Farm credit to double in 3 years

NEW DELHI: Finance minister P Chidambaram unveiled a â€˜policy packageâ€™ on Friday to enhance flow of credit to the farm sector by liberalising eligibility norms. Without resorting to any write-off or cut in interest rates, the package seeks to â€˜unclogâ€™ the credit channels and make finances available to farmers, especially the small players, through commercial banks, regional rural banks and co-operatives. Credit flow to the farm sector is expected to increase by Rs 30,000 crore during â€™04-05 to Rs 105,000 crore. The government aims to double credit flow to farmers within three years. While the banking sector will have to run the extra mile to expand rural lending, the package does not entail any direct spending by the government. Mr Chidambaramâ€™s message to the banking sector was clear: Be proactive in lending to farmers and you can make reasonable profit out of it. Widely anticipated in view of the stress on the farm sector in the Common Minimum Programme (CMP) and clear signals in the Presidentâ€™s speech, the package is seen as the governmentâ€™s opening gambit to build on its pro-farmer image. The FM repeatedly emphasised that farmers all over the country are â€œstressedâ€� and they need support at this juncture. He said banks will be allowed to take over loans availed by farmers from non-institutional players like moneylenders, so that they are relieved of the â€˜debt burdenâ€™ that has led to a large number of suicides in Andhra Pradesh. Rural banks and co-operatives will be encouraged to provide such loans against â€˜group securityâ€™ if appropriate collateral is not available. Since â€˜group securityâ€™ includes a guarantee from the village Panchayat, it will become easier for farmers to get institutional loans and escape the crushing burden of â€˜indebtednessâ€™ which is exploited by moneylenders. As reported by ET on June 17 and 18, Mr Chidambaramâ€™s package also contains debt restructuring for farmers who have suffered losses due to droughts, floods and other calamities. In such cases, interest will be clubbed with principal and converted into a fresh loan repayable over a period of five years, with a two-year moratorium. This is expected to relieve the pressure on small farmers and enable them to grow out of the debt trap. Similarly, farmers who have been declared defaulters will be given a fresh opportunity to reschedule their loans and avail fresh credit. Banks will also be permitted to go in for one-time settlement in such cases. Fresh credit will even be provided to farmers who have a history of write-off or compromise settlement due to outstandings. Banking industry sources said commercial banks would have to re-visit their rural lending process. Rural branches have been low priority for public sector banks. As a result, most of them failed to meet their targets. Foreign banks have been banking on Nabard and other institutions to meet their rural obligation. Bankers feel that rural branches also need to go in for manpower realignment. In addition, the government should invest in rural industries like food processing. With 40% of the GDP localised in rural areas, there is a lot that can be done, provided the right impetus is provided. With the government focusing on the rural sector, banks can take away a considerable share from the NBFCs and moneylenders who operate in rural areas. Bankers feel that liberal norms could lead to an incremental lending of Rs 50,000 crore this year. As Mr Chidambaramâ€™s package aims to bring institutional credit to 50 lakh more farmers, a large number of new opportunities are expected to open up. The governmentâ€™s package also sets new targets for each rural bank branch in a bid to make sure that credit reaches needy farmers. The Indian Banks Association and Nabard will organise meetings next week to implement the package.

Farm credit to double in 3 years

Finance minister P Chidambaram unveiled a 'policy package' on Friday to enhance flow of credit to the farm sector by liberalising eligibility norms.

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