RBI panel moots 'agri-risk fund'

An advisory committee of the Reserve Bank of India (RBI) has suggested the setting up of an 'agri-risk fund' to mitigate the risk of lending banks in case of genuine default.

The fund can be formed through equal contribution by the central and state governments and participating banks, the panel, headed by professor V S Vyas, said.

It is also of the view that a roadmap be prescribed to public sector and private sector banks to reach the direct lending levels within four years.

All PSU and private banks should increase their direct lending to agriculture to a level of 12 per cent of net bank credit within two years and to 13.5 per cent within next two years thereafter, the panel said.

The committee has also suggested that select banks willing to participate in pilot projects started by multi-commodity exchanges for trading in commodities should be exempt from the Section 6 and 8 of the Banking Regulation Act so as to help them provide hedging mechanism.

Moreover, farmers' participation in commodity exchanges could be increased, the committee said.

The committee feels that the special agricultural credit plan (SACP) be made applicable to private banks in addition to the PSU banks and credit to small and marginal farmers should be progressively raised to 40 per cent of disbursements under SACP by the end of the Tenth Plan period.

While banks must formulate a time-bound programme for use of information technology in rural branches, the committee further recommends that the Kisan Credit Cards could be made ATM-enabled and converted into smart cards to reduce transaction cost as also to provide better customer service.

In order to facilitate recovery of dues, the committee is of the view that the revenue authorities and state government officials may have to extend their support given the fact that under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, taking possession of agricultural land is not possible.

Recognising the need for a non-governmental organisation - microfinance institution (MFI) combine for extending rural credit, the committee feels that such MFIs need not be regulated by the Reserve Bank of India.

This recommendation comes at a time when the RBI has already indicated in the last credit policy that MFIs need to be brought under RBI supervision.