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Dr. R. Balakrishnan Executive Director, NABARD, Mumbai March 16, 2007

Poor Reach, Poor Repayment: Problems with Agricultural Finance in India and NABARD’s Plans to Tackle Them. Dr. R. Balakrishnan Executive Director, NABARD, Mumbai March 16, 2007. Presentation Plan. Part I: Outreach of Credit Part II: Repayment Performance Part III: NABARD’s Initiatives.

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Dr. R. Balakrishnan Executive Director, NABARD, Mumbai March 16, 2007

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  1. Poor Reach, Poor Repayment: Problems with Agricultural Finance in India and NABARD’s Plans to Tackle Them Dr. R. BalakrishnanExecutive Director, NABARD, Mumbai March 16, 2007

  2. Presentation Plan Part I: Outreach of Credit Part II: Repayment Performance Part III: NABARD’s Initiatives

  3. PART I OUTREACH OF CREDIT

  4. Access to Credit- Farmer Households

  5. Regional Distribution of Indebtedness

  6. Cultivator Households-Sources of credit (%)

  7. Institutional Agri. Credit Structure

  8. Credit Flow(Rs. Crore)

  9. Credit Flow contd… • Credit Flow grew at 26.2% p.a during the period 2001-02 to 2005-06 • CBs – 33.4% per annum • RRBs- 30.5% per annum • Coop. Banks – 12.2% per annum • Doubling of Credit (2003-04 to 2006-07) • During 05-06: • 78.73 lakh new farmers into institutional fold • 80.12 fresh KCC cards issued • 1095 Agri-clinics financed

  10. Agency-wise Share-Ground Level Credit flow(%)

  11. Coverage of Weaker Section • Share of small holding (<2 ha) Accounts declined from 78% in 1990-91 to 74% in 2003-04 for CBs • Share of loan amount disbursed to this category declined from 54.5% in 1990-91 to 48.0% in 2003-04 for CBs • For weaker sections (i.e.small and marginal farmers, and those engaged in allied activities with limits upto Rs. 10,000) PSBs had extended 6.8% of net bank credit in 2003 as against the stipulated norms of 10% (Source: RBI Reports)

  12. PART II REPAYMENT PERFORMANCE

  13. YEAR-WISE AND AGENCY-WISE RECOVERY (%) POSITION(As on 30 June)

  14. Recovery Position contd…. • State Coop. Banks- average recovery hovered at around 80% (highest among all agencies)during 1997-2005 • DCCB have improved their recovery since 2002. • SCARDB recovery declining during the period 1997 and 2005. ( 44% in 2005) • PCARDBs exhibited a declining trend since 1997 but showed improvement in 2005 • Both RRBs & Comm. Banks have continuously improved their recovery percentages

  15. RECOVERY POSITION- Regional Dimension (As on 30 June 2005) (%)

  16. Recovery Position contd… • Recovery in Eastern and Northeastern Regions relatively poorer & the ‘indebtedness’ levels are also lower in these regions • Higher recovery percentages translates into higher rates of lending • RRB lending increased by 7 times with recovery increasing by 20 percentage points during the period 1997 to 2005(CAGR: 29% over the period) • For SCARDBs lending increased by 1.9 times with recovery percentage reducing by 14 percentage point during the same period (CAGR: 16% over the period)

  17. Agency wise - NPAs (%)

  18. PART III INITIATIVES BY NABARD

  19. Rural Lending –Core Principles • Economically active rural population need financial services • Carpet banking for inclusion and viability • Single purpose credit counter productive • Credit marketing & relationships not only for urban business • Credit to be coupled with technical and commercial extension • Gaon ka pani aur paisa gaon mein

  20. Credit led Agri-chain • Farmer at wrong end of value chains • Agriculture goes beyond production • All laws restrict farmer freedom • Producer groups and companies for better bargain • Credit led value chain needed • Farmer clubs and SHGs as facilitators

  21. Institutional • NABARD entrusted with implementation of Vaidyanathan Committee Report on short term coop. structure (9 States in principle accepted to implement the package) • GOI setup a ‘Committee on Financial Inclusion’ (Chairman Dr. C. Rangarajan; Chairman,NABARD as Member-Secretary) • Task Force looking into increasing the operational efficiency of RRBs • Credit Innovations like KCC, SCC have to be further propagated - Since 1998-99 around 590 lakh KCC issued

  22. Financial Package • Financial assistance to cover: • accumulated losses (plus shortfall, if any, in provisions) • amount required to reach minimum capital norm • technical assistance for computerization, capacity building, installing common accounting system, strengthening internal controls. • NABARD is the implementing agency.

