CREDIT FLOW & RELATED ISSUES

24 September, 2008

D.P.MISRA

GENERAL MANAGER

NATIONAL BANK FOR AGRICULTURE & RURAL DEVELOPMENT

Credit Flow to Agriculture Prior to the Farm Credit Package

1999-00 2000-01 2001-02 2002-03 2003-04 CAGR (%) 1999-00 to

2003-04

Comm Banks

24733 27807 33586 39773 52440 20.67

Coops 18260 20718 23525 23636 26875 10.14

RRBs 3172 4219 4854 6070 7581 24.34

Total * 46268 52827 62045 69560 86981 17.09

Rs Crore

* Includes credit disbursed by Other Agencies Source : NABARD

Farm Credit Package, June’04

Agrl credit to be doubled in 3 years (base 2003-04) Rescheduling of loans - farmers in distress/arrears -

fresh credit OTS for SF/MF 50 lakh new farmers to be financed each year 1000 agriclinics to be set up each year Investment credit flow emphasised - each branch to

finance 2-3 new projects (CBs); Relief Package for farmers in distress/arrears & OTS for

small farmers; Financial support for redemption of informal debts

Credit Flow to Agriculture after Farm Credit Package

Year Target Achievement % Achvmt

% Growth

2004-05 105000 125309 119.34 44.06

2005-06 141000 180486 128.00 44.03

2006-07 175000 229400 131.09 27.10

2007-08 225000 243569 108.25 6.17

Rs. Crore

Source : NABARD

Credit Flow to Agriculture – 2008-09 vs. 2007-08

Year CBs RRBs Coops Total

Target Achmt Target Achmt Target Achmt Target Achmt

2007-08

(Apr-Jul)

150000 36664 23000 8085 52000 22138 225000 66888

2008-09

(Apr-Jul)

195000 35214 30000 6095 55000 12870 280000 54179

(Rs. Cr.)

Source : NABARD

Agency Wise Agri-Credit Flow

Year CBs RRBs Coop Bks Total

1999-00 24733

(53%)

3172

(7%)

18260

(40%)

46268

2004-05 81481

(65%)

12404

(10%)

31231

(25%)

125309

2005-06 125477

(70%)

15223

(8%)

39404

(22%)

180486

2006-07 166485

(72%)

20435

(10%)

42480

(18%)

229400

2007-08 175072

(72%)

24814

(10%)

43684

(18%)

243569

CAGR 29.04% 26.00% 11.84% 24.80%

Rs. Crore

Source : NABARD

Region Wise Agri-Credit Flow

Region 2004-05 2005-06 2006-07

North 32125 (25.64%) 50448 (27.95%) 63458 (27.67%)

North East

407 (0.32%) 936 (0.52%) 825 (0.36%)

East 7238 (5.78%) 12216 (6.77%) 15393 (6.71%)

Central 17142 (13.68%) 23134 (12.82%) 31293 (13.64%)

West 14111 (11.26%) 26178 (14.50%) 33521 (14.61%)

South 36831 (29.39%) 63512 (35.19%) 80213 (34.97%)

Others 17455* (13.93%) 4062 (2.25%) 4697 (2.04%)

Total 125309 (100.00%) 180486 (100.00%) 229400 (100.00%)

* Includes Private Sector CBs

Rs. Crore

Source : NABARD

Agri- Credit – Number Of Accounts/Farmers Financed

Year CBs RRBs Coop Bks Total

2004-05 127 61 225 413

2005-06 146 46 193 385

2006-07 172 62 189 423

2007-08 175 63 201 439

Nos. in lakh

Source : NABARD

New Accounts Financed

Year CBs RRBs Coops Total

2004-05 48 18 13 79

2005-06 47 17 15 79

2006-07 51 20 13 84

2007-08 55 20 10 85

Nos. in Lakh

Source : NABARD

Production vs. Investment Credit

Year Prodn Credit Invst Credit Total

2003-04 54977 (63%) 32004 (37%) 86981

2004-05 74064 (59%) 51245 (41%) 125309

2005-06 105350 (58%) 75136 (42%) 180486

2006-07 138455 (60%) 90945 (40%) 229400

2007-08 173740 (71%) 69829 (29%) 243569

Rs. Crore

Source : NABARD

Agri-Credit (Direct) Flow by SCBs – Size of Credit

Size 2000-01 2001-02 2002-03 2003-04

A/c Amt

O/s

A/c Amt

O/s

A/c Amt

O/s

A/c Amt

O/s

< 25000 162 16742 157 16245 153 17434 147 17640

25,000 to 2 lakh

31 16786 37 20271 45 25429 54 28521

Sub-Total (% to total)

193

(98)

33528

(77)

194

(98)

36516

(77)

198

(98)

42863

(73)

201

(97)

46161

(66)

Grand Total

196 43420 197 47430 202 59058 207 70099

A/cs. in lakh & Amt. in Rs. Crore

Source : CMIE Bulletin, Money & Banking, Sept., 2008

Agri-Credit (Direct) Flow by SCBs – Size of Credit

Size 2004-05 2005-06 2006-07

A/c Amt A/c Amt A/c Amt

< 25000 173 21649 174 22526 182 24592

25,000 to 2 lakh

79 41436 99 53188 128 71607

Sub-Total (% to

total)

252

(97)

63085

(67)

273

(96)

75714

(61)

310

(95)

96199

(56)

Total 260 94635 284 124563 325 171497

A/cs. in lakh & Amt. in Rs. Crore

Source : CMIE Bulletin, Money & Banking, Sept., 2008

Agri-Credit Flow vs. Foodgrains Prodn.

