Ownership glitches hamper credit flow to farm sector

Co-operative banks and regional rural banks (RRBs) are finding it difficult to implement the Centre's order to double farm credit in the next three years owing to land ownership glitches.

The Union finance ministry has decided to double the farm credit in the next three years to over Rs 1,60,000 crore from Rs 80,000 crore in 2003-04.

"We are finding it difficult to sanction agricultural loans due to the confusion on land ownership. Land, on which banks lend money, has not been properly recorded in various parts of the country. We want the RRBs to operate on a national level under the supervision of the National Bank for Agriculture and Rural Development (NABARD)," said G N Murty, managing director, Raigarh Kshetriya Gramin Bank, an RRB in Madhya Pradesh.

Under the order, agricultural credit is to be increased to Rs 1,04,500 crore during 2004-05, up 30 per cent from Rs 80,000 crore in the previous fiscal.

Also, the credit target for commercial banks for the current fiscal has been pegged at Rs 57,000 crore for RRBs at Rs 8,500 crore and for co-operative banks at Rs 39, 000 crore.

"We have taken measures to increase the flow of credit to the agriculture sector. Nabard is focusing on debt restructuring by helping farmers who have suffered production and income losses on account of natural calamities in the last five years. We have a one-time settlement scheme to cover small and marginal farmers," said Bhawar Puri, chief general manager, Nabard, Gujarat.

According to the All India Regional Rural Bank Employees Association (AIRRBEA), of the 368 district central cooperative banks, about 148 are financially weak to meet the new farm sector demand.

"The quantum and scope of co-operative banks are too small to cater to the ministry's target of doubling farm credit in the next three years. Infrastructure needs to be improved in the cooperative sector," said Parthiv Adhyaru, chairman, Nutan Nagrik Sahakari Bank.

A chairman of a cooperative bank in Gujarat said, "Co-operative banks cannot implement the ministry's plan unless the co-operative sector is made democrative and free from any political interference and vested interest."

Commercial banks account for only 10 per cent of the total rural credit, with larger land owners residing in towns and cities getting the largest share. Most of the small and marginal farmers are not able to get loans from commercial banks and their share in the latter's rural credit has sharply declined, he said.

The Reserve Bank of India (RBI) is planning an overhauling of the rural co-operative structure and the RRBs, which act as critical instruments for rural credit.

The non-performing loans and erosion of deposits in both co-operatives and RRBs need early restructuring and recapitalisation.

The problems faced by RRBs and co-operative banks in the country include inadequacy in credit supply, constraints on timely availability, high cost, neglect of small and marginal farmers, low credit-deposit ratios in several states and continued presence of informal markets.

"The changes warranted in co-operatives and RRBs need a commitment of state governments and would have a significant bearing on political economy. Recapitalisation of co-operatives and RRBs and one-time fiscal support were essential for the revival of co-operatives and the RRBs," said Shivaji Kerare, branch manager, Marathwada Gramin Bank.