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Farm credit demand will be aggressive, FM tells banks

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BS Reporter New Delhi
Last Updated : Jan 20 2013 | 8:04 PM IST

Finance Minister Pranab Mukherjee today cautioned banks that the demand for credit will be too aggressive from various sections, including the farm sector, as India starts journey towards double digit growth. He, however, was confident that the banks will surpass the credit target of agriculture sector set at Rs 375,000 crore for this financial year.

"If the Indian economy has to grow by a double digit rate, Indian banks will have to play a facilitator and pro-active role. The turf is going to be highly competitive. The demands of this rapidly growing economy, too, are going to be very aggressive," Mukherjee said at a foundation day function of Corporation Bank.

He said one such critical area for lending remains the agriculture. However, at present, agriculture lending by banks is doing really well, he said.

"In 2010-11, I fixed a target of Rs 375,000 crore and I am confident because by December I already reached Rs 300,0000 crore. It will be possible to exceed the target of Rs 375,000 crore," he said.

The minister recalled that the government had, in 2004, announced a package for doubling the flow of credit to agriculture and allied activities in three years from 2004-05 over the amount disbursed during the year 2003-04. The target was, however, achieved in two years and has been achieved each year thereafter, by the banking system. The target for agriculture credit was set at Rs 325,000 crore for 2009-10, while the banks actually provided Rs 384,514 crore. He said the target of credit to the farmers has been raised to Rs 4,75,000 crore in 2011-12.

In his Budget speech last month, Mukherjee had said, “To get the best from their land, farmers need access to affordable credit. Banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For 2011-12, I am raising the target of credit flow to farmers from Rs 375,000 crore to Rs 475,000 crore. Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers.”

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The finance minister reminded banks that financial inclusion is an important priority of the government as only 40 per cent of the population has bank accounts.

Mukherjee said since 2006-07, the government has been providing interest subvention to all public sector banks (PSBs), regional rural banks (RRBs) and cooperative banks for short-term crop loans up to Rs 300,000, so as to ensure that short-term agriculture credit is available at 7 per cent to farmers.

From 2010-11, an additional 2 per cent interest subvention is being provided to those farmers, who repay their short-term crop loans in time, he said. Thus, the short-term crop credit is available to farmers at 5 per cent in 2010-11.

In 2011-12, the Interest Subvention Scheme proposes to further incentivise prompt repayment by farmers by providing a further incentive of 3 per cent interest subvention, he said.

On financial inclusion, Mukherjee said, "One of the biggest challenges before our nation today is to ensure inclusive growth." Financial inclusion is an important priority of the government as only 38 per cent (32,919) of the 87,051 bank branches of scheduled commercial banks are in rural areas and only 40 per cent of the country's population has bank accounts, he said.

He added there are about 600,000 villages in India, while only 32,919 rural bank branches. To address this need, he said, "I had in 2010-11 directed all banks to provide appropriate banking facilities to habitations having population in excess of 2,000 by March 2012, using various models and technologies including branch less banking, through business correspondents."

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First Published: Mar 13 2011 | 12:51 AM IST

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