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LATEST NEWS UPDATES | Shrinking credit to farmers

Shrinking credit to farmers

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published Published on Oct 6, 2009   modified Modified on Oct 6, 2009

At a time when the flow of institutional credit has tended to look up, pointing to economic recovery, the disbursal of agricultural credit has dipped by an astonishing 30 per cent, putting the prospects of recovery in the drought-ravaged farm sector in jeopardy. The numbers released by the National Bank for Agriculture and Rural Development (Nabard) indicate that both commercial banks and cooperative credit outlets are lagging behind their targets by margins so wide as to be difficult to bridge in even the next (rabi) season. Total credit to the agricultural sector till August 31 was reckoned at Rs 1,10,000 crore, which is just 34 per cent of the target of Rs 3,25,000 crore set for 2009-10. This is worrisome because the kharif season normally accounts for 60 per of total agricultural loans. Going by this norm, disbursals should have been nearly twice what they have been so far this year. Even if bank lending improves in the rabi, there seems to be no way for this shortfall to be made up. If the target is missed, as seems fairly certain now, it will be happening for the first time since the trend of exceeding annual targets for agricultural lending was set in 2004-05.

Though the poor credit off-take in the farm sector is being blamed somewhat conveniently on the drought, that is not the sole reason. The farmer’s need for credit actually swells during a drought, but that is precisely when he finds it harder to borrow from institutional sources, because these usually turn wary of lending in difficult times, fearing poor recovery. The usual official diktat to banks to convert short-term farm loans into medium- or long-term ones, and waivers or deferment of interests on such loans during natural calamities, also deter them from lending to affected farmers. The cooperative banking sector is, in any case, in disarray. Those that are still in business are irked by diminishing government support for their survival. The government’s decision to cut the interest rate subsidy on farm loans by 1 per cent in this fiscal has further constrained their ability to maintain the flow of credit. And so it is an established fact that advances from the informal sector, notably moneylenders, rise substantially during periods of adversity, though this usually involves higher collateral, over and above the pledging of the next crop.


The Business Standard, 6 October, 2009, http://www.business-standard.com/india/news/shrinking-credit-to-farmers/372311/
 

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