  23. Financial Assistance – Sharing PatternGoI, State Govt & CCS to contribute towards financial assistance (Rs Billion)

  24. The Self Help Group (SHG). .What is it ? • A homogeneous group of about 15 to 20 • Every member to save a small amount regularly. Pooled savings kept in a savings bank account in SHG’s name • transaction costs of both the poor and bank reduced ! • SHG to use pooled thrift to give interest bearing loans to members – decisions taken in group meetings • Every member learns prioritisation and financial discipline. Their capacities/ capabilities to think and handle larger resources improves! • Depending on the SHG’s maturity, bank gives loan to the SHG as a multiple of the pooled savings to augment its resources. • Adequate & sustained access to financial services!

  25. SHG-Bank Linkage • End March 2006, 2.2 million SHGs linked with banks • Matured SHGs (0.3million) being graduated from consumption loans to micro enterprises • Micro-Enterprise Development Prog. launched in 2005-06 aiming at skill up- gradation & sustainable livelihoods for matured SHGs - Programme incorporates training, potential mapping, understanding of markets & entrepreneurship

  26. Group Dynamics

  27. Bank Linkage

  28. The outreach - as on 31 March 2006 • 2.34 million SHGs financed by banks • 32.98 million households assisted • 90 % SHGs are women groups • Average loan size Rs 3,637 per member • Average loan size Rs. 50,917 per SHG • Member level on-time repayment rates - nearly 95% • 44,353 bank branches of over 560 banks involved • 4,795 NGOs involved

  29. What was the impact ?….. Sample : 560 HH, 223 SHGs, 11 States • 84 % Economically Weaker Sections • AL – 31% , farmers with < 2 Ha – 53 % • 50% Illiterate Membership • Increase in annual savings from $ 9 to $ 29 in 3 yrs Savings • Market driven interest rates • Term loans, cash credit limits for 2 to 3 years • Average borrowing/year/HH increased from $ 86 to $ 167 Loans • 60% members cleared old debts in three years • Average net income/HH increased from $ 403 to $ 538 • Average non-land assets/HH increased from $ 137 to $ 236 • employment increased from 318 mandays to 375 Level of Graduation Repayments • Almost 100 %

  30. What was the impact ?…..contd… Infrastructure building (physical, social & community assets Emergency Prevention(recurring natural calamities) microFinance (Savings and credit) Banker friendly market/recovery/image Income Generation (Encouragement and advice) Leveraging Govt contracts- hatts/ quarrying/fish pond/ milestone/ health related Self-Help Initiatives Peace (Interfaith, inter-caste tolerance and conflict resolution) Social Evil Eradication(Alcohol abuse, spousal abuse, excessive dowry, Undesirable social practices gender space,) Watershed Management (Water users groups, infrastructuremaintenance, share practices) Education (School for children, adult literacy. Peer education ) Civil Society (Women members run for elected office)

  31. Impact….

  32. Innovations in Credit products –Kisan Credit Cards (KCC) • To ensure hassle free production, investment and consumption credit to farmers • In operation since 1998-99 and 59.9 million cards already issued • Card provides insurance of US $ 1111 with nominal premium from borrowers • Grameen cards in vogue for rural people and Bhumiheen cards for landless farmers/ share croppers. • Contradicts NSSO findings on outreach

  33. Farmer Clubs • NABARD conceived Farmer Club an effective instrument of development through credit. • Promoted 20215 clubs for 40885 villages(524 dist.) • Farmers need to be organised for better banking relationships • The club is the best route for extension • They act as bargain counters against and links with organised sector • FC in every village is the need of the hour

  34. Risk Mitigation • NABARD participates through equity contribution in MCX, NCDEX & Agri. Insurance Corporation of India.[ Price discovery mechanism can be improved so as to benefit the farmer] • Village Knowledge Centers(IT based)- Target is 6 million villages-NABARD participates through RIDF

  35. Risk Mitigation….contd • Concept of Joint Liability Groups (JLGs) ensures credit to tenants/ share croppers having no collaterals for availing institutional loans • Introduced in 2004-05, and covered 850 groups with credit support of Rs. 12.40 crore. Studies show encouraging results • Farmers’ Clubs being used for promotion of JLGs. • RIDF corpus of 2000 crore in 1995-96 became 50,000 crore during 2006-07.

  36. Future Reform Measures in Rural Finance • Consolidation of Banks • Commercial Banks – Market driven Mergers and Acquisitions • Regional Rural Banks – Sponsor Bank wise consolidation done – further State Wise consolidation • Cooperatives – Operational freedon – • PACS may act as Business Agents/ Correspondents of Commercial Banks • Consolidation possible in Cooperative structure also • Migration to Basel II norms

  37. Thank You

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