There is a trend of actual loan disbursements to the farm sector outstripping the liberally hiked annual targets year after year.
Yet agrarian distress and farmers’ dependence on moneylenders are showing no signs of easing.
What is the concern?
The total credit flow has surged over 10-fold since the early 2000s.
Institutional credit to the farm sector is set to exceed the target of Rs 10 trillion for the current year.
However, nearly 40% of rural credit demand is still met by the informal sector, including commission agents and moneylenders.
Clearly, the purpose for which institutional credit to the farm sector was stepped up steadily has not been served adequately.
Interest subvention by the government has resulted in cheaper bank credit.
However, it is not reaching the small and marginal farmers due to poor targeting and large-scale diversion to other destinations.
How is the credit distribution scenario?
Credit scale - The proportion of loans of less than Rs 200,000 which normally go to genuine farmers has been over 90% in the 1990s.
This proportion has now shrunk sharply to less than half.
Contradictorily, the share of larger loans of up to Rs 10 million and more has surged.
Time - Besides, roughly about half of the total farm credit is disbursed between January and March.
But this is when farmers’ loan requirements are the least with rabi sowing already over and kharif planting being months away.
Farmers - Nearly a fourth of direct agricultural lending is accounted for by banks located in semi-urban, urban and metro towns.
Frequent farm loan waivers have marred the loan repayment culture in rural areas.
Evidently, banks find it much safer and convenient to lend to agri-related enterprises rather than to the more risk-prone farmer.
Highly subsidised agricultural loans are thus largely reaching only the non-farmers or the same set of farmers with good repayment record.
Cooperative credit sector - Non-performing assets of the primary cooperatives and the agricultural and rural development banks have risen to 37% by the end of 2015-16.
Political interference in the day-to-day functioning of these bodies is adding to their woes.
Also, many of the CEOs in these have non-banking background which is contributing to the overall failures of cooperative banks.
What lies ahead?
The finance ministry has sought a fresh assessment on the health of the cooperative credit institutions.
The report, ahead of the forthcoming Union Budget, from the National Bank for Agricultural and Rural Development (NABARD) should help the Centre reorient its strategy.
The issues confronting the cooperative and the commercial banking sectors need to be addressed.
This is essential to ensure better targeting of agricultural lending to make meaningful the quantitative increase in farm credit.
