Allow farm loans at market rates: RBI

Banks must be allowed to lend to agriculture at market rates to ensure the money reaches the farmers, Reserve Bank of India depu- ty governor K.C.Chakrabarty said on Tuesday.  “One of the reasons why credit has not reached all sections of the agricultural community is subvention,“ Chakrabarty told a bankers' meet. “Pricing of credit should be at market rate.“ The government offers an interest rate subvention of 3-5% on farm loans, allowing farmers to borrow cheap to grow food. However, though credit to agriculture has increased steadily in the past 10 years, banks are reluctant to lend to farmers fearing default and also because the state subvention is usually delayed or remains unpaid for years. Both the number of agriculture accounts and credit outstanding have increased in 10 years, data from Chakrabarty's presentation showed.  From 2.05 trillion in 2000, the total number of agriculture accounts has increased to 4.27 trillion in 2010, according to the Basic Statistical Returns of Scheduled Commercial Banks, which are filed with the central bank. Total credit outstanding has also increased to `3.9 trillion in 2010 from `4,563.82 crore in 2000, Chakrabarty said in his presentation. The central bank does not have enough detailed data on farm credit, but such loans have increased from urban and metropolitan branches, he said. “This raises questions about which segments this credit is actually flowing to. Little is known about agri- cultural credit to various crops, horticulture, allied activities, even on a consolidated basis,“ Chakrabarty said, adding that banks have to suggest as to how to aggregate data and link it to credit with productivity. He rubbished bank claims about rising non-performing loans from agriculture. Bad farm loans are among the highest in Indian banking at 3.61%, just behind 4.24% non-performing as- sets from medium and small enterprises and 5% from un- secured loans, said a Boston Consulting Group report on banking released on Mon- day. But Chakrabarty said fears on agriculture loans are unfounded. “Even if banks do not re- cover the loans, the government writes them off, so they are not bad loans for banks,“ he pointed out. Chakrabarty said data from financial institutions, state and central governments has to be revamped to monitor flow of credit to various farm segments and also in terms of outstanding loans and disbursements.

Mint