For better credit distribution to farmers, Reserve Bank of India need to relook India’s agriculture banking model. Do you agree with this view? Comment (200 Words)
Refer - Financial Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 4 years
KEY POINTS
· Credit is about risk distribution, expertise to improve availability and margins.
· Governments adopted a policy of pushing credit into ‘priority sector’ with sluggish outcome and diversion of credit.
· Instead of pushing and forcing PSBs to lend to the rural sector, the policy has to make lending attractive, and the only way is to allow specialised agriculture banks.
· Corruption and the absence of systemic credit risk assessment, , especially to corporate borrowers, has resulted in an NPA pile-up.
· The agriculture sector also has high NPAs and suffers from poor growth. Nabard, the nodal agency for agriculture banking, claims that in FY20, banks disbursed Rs 13.73 lakh crore as ground-level credit to agriculture, surpassing the government’s target of Rs 13.50 lakh crore.
· Interest subvention scheme was introduced in 2006 to provide crop loans at 7% interest, and 4% for those who paid back their loans regularly.
· Micro-finance institutions and money lenders rates range between 18 and 36%. However, this has led to diversion for non-agriculture purposes.
· The diversion of agri-credit to non-agricultural purposes can be estimated by looking at agri-credit as a percentage of the value of input requirements
· If PSBs are not following directives of PSL, if most of the funds are getting diverted to RIDF and Nabard, and if farmers continue to borrow at high-interest rates, it is time that RBI looks at differentiated banking licences for the agriculture sector.
Dev 4 years
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IAS Parliament 4 years
Avoid listing out points, try to mention about need to relook the banking model. Keep Writing.
