ACA-TM-37 (v2.2-20-Nov-10)

OVERVIEW OF THE RURAL SECTOR

& LENDING TO AGRICULTURE

R N Panigrahi ,GM & MoF

ACA-TM-37 (v2.2-20-Nov-10)

Profile of the rural economy

• Characteristics of the rural economy – The agriculture sector • Its importance in the economy• Growth in agriculture production

– The rural non-farm sector • Diversification• Emerging opportunities

ACA-TM-37 (v2.2-20-Nov-10)

Some facts on agriculture

2008-09 2009-10 2010-11 2011-12

Growth in agri -0.1% 0.4% 6.6% 2.8%

Contribution to GDP

15.7% 14.6% 14.4% 14.0%

Total GDP growth

6.8% 8.0% 8.5% 6.5%

Target for agrigrowth

4% 4% 4% 4%

ACA-TM-37 (v2.2-20-Nov-10)

Some more facts on agriculture

Growth in agriculture in 2002-03 to 2004-05 was 0.89%

Export contribution by agriculture—10.258% of population employed in agriculture Provides demand for other sectorsProvides raw materials for some industries.Vital for containing food inflation

ACA-TM-37 (v2.2-20-Nov-10)

Problems of the rural economy• Resource development– Land – fragmentation, low productivity, conversion– Water resources• Dry-land agriculture

– Manpower resources• Low skill levels• Low mobility/Migration• Low productivity• Non-availability

– Capital scarcity

ACA-TM-37 (v2.2-20-Nov-10)

Problems of the rural economy

• Infrastructure development– Rural roads, bridges, market yards etc.– Irrigation– Power supply– Communication network

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Problems of the rural economy

• Lack of access to financial services– Saving services– Insurance services– Remittance services– Credit services

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Policy for the rural economy

• The goal : Integrated rural development• Role of the Government – Poverty alleviation / employment generation

programmes – credit linked and others– Creating a conducive environment for development

• Role of non-governmental organisations (NGOs)• Role of financial institutions

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Rural lending - Features

• Greater dispersion of the clientele • Seasonality of rural activities • Rigidity of agricultural cycles • Small size of the transactions • Lack of borrower assets • Absence of standardized information• Greater exposure to risk

ACA-TM-37 (v2.2-20-Nov-10)

Rural credit• The multi-agency approach to rural credit

• cooperatives, commercial banks, RRBs, LAB• Credit from institutional and non-institutional sources– AIDIS 1991 • Non-institutional sources – 30.6%

– AIDIS 2002• Non-institutional sources –38.9%

• Change in policy stance since 2004– Targets given for the banks– Interest subvention for Public Sector Banks– Extended to Pvt Sector scheduled commercial banks from 2013-14

ACA-TM-37 (v2.2-20-Nov-10)

Rural credit

• The cooperatives – strength and weakness• The Commercial Banks – shift in priority ?• The Regional Rural Banks (RRBs) – establishment,

development and current position• Consolidation of RRBs

• Local Area Banks – limited role• ICT based BC model of banking

ACA-TM-37 (v2.2-20-Nov-10)

Business distribution as on Aug 2011

Category Branches Deposits Advances

Rural 37.2% 9.2% 7.5%

Semi-urban 23.7% 13.5% 9.6%

Urban 20.7% 20.7% 16.7%

metro 18.5% 56.6% 66.3%

Total in absolute terms

86,960 45,61,029 crore 33,45,169 crore

ACA-TM-37 (v2.2-20-Nov-10)

Rural credit - The commercial banks

• Lending to priority sector – Composition of the priority sector• Agriculture• MSE• Other priority sector areas

– Target and sub-targets• Agriculture – Direct and indirect• Weaker sections• MSE targets in terms of y-o-y growth

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Lending to agriculture

• Achievement of target– Shortfall in achievement • RIDF deposits• Penalty provisions

• Reasons for non-achievement of target• Focus on direct lending

• changes in PS guidelines since July 2012.

