Farm credit industry has seen transformation, but changes are on the way
Despite RBI stipulation of 18% of net bank credit to be extended to agriculture under priority sector, lending has failed to reach the target is more common. There has recently been a paradigm shift in policy from sectoral to segmentational emphasis based on financial inclusion of the disadvantaged section of farmers. Financial inclusion defined in terms of making available at affordable prices the essential financial products such as savings, credit, insurance products, is now the major focus. RBI in January 2006 permitted banks to utilize the services of NGOs, MFIs and Civil Society Organisations as intermediaries in providing financial and banking services through the use of Business Facilitator (BF) and Business Correspondent (BC) models. The BC model allows banks to do “cash in cash out” transactions at a location closer to rural population. National Bank for Agriculture and Rural Development (NABARD) has been actively promoting financial inclusion with the help of its twin funds viz. the Financial Inclusion Fund and the Financial Inclusion Technology Fund.
Introduction of prudential norms in 1990’s and interest rate deregulation placed utmost importance on sound banking practices. Recapitalisation of commercial banks and RRBs in 1990s and the on-going recapitalisation of co-operatives are attempts towards destressing these banks. With ongoing implementation of recommendations of the Vaidyanathan Committee, many co-operatives will be revived. The amalgamated RRBs are likely to bounce back. The on-going process of structural transformation of farm credit industry characterised by differentiated lending agencies will ensure food security and rural prosperity in the immediate future.
Despite RBI stipulation of 18% of net bank credit to be extended to agriculture under priority sector, lending has failed to reach the target is more common. There has recently been a paradigm shift in policy from sectoral to segmentational emphasis based on financial inclusion of the disadvantaged section of farmers. Financial inclusion defined in terms of making available at affordable prices the essential financial products such as savings, credit, insurance products, is now the major focus. RBI in January 2006 permitted banks to utilize the services of NGOs, MFIs and Civil Society Organisations as intermediaries in providing financial and banking services through the use of Business Facilitator (BF) and Business Correspondent (BC) models. The BC model allows banks to do “cash in cash out” transactions at a location closer to rural population. National Bank for Agriculture and Rural Development (NABARD) has been actively promoting financial inclusion with the help of its twin funds viz. the Financial Inclusion Fund and the Financial Inclusion Technology Fund.
Introduction of prudential norms in 1990’s and interest rate deregulation placed utmost importance on sound banking practices. Recapitalisation of commercial banks and RRBs in 1990s and the on-going recapitalisation of co-operatives are attempts towards destressing these banks. With ongoing implementation of recommendations of the Vaidyanathan Committee, many co-operatives will be revived. The amalgamated RRBs are likely to bounce back. The on-going process of structural transformation of farm credit industry characterised by differentiated lending agencies will ensure food security and rural prosperity in the immediate future.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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