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

2. Credit Flow to Agriculture Prior to the Farm Credit Package 1999-002000-012001-022002-032003-04CAGR (%) 1999-00 to 2003-04 Comm Banks 247332780733586397735244020.67 Coops182602071823525236362687510.14 RRBs3172421948546070758124.34 Total *462685282762045695608698117.09 Rs Crore * Includes credit disbursed by Other Agencies Source : NABARD

3. Farm Credit Package, June’04  Agrl credit to be doubled in 3 years (base 2003-04)  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

4. Credit Flow to Agriculture after Farm Credit Package YearTargetAchievement% Achvmt % Growth 2004-05105000125309119.3444.06 2005-06141000180486128.0044.03 2006-07175000229400131.0927.10 2007-08225000243569108.256.17 Rs. Crore Source : NABARD

5. Credit Flow to Agriculture – 2008-09 vs. 2007-08 YearCBsRRBsCoopsTotal TargetAchmtTargetAchmtTargetAchmtTargetAchmt 2007-08 (Apr-Jul) 15000036664230008085520002213822500066888 2008-09 (Apr-Jul) 19500035214300006095550001287028000054179 (Rs. Cr.) Source : NABARD

6. Agency Wise Agri-Credit Flow YearCBsRRBsCoop BksTotal 1999-0024733 (53%) 3172 (7%) 18260 (40%) 46268 2004-0581481 (65%) 12404 (10%) 31231 (25%) 125309 2005-06125477 (70%) 15223 (8%) 39404 (22%) 180486 2006-07166485 (72%) 20435 (10%) 42480 (18%) 229400 2007-08175072 (72%) 24814 (10%) 43684 (18%) 243569 CAGR29.04%26.00%11.84%24.80% Rs. Crore Source : NABARD

7. Region Wise Agri-Credit Flow Region2004-052005-062006-07 North 32125 (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 17142 (13.68%)23134 (12.82%)31293 (13.64%) West 14111 (11.26%)26178 (14.50%)33521 (14.61%) South 36831 (29.39%)63512 (35.19%)80213 (34.97%) Others 17455* (13.93%)4062 (2.25%)4697 (2.04%) Total 125309 (100.00%)180486 (100.00%)229400 (100.00%) * Includes Private Sector CBs Rs. Crore Source : NABARD

8. Agri- Credit – Number Of Accounts/Farmers Financed YearCBsRRBsCoop BksTotal 2004-0512761225413 2005-0614646193385 2006-0717262189423 2007-0817563201439 Nos. in lakh Source : NABARD

9. New Accounts Financed YearCBsRRBsCoopsTotal 2004-0548181379 2005-0647171579 2006-0751201384 2007-0855201085 Nos. in Lakh Source : NABARD

10. Production vs. Investment Credit YearProdn CreditInvst CreditTotal 2003-0454977 (63%)32004 (37%)86981 2004-0574064 (59%)51245 (41%)125309 2005-06105350 (58%)75136 (42%)180486 2006-07138455 (60%)90945 (40%)229400 2007-08173740 (71%)69829 (29%)243569 Rs. Crore Source : NABARD

11. Agri-Credit (Direct) Flow by SCBs – Size of Credit Size2000-012001-022002-032003-04 A/cAmt O/s A/cAmt O/s A/cAmt O/s A/cAmt O/s < 2500016216742157162451531743414717640 25,000 to 2 lakh 3116786372027145254295428521 Sub- Total (% to total) 193 (98) 33528 (77) 194 (98) 36516 (77) 198 (98) 42863 (73) 201 (97) 46161 (66) Grand Total 19643420197474302025905820770099 A/cs. in lakh & Amt. in Rs. Crore Source : CMIE Bulletin, Money & Banking, Sept., 2008

12. Agri-Credit (Direct) Flow by SCBs – Size of Credit Size2004-052005-062006-07 A/cAmt A/cAmtA/cAmt < 25000173216491742252618224592 25,000 to 2 lakh 7941436995318812871607 Sub-Total (% to total) 252 (97) 63085 (67) 273 (96) 75714 (61) 310 (95) 96199 (56) Total26094635284124563325171497 A/cs. in lakh & Amt. in Rs. Crore Source : CMIE Bulletin, Money & Banking, Sept., 2008

13. 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) 1997-9831956- 192 2002-036956014.85175 1998-9936860- 204 2003-048698116.27213 1999-004626810.19210 2004-0512530922.53198 2000-015282711.55197 2005-0618048629.98208 2001-026204512.73213 2006-0722940030.56217 2007-08 243569 NA230 Population increased from 839 million in 1991 to 1019 million in 2001 Rs in Crore Source : NABARD & Economic Survey

14. 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 2006-07, 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

15. 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

16. 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 2008-09  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

17. Scope for Augmenting Credit flow  Ratio of production credit to value of agrl inputs at 20.8% in 2003-04; 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)

18. 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

19. 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.

20. 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.

21. 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;

22. 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

23. THANKS