Panel to devise ways to raise farm credit

In the run-up to the preparation for the Eleventh Five Year Plan (2007-12), the Planning Commission has decided to constitute a 29-member working group which will examine ways in which credit flow to relatively neglected sectors such as agriculture can be enhanced.

This group "" on the outreach of institutional finance and cooperative reforms "" will be headed by YC Nanda, member, National Commission on Farmers. The working group has representatives from banks, the bureaucracy and cooperative societies.

HA Daruwala, chairperson and managing director of the Central Bank of India and M Balachandran, chairman-cum-managing director of the Bank of India, are two representatives of state-owned banks in the group.

Among the terms of reference given to the working group are a stock-taking of the flow of credit during the Tenth Plan, assessment of credit requirements during the Eleventh Plan and suggestions through which the credit flow system can be smoothened.

The working group has been asked to submit an interim report by the end of the month and a final report by the end of October 2006 to the Planning Commission.

It has begun deliberations in the backdrop of inadequate credit flow from the commercial banking system to the agricultural sector. Banks are required to lend 18 per cent of net bank credit (NBC) to agriculture.

Data culled from the finance ministry's annual report of 2005-06 showed that commercial banks' advances to agriculture constituted 15.7 per cent of the NBC on the last reporting Friday of March 2005.

The government, however, has picked agricultural credit for special emphasis, and towards this end, it has announced a package of measures in June 2004 to double the flow of credit to agriculture in three years.

Following the government's package, disbursement to the agricultural sector in 2004-05 stood at Rs 1,24,122 crore, higher than the previous year's disbursement of Rs 86,981 crore.

During the first nine months of 2005-06 (April-December), disbursement to agriculture stood at Rs 1,19,114 crore.

In the current financial year, the government will spend Rs 1,600 crore to provide farmers with a subsidy on the interest they will pay on short-term agricultural loans.

The current year's target for total agricultural lending is Rs 1.75 lakh crore, of which 70 per cent will be short-term credit.