RBI Deputy Governor MK Jain on Wednesday made a case for incentivising banks to extend loans to poor in backward areas in a bid to promote financial inclusion. Speaking at an event organised by the National Bank for Agriculture and Rural Development (NABARD), Jain said despite impressive growth in formal agriculture granted, there are still several challenges which need to be tackled.
Data on the average loan taken by agricultural households indicated that 72 per cent of the credit requirement was met by institutional sources and 28 per cent from non-institutional sources, he said quoting NABARD Financial Inclusion Survey Report 2016-17.
Further, the analysis of state-wise flow of institutional agriculture credit has revealed uneven distribution of credit among states, compared to their corresponding share in their overall output, he said. To a certain extent, the deputy governor said such regional disparity is on account of variation in credit absorbtion capacity of these regions.
“We may also have to think of the ways to incentivise banks to lend in these backward areas so that both the demand and supply side issues are addressed,” he said. He also exhorted NABARD to think of steps by which funds like Rural Infrastructure Development Fund can be earmarked to the most backward credit starved regions of the country to ensure faster development.
Highlighting the other challenge, Jain said the problem of financial inclusion gets aggravated due to lack of legal framework for landless cultivators as the absence of documentary evidence becomes a major hindrance for extending credit to this segment of the farming community who take up cultivation work on oral lease.
“These issues and challenges impinge on the efficiency inclusiveness and sustainability of the agriculture credit system, which is a matter of concern,” he said.
Considering these, he said, the RBI had set up an internal Working Group (IWG) in February 2019 to understand the issues and recommend workable solutions to address constraints.
The IWG based on detailed data analyses and research submitted its report in September 2019, he said.
“The recommendations of the IWG includes building up of an enabling eco-system through digitalisation of land records, reforming of land leasing framework, creation of a national level agency to build consensus between the state government and the central government with regard to agriculture related policy reform, because of the effects system,” he said.
Other policy interventions recommended are suitable modification in the priority sector guidelines applicable to all banks and strengthening of credit delivery channel through Kisan Credit Card, Self Help Group bank linkage programme in a manner to make these more effective and efficient in ensuring credit flow to the credit starved regions of the country, and also to the excluded segment of the farming community, he said.
“The RBI will be initiating necessary steps for implementing regulatory recommendations and has requested the government of India to consider policy and other related recommendations for its implementation, as these would go a long way in ensuring long term sustainability and viability of Indian agriculture sector,” he said.