ACA-TM-37 (v2.2-20-Nov-10)

Ground level credit flow in Agriculture

2008-09 2009-10 2010-11

Agency No of A/Cs

(in lakh)

Amount

(in crore)

No of A/Cs

(in lakh)

Amount

(in crore)

No of A/Cs

(in lakh)

Amount

(in crore)CBs 202.45

(44)2,28,951

(76)205.30

(43)2,85,800

(74.3)233.94

(41)3,32,706

(74.4)Coop 178.18

(39)45,965

(15)203.92

(42)63,497(16.5)

260.17(46)

70,105(15.7)

RRBs 75.47(17)

26,764(9)

73.08(15)

35,217(9.2)

72.03(13)

44,702(9.9)

Total 456.1(100)

3,01,908(100)

482.30(100)

3,84,514(100)

566.14(100)

4,47,513(100)

ACA-TM-37 (v2.2-20-Nov-10)

Lending to agriculture

• Special Agricultural Credit Plans (SACP)(since1994-95)– Performance monitored on the basis of disbursements,

not outstanding credit– Detailed state-wise and activity-wise plans– Production credit, investment credit and indirect finance– Self-set targets for disbursement – Targets fixed by showing an increase of about 20 to 25

per cent over the disbursements made in the previous year

– Reviewed by RBI

ACA-TM-37 (v2.2-20-Nov-10)

Steps in Budget 2013-14 for promoting agriculture

Agri target for 2013-14 increased to 7,00,000 crore. Interest subvention scheme for crop loan to

continue. Interest subvention extended to SCBs in pvt sector. Matching equity grant to be provided to Farmers Producer Organisations Credit Guarantee Fund to be created in Small

Farmers Agri Business Corporation Rs 10000 crore set aside for National Food Security.

ACA-TM-37 (v2.2-20-Nov-10)

Lending to agriculture

• Opportunities– From agriculture to agri-business – the on-going

paradigm shift– High-tech agricultural projects – floriculture, horticulture

etc.– Allied activities (poultry, fishery, animal husbandry etc.)– Plantations, forestry, wasteland development etc.– Financing the entire value chain – farm to fork

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Lending to agriculture

• The issue of profitability in rural lending• Risk management in agriculture– Yield risk– Price risk– Agriculture insurance– Other measures to address risk in agriculture• Role of Futures Markets

ACA-TM-37 (v2.2-20-Nov-10)

Legal changes facilitating agricultural activitiesModel APMC Act

Warehouse (development and regulation) Act 2007

ACA-TM-37 (v2.2-20-Nov-10)

Lending to agriculture

• Innovations– Kisan credit card – Self-Help Groups – micro credit– Farmers’ Club– Joint Liability Groups

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Approach paper to 12th plan(2012-17)

• Finance PACS through CBs• Agri to grow at annual rate of 4%• Total credit requirement to be double that of during

the 11th plan.(about 8 lakh crore per annum)• Creation of rural infrastructure including soft

infrastructure.• Credit widening along with credit deepening• Aggregation methodology to take in SF/MFs

ACA-TM-37 (v2.2-20-Nov-10)

Approach paper to 12th plan(2012-17)(contd)

Investment credit to be increased by aggregation through PACS Development of soft infrastructure Increasing insurance penetration in livestock from 7 to 30% Single insurance policy for farmer covering all his assets. Enable SF/MF to take part in future market Contract farming through amendment in APMC Act Issue of no title to land of SF/MF

ACA-TM-37 (v2.2-20-Nov-10)

Other issues• Issue of mindset and motivation/ HR policy of banks• ICT in rural lending • Expanding outreach of banks in the rural sector• Sachet banking• Financing value chain• Primary production to value addition• Borrower information sharing• Technology for information dissemination• R & D activities and extension network• Water management• Legal support for recovery• Risk management• Land laws and land-leasing/absentee land lord.• Land acquisition for non-agricultural purposes

ACA-TM-37 (v2.2-20-Nov-10)

THANK YOU

For your Attention