Government subsidised agri credit being diverted, says RBI Governor D Subbarao

MUMBAI: Reserve Bank Governor D Subbarao today said there is anecdotal evidence pointing to diversion of government-subsidised agricultural credit to other purposes.

"It is not clear that all if the credit that is been shown as lent to farmers is actually going for agriculture," Subbarao said at a function here to mark the 30th foundation day of the National Bank for Agriculture and Rural Development (Nabard) here.

Subbarao said he observed the trend during his recent visits to some bank branches in different parts of the country. Therefore, there is a need to modify the interest subvention scheme under which a the government subsidises interest cost for a agricultual loan and tighten the end-use factors while granting the credit, he said.

Under the interest subvention scheme, the government pays for a part of the interest outgo on a loan to encourage a particular vocation or a stream of business.

Due to interest subvention, farmers pay only four percent per annum as interest after a budget announcement in 2011 by the then finance minister increased the subvention.

Meanwhile, Subbarao also asked for a discussion on the very idea of subsidising agricultural credit.

The jump in banks' non-performing assets (NPAs) due to a migration to system-driven NPAs came under criticism from the Governor, saying that the RBI doesn't understand what bankers mean by it.

"I dont know what that means. There seems to be some new technology for system wide identification," he said.