Ways of boosting agricultural credit in Banks
Sources of agriculture credit can be broadly classified into institutional and non institutional sources. Non institutional sources include moneylenders, traders and commission agents, relatives and landlords but institutional sources include co-operatives, commercial banks including the SBI Group RBI AND NABARD.
The 1st step to boost credit flow to agriculture sector is targeting. This targeting practices is followed for raising the flow of agriculture credit. As the budget allocation increased to 1.42 lakh crore in financial year 2019-20 accordingly flow of credit should increase and to be followed.
2nd step is crop loan : Arrangement has been made to provide crop loan to farmers. Along with crop loan proper communication to farmers about timely repayment and net interest charge that is 4 % should be more emphatic.
3rd step is Discouraging distress sale : In order to discourage distress sale of crops by farmers the benefit of interest subvention has been made available to small and marginally farmers having kisan cards for a further period of 6 months against negotiable warehouse receipts at the commercial rates. Also other farmers are also covered under ware house receipt loan up to 50 lakh. This is one of the good scope of financing.
4th step is Relief for natural calamities : In order to provide relief to farmers on occurrence of natural calamities interest subvention of 2% will continue to available to banks for the first year on restructured loan.
In case of severe calamities fresh loan can be sanctioned as per RBI guide lines that is another grey area for financing.
5th step is to finance actors along the value chain : The focus is on the links between different actors along a value chain. Agriculture entails a sequence of interlinked activities – transaction- in a chain that starts from the supply of seeds and fertilizers and finish in the mouth of consumers. These are financial instruments specially designed to strengthen these links between the actors along the value chain. The Government has understood that appropriate agri-business culture in the country can give rise to an all-inclusive economic growth.To boost agri-business the government has been attempting to ensure robust modern infrastructure in the food processing sector along the entire value/supply chain of food processing through its scheme Pradhan Mantri Kisan Sampada Yojna (PMKSY). The real challenge is to expand credit flow for meeting the agri-value chain credit demand supply gap is grey area for agriculture credit. The Finance for agricultural value chains can be more indirect and is developed within the interlinked relations between suppliers, buyers, producers and banks. The focus of financing is on the business transaction between two or more participants of the chain, rather than direct financing of the farmer or entrepreneur. These transactions are financed to reduce costs and risk, increase efficiency and improve the credit profile of the actors in the chain by lowering lending risks. It is a holistic approach to financing the agriculture system. The different actors in the chain can be financed with different instruments and financial service providers. In developing countries, informal financing is typically seen at the producers’ end, while more sophisticated financing instruments are used at the other end of the chain. The systematized exchange of information among participants along the value chain through mobile phones has improved economic integration and cooperation. Mobile phones connect the financial partners along a value chain through telecommunications and cashless transactions. The goal is to facilitate financing, marketing of products and information transactions among the supply chain partners.
6th way is inclusive finance (micro finance) : This instrument is slightly more sophisticated but still part of informal financial sector. It has become so popular that specialized banks within financial institution are also providing small loans and saving services, while accepting a wide variety of assets as collateral.
7th way is Traditional finance : Under this method we cover loans leasing and equity finance. It is used to encompass the most common form of finance for larger sums of money over longer period of time.
8th way is infrastructure finance : A well-functioning agricultural sector needs appropriate infrastructure such as: road networks to link isolated rural areas to markets; irrigation technology to reduce farmers’ dependence on rainfall; storage facilities to protect harvests from weather and pests; telecommunications to ensure efficient trading, water supply and energy; among others. However, rural infrastructure is underfinanced all over the world. Large-scale infrastructure, such as roads, is particularly in need of investment. Traditionally large-scale infrastructure was largely funded by the public sector. However, governments have increasingly been experimenting with different funding options to finance infrastructure. This is also grey area for finance.
9th way Estate Purchase Loans Purchase of estate, growing traditional plantation crops viz. Coffee, Tea, Rubber, Cardamom, Cashew, Pepper, Coconut & other perennial Orchard crops.
10th way (As per Delegated Authority) Loans against Gold / Silver Jewellery for agriculture upto Rs.20.00 lac (under priority) and Rs.10.00 lac (non-priority), Kisan All Purpose Term Loan upto Rs.20.00 lacs, Kisan Tatkal Scheme upto Rs.0.50 lacs Scheme for purchase of Renewable energy Equipment, Purchase of land for agricultural purpose upto Rs.10.00 lacs, Issuance of RATM (Rupay ATM) enabled KCC to all eligible non defaulting farmer.
Besides other avenues are as follows
Financing production credit needs of individual farmer members in association with Sugar Mills, Tobacco Board, etc, Schemes for construction of godowns designed to store agriculture produce, Agriculture Service scheme for agriculture service units / custom service units undertaking farm work for farmers on contract / hire basis, Bio-tech scheme for financing poly house / green house /tissue culture, Scheme for financing Food and Agro processing Units. The area for financing nursery Units, Drip Irrigation Units, KCC above Rs 3.0 lacs with interest concession, enabling online applications for agriculture loans through Bank’s Website. Also financing members of SHG/JLG also through Business Correspondent model, Promotion of Women Self Help Groups in backward districts of the country under NRLM. More over approval of various Area Specific Schemes recommended by Regions suitable to their Agro-climatic conditions. In addition to Tie up for installation of drip irrigation, green houses, M/s Livestock & Crop Registry India Ltd. (LCRI) for crop / live stock registration for animal identification and also for asset verification. Besides Tie-up with various Collateral Management Agencies for providing collateral Management services for WHR finance. Side by side financing to FPOs (Farmer producer organization) is new grey area for boosting agriculture credit. Actually FPOs are legal entities formed by primary producers viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen etc. An FPO, registered under the special provisions of the companies act, 1956 may take an institutional shape of a producer company, cooperative society or other legal form which could provide for sharing of profits/ benefits among the members.
Authored By:
Rajeev Kumar
(Chief Manager)
Union Bank of india
Staff Training Centre, Lucknow