Govt urges banks to boost credit flow for allied agri sectors; here's why

The allied activities receive only 10 per cent of the total agricultural credit while they contribute 40 per cent of the agricultural output, said the RBI report

Highlighting the importance of allied sectors in driving agricultural growth, the government urged the public sector banks (PSBs) to take necessary steps in achieving the targets of credit disbursal to agriculture-allied activities, including animal husbandry, dairying and fisheries.

 

In a meeting with PSBs, Nabard, and the level bankers’ committee, M Nagaraju, secretary of the financial services department, underscored the potential of the allied sector to enhance employment opportunities in rural areas. Representatives of state governments were also present.

 

Nagaraju stressed the need for state governments to facilitate banks' improving the flow of credit to these sectors. He also highlighted the trend of regional disparity in credit disbursement in allied activities.

   

Minimal share of agri-credit in allied sector

 

According to the Department of Financial Services's annual report for 2023, though agri-credit has increased at an impressive average Annual growth rate of about 13 percent in the last nine years, the share allocated to allied activities has remained a handful.

 

Out of Rs 21.55 trillion credit disbursal to the agricultural sector in 2022-23, only Rs 2.62 trillion was allocated to the allied activities. For 2023-24, the government had set the target for allied activities at just Rs 2.93 trillion.

 

According to a 2019 report of RBI’s working group, the allied activities receive only 10 per cent of the total agricultural credit while they contribute 40 per cent of the agricultural output.

 

No separate obligation under PSL

 

The master direction for priority sector lending (PSL) released by RBI in June 2024, asks all commercial banks, regional rural banks and small finance banks to allocate 18 per cent of their adjusted net bank credits (ANBC) to the agriculture sector under PSL. However, there is no separate obligation for credit disbursal to allied activities.

 

RBI’s working group had also noted that ‘banks do not have any specific mandate towards allied activities.’ It recommended that separate lending targets should be set for the allied sector.

 

Further the landless farmers are at the receiving end, even in this situation. As RBI says that both landless farmers and farmers based on land holdings, are eligible to avail loans up to Rs 2 lakh for allied activities under PSL, banks usually prefer to give loans to farmers having land.

 

The group had recommended that banks should not insist on land records for such credit.

 

In the recent meeting, Nagaraju directed banks to conduct regional-level assessments to ensure the disbursement of credit in allied activities across regions. He underlined the government's focus on seamless access to affordable credit to allied sectors and asked all stakeholders to take necessary steps to increase the flow of credit to the sector.