OVERVIEW OF THE RURAL SECTOR & LENDING TO AGRICULTURE

1. OVERVIEW OF THE RURAL SECTOR & LENDING TO AGRICULTURE R N Panigrahi ,GM & MoF

2. 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

3. Some facts on agriculture

4. Some more facts on agriculture • Growth in agriculture in 2002-03 to 2004-05 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

5. 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

6. Problems of the rural economy • Infrastructure development • Rural roads, bridges, market yards etc. • Irrigation • Power supply • Communication network

7. Problems of the rural economy • Lack of access to financial services • Saving services • Insurance services • Remittance services • Credit services

8. 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

9. 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

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 2013-14

11. 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

12. Business distribution as on Aug 2011

13. 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

14. 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.

15. Ground level credit flow in Agriculture

16. Lending to agriculture • Special Agricultural Credit Plans (SACP)(since1994-95) • 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

17. Steps in Budget 2013-14 for promoting agriculture • Agri target for 2013-14 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 10000 crore set aside for National Food Security.

18. 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

19. 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

20. Legal changes facilitating agricultural activities Model APMC Act Warehouse (development and regulation) Act 2007

21. Lending to agriculture • Innovations • Kisan credit card • Self-Help Groups – micro credit • Farmers’ Club • Joint Liability Groups

22. Approach paper to 12th plan(2012-17) Finance PACS through CBs Agri to grow at annual rate of 4% Total credit requirement to be double that of during the 11th plan.(about 8 lakhcrore per annum) Creation of rural infrastructure including soft infrastructure. Credit widening along with credit deepening Aggregation methodology to take in SF/MFs

23. Approach paper to 12th plan(2012-17)(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

24. 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

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