Organisations  Credit Guarantee Fund to be created in Small Farmers Agri Business Corporation  Rs crore set aside for National Food Security.

ACA-TM-37 (v Nov-10 ) Lending to agriculture Opportunities – From agriculture to agri-business – the on-going paradigm shift – High-tech agricultural projects – floriculture, horticulture etc. – Allied activities (poultry, fishery, animal husbandry etc.) – Plantations, forestry, wasteland development etc. – Financing the entire value chain – farm to fork

ACA-TM-37 (v Nov-10 ) Lending to agriculture The issue of profitability in rural lending Risk management in agriculture – Yield risk – Price risk – Agriculture insurance – Other measures to address risk in agriculture Role of Futures Markets

ACA-TM-37 (v Nov-10 ) Legal changes facilitating agricultural activities Model APMC Act Warehouse (development and regulation) Act 2007

ACA-TM-37 (v Nov-10 ) Lending to agriculture Innovations – Kisan credit card – Self-Help Groups – micro credit – Farmers’ Club – Joint Liability Groups

ACA-TM-37 (v Nov-10 ) Approach paper to 12 th plan( ) Finance PACS through CBs Agri to grow at annual rate of 4% Total credit requirement to be double that of during the 11 th plan.(about 8 lakh crore per annum) Creation of rural infrastructure including soft infrastructure. Credit widening along with credit deepening Aggregation methodology to take in SF/MFs

ACA-TM-37 (v Nov-10 ) Approach paper to 12 th plan( )(contd)  Investment credit to be increased by aggregation through PACS  Development of soft infrastructure  Increasing insurance penetration in livestock from 7 to 30%  Single insurance policy for farmer covering all his assets.  Enable SF/MF to take part in future market  Contract farming through amendment in APMC Act  Issue of no title to land of SF/MF

ACA-TM-37 (v Nov-10 ) Other issues Issue of mindset and motivation/ HR policy of banks ICT in rural lending Expanding outreach of banks in the rural sector Sachet banking Financing value chain Primary production to value addition Borrower information sharing Technology for information dissemination R & D activities and extension network Water management Legal support for recovery Risk management Land laws and land-leasing/absentee land lord. Land acquisition for non-agricultural purposes

ACA-TM-37 (v Nov-10 ) THANK YOU For your Attention