IX th Plan X th Plan

Year Credit

% of agri

credit to

Agri GDP

Food Grain Prod. Mill

Tonnes Year Credit

% of agri credit to agri GDP

Food Grain Prod. (Mill Tonnes)

1997-98 31956 -  192  2002-03 69560 14.85 175

1998-99 36860 -  204  2003-04 86981 16.27 213

1999-00 46268 10.19 210  2004-05 125309 22.53 198

2000-01 52827 11.55 197  2005-06 180486 29.98 208

2001-02 62045 12.73 213  2006-07 229400 30.56 217

    2007-08  243569  NA 230 

Population increased from 839 million in 1991 to 1019 million in 2001

Rs in Crore

Source : NABARD & Economic Survey

Recent Policy Initiatives-GoI Implementation of “Farm Credit Package” GoI target for financing 50 lakh new farmers annually Restructuring Package for ST(CCS) & LT(CCS) Since Kharif 2006-07, ST(SAO) loans upto Rs. 3 lakh

provided at 7% Various programmes launched - Rashtriya Krishi Vikas

Yojana (RKVY), Accelerated Irrigation Benefit Programme (AIBP), Rainfed Area Development Programme, National Horticulture Mission, etc.

Preparation of Comprehensive District Agriculture Plans, by adopting a “bottoms up” approach

RECENT POLICY INITIATIVES – GOI

Debt Waiver and Debt Relief Scheme loans for agriculture & allied activities provided by

Scheduled CBs, RRBs, LABs & CCS to SF/MF disbursed upto 31 March, 2007,overdue as on 31 December, 2007 & unpaid upto 29 February, 2008, to be waived

Other Farmers - OTS for eligible overdue loansFarmers entitled for fresh finance

IMPACT OF DWWR SCHEME 3-4 crore defaulting farmers expected to avail benefit &

become eligible for fresh finance Decline in credit flow - Agriculture credit declined from Rs.

66,888 cr., during Apr.-July ‘07 to Rs.54,179 cr., during the corresponding period of 2008-09

No of farmers financed declined from 159 lakhs to only 98 lakhs during the same period

New accounts financed declined from 21 lakhs to 15 lakhs Decline in recoveries leading to liquidity problem

particularly for coop banks Impacting recovery climate

Scope for Augmenting Credit flow Ratio of production credit to value of agrl inputs at 20.8%

in 2003-04; as proportion of value of agricultural outputs, agri-credit at 5.1% - scope.

Significant economic changes/increasing diversification in agriculture. Scope for inv. credit.

Of the apprx. 11 crore farmers, nearly 7 crore farmers issued KCCs, scope for issue of more KCCs.

Oral lessees constitute around 10% of total farming community (NCF), coverage of tenant farmers less than 2% (CBs) or 1% (RRBs/Coops)

SF/MF coverage hovering between 55% to 60% (CBs/Coops)

Issues Relating to Credit Flow• Greater impact of risk of crop failure on SF/MF leading to

non- wilful default & credit ineligibility/denial

• Small/fragmented land holdings

• High transaction costs for banks in servicing small loan accounts

• High transaction (non-interest) costs for the borrowers

• Absence of appropriate risk management systems

• Complex documentation procedures

• Poor health of RFIs with deeper penetration into rural areas

• Issue to be debated : whether farmers are interest rate sensitive or are more interested in availing adequate, hassle-free and timely credit without hidden costs

Issues (Contd..)

Recurrence of natural calamities Rescheduling of loans and relief packages not helping

farmers Commodity Exchanges not helping Crop Insurance not farmer friendly – contd Govt.

Support needed Difficult to sustain agricultural credit at 7% considering

hardening of market interest rates, unless GoI continues to provide subvention.

Issues (Contd..) Cooperative Banks suffer from structural and financial

weaknesses, Governmental interference, lack of professionalism/ good governance/adequate infrastructure, etc.;

LTCCS has no resource base of its own, poor recovery/high NPAs, financial health deteriorating – implementation of Vaidyanathan Committee I & II.

Expansion/efficient use of credit dependent on the availability of adequate backward and forward linkages

Agri extension is a major issue Capacity building of farmers (PNB Model/ Farm Field

Schools) to orient farmers on production, integrated crop management, knowledge about marketing, etc.

Strategies for augmenting credit flow to Agriculture

Improving Credit absorption CapacityRural Infrastructure developmentExtension ReformsCapacity Building

Improving Recovery Environment Making Rural Credit a business proposition Designing innovative rural financial products to suit needs of rural

masses Institutional Initiatives/Strengthening RFIs Simplification of lending Procedures Remunerative prices for agriculture produce Providing credit & credit plus services through Farmers’ Clubs,

Farmers’ Associations, Joint Liability Groups, Self Help Groups;

Conclusions Credit important, but not sole input for agriculture and rural

development For better credit absorption/utilisation, related

infrastructure, extension and conducive policy climate necessary

Tremendous scope for Credit widening and deepening-Financial inclusion an opportunity for credit expansion

Innovative credit products need to be developed Rural Credit needs to be viewed as business proposition

rather than as directed lending Conducive recovery climate Effective Risk Mitigation Measures

THANKS