Rural sector still credit starved, says RBI

The rural sector is fast changing and accounts for 52 per cent of the country's economy. Yet this sector, which provides employment to over 60 per cent of the employable population, finds its difficult to get timely and adequate credit. The Reserve Bank of India blames commercial banks for keeping the rural economy starved for credit.

Domestic banking sector is finding it difficult to grapple with rapid changes in this segment of economy.

Banks need to work hard to adjust with realities and look at rural lending as a business opportunity, RBI deputy governor Rakesh Mohan said addressing a national conference on rural markets organised by the Confederation of Indian Industry.

He expressed surprise that a few bankers participated in the meet despite the fact that the financial system acts as a lubricant for sustaining business and commercial activity in the rural area.

The share of rural credit in total bank credit was about 30 per cent in 1990's but it has declined to below 30 per cent now.

The proportion of farm credit as a proportion of agriculture gross domestic product (GDP) should grow as the farm sector turns more commercial.

Agriculture GDP needs to grow at about four per cent to ensure the eight per cent growth for the country. New activities are emerging in the farm sector and there is need for activity-specific credit or financial assistance package, Mohan pointed out.

Rural prosperity would come from higher productivity and diversification in economic activities.

The buoyancy in the rural sector would also trigger demand for credit and finance to purchase consumer goods and housing, he said.

Rural lending activity was high in Tamil Nadu, Andhra Pradesh, Karnataka and Kerala compared with the northern states except Punjab.