Need to improve agriculture credit in India

Banks are consistently achieving the target given for agricultural credit by Government of India each year. Accordingly the government has given a target of 11 lakh cr for financial year 2018-19. The agriculture credit outstanding which was at Rs 2.5 lakh cr during 2007-08 has now crossed Rs 10 lakh cr.

The share of investment credit responsible for capital formation in agriculture is at 35% and the share of commercial bank, RRB and cooperative banks in total agriculture credit is 76, 11 and 13 percentage respectively. The ratio of agri credit to agri GDP which was 22.2 % in 2004-05 has now touched at 40.5 %.

The moot point here is the percentage share of Gross Capital Formation (GCF) in agriculture and allied sector in the Gross Value Added (GVA) from agriculture has declined from 18.3 per cent in 2011-12 to 16.3 per cent in 2015-16.

Considering the importance of agriculture and allied sector in increasing income and employment, and also achieving inclusive growth, it is imperative to increase investment in the sector. The declining GCF to GVA ratio in agriculture can be attributed to the decline in public sector investments.

Further, since the agriculture credit outstanding includes overdue loan inter alia bad debts and compounding overdue interest, the achievement in agri credit does not throw concrete facts for analysis. Feedback has been received from the farmers says that the interest outstanding in their accounts has exceeded the principal loan amount because of faulty asset classification by banks and banks are calculating interest despite the accounts slipped to the NPA.

In order to show lower provisioning and window dress NPA figure , most of the dormant KCC accounts have been shown as standard by banks. In actual sense, the fresh loan given to farmers during a financial year will never exceed 35 % of the total agri loan outstanding in any particular branch of bank in India.

This is evident from the analysis that the food grain production and capital formation has not been commensurate with the agriculture credit growth in India. Therefore, there is a felt need on the part of the bank regulator to fix the loopholes in disbursal and reporting of agri-credit in India.

Further, the recovery culture has been vitiated because of frequent loan waive announcement by different state governments. The worst part is that end use of credit never happens. In an average, the recovery of crop loan in India for commercial bank and RRB hovers around 30 % though it is slightly better in case of good working DCCBs.

Despite farmers getting loan at zero percentage thanks to the combined central and state interest subvention in some states and cost of credit not exceeding more than 4% for a loan up to Rs3 lakh without state subvention and loan getting insured through PMFBY, the repayment is not happening. This shows a grim scenario where neither loan is repaid nor asset is created.