The thrust of the current strategy, adopted by RBI to increase the flow of rural credit, is on enhancing credit delivery in a regime of reasonable credit prices within the existing legal and institutional constraints.
In order to further strengthen efforts, aimed at greater flow of credit to the rural sector, RBI wants legal and institutional changes relating to governance, regulation and functioning of rural cooperative structure and regional rural banks.
It said these rural institutions, as originally envisaged, will have to be critical instruments for rural credit. The changes warranted in cooperatives as well as the regional rural banks (RRBs) involve true commitment of state governments and have a significant bearing on the political economy.
RBI said the overhang problems of non-performing loans and erosion of deposits in both cooperatives and RRBs have an inevitable fiscal impact on any scheme of recapitalisation.
The current acceleration in credit delivery can be sustained in the medium term, if such fiscal support from states and the Central government is firmly put in place.
This also while reviving or reorganising rural cooperative structure and RRBs, provided sound legal and policy frameworks are in place as a pre-condition.
