Restructure in Rural branches of Commercial banks

Bangalalore, Apr 09: The Chairman, Advisory Council to the Prime Minister Dr C Rangarajan has strongly called for the restructure of the rural branches of the commercial banks in the country to achieve the twin objective of improving the inflow of rural credit and also enhance productivity in agriculture.

Speaking after inagurating a National Seminar on 'Macroeconomic policy, agricultural development and Rural Institutions', organised by the Institue for Social and Economic Change in honour of Prof A Vaidyanathan a renowned economist, here today, Dr Rangrajan said that the commercial banks, the major sources for agriculture credit in the country must go beyond providing credit and extend a helping hand in terms of advice on a wide variety of matters relating to agriculture.

He said that as in micrro-finance, rural credit was all about credit plus services by the banks and the agricultural officers must provide services that will help in making agriculture an integrated activity with appropriate backward and forward linkages through providing farm advisory services. He said that for the last 15 years there was a rapid expansion about the flow of credit into agriculture and it was raised from rupees 5402 crore during 1991-92 to 14,467 crore in 1996-97 to an whopping 60,022 crore in 2003-04 with an compound annual growth rate of 22.2 per cent by both commercial banks and RRBs put together. Between 1991-92 and 1996-97 credit flow increased by 2.67 times and between 1996-97 and 2001-2002 by 2.65 times, despite this increase the target set to achieve 18 per cent of net bank credit into agriculture was not yet fulfilled, he regretted.

He said that the targets for credit flow were introduced at a time when the preemption of deposits in the form of reserve requirements was very large. The number of accoutns in direct advances to agriculture by commercial banks at the end of March 2004 showed a decline of more than six lakh accounts as compared to the number of such accounts by the end of March 1995.

He said that the formulation of any strategy for providing credit acess to small and marginal farmers must recognize the fact that the market for rural credit was not a single market. The rural credit market is a differentiated or segmented one with the small and marginal farmers with different needs and priorities at one end of the spectrum and the large farms with a commercial orientation at the other end. Provision of credit for commercial agriculture was not different from poviding credit to the industry and the provision of credit to farmers with a surplus was also of a similar nature. Commercial banks in particular should have no hesitation in providing credit to those segments where normal calculations of risk and returns apply.

Favouring to have special attention towards small and marginal farmers and persons with low income while providing credit, he said that the banks should also take into consideration about the facts that that these groups generally do not have the necessary capabilities to deal with organized credit institutions including providing collateral securities to offer. The strageties for meeting the credit requirements of the small and marginal farmers will have to be thought in terms of policies, credit develiery mechanism and credit products, which meet the requirements of this segment of the rural credit market. While evolving such strategies, the composite needs of these groups of farmers such as credit, technology, input supplies, market information and consumption, need to be taken into account, he said.

While emphasising that the banking was about financial intermediation and managing risks he said that the banker has to minimise his risks by building up the capabilities and skills of the farmer to operate viably in a risky environment through an appropriate coping mechanism. He said taht a cricital factor required for providing credit to marginal and sub-marginal farmes was the empathy of the bank officer who needs to build a relationship banking with his clientale. The rural lending requires a specific type of organizational ethos, culture and attitude and the rural branches of the commercial banks have to be function as farmers friendly as in micro-finance 'Rural credits was all about credit plus services by the bank.

Dr Rangarajan felt that the agricultural officers must provde services that will help in making agriculture an integrated activity with appropriate backward and forward linkages through providing 'Farm advisory services'.

While recalling the model of agricultural development branches and farm clinics existed and promoted during Green Revolution period which had agricultural experts attached to the bank branches to offer advice to the farmers Dr Rajgarajan said that such mechanism are need to be revived now. He said that such models were yielded rich devidends in achieving the country to reach self sufficiency in food production besides empowering the farming community. These models were not not pursued vigorously later in the hope that such advice and help would come from state governments thourh their extension agencies, which did't happened, regretted.

While acknowledging that such a beginning has been made by some of the commercial banks in this regard through campus recruitment of agriclutural graduates, he said that'the personal policies of these banks need to be tailored to meet the career aspirations of these recruits so that they do now switch over to the general banking services as had happened in the past'. ''The restructuring of rural branches required focussed attention'' he said.

Dr Rangarajan said that the linkage model of the micro-finance programme promoted by NABARD could be thought for replication for extending more credit to the marginal and sub-marginal farmers. Groups of marginal and sub-marginal farmers could act as joint liability groups, serving as a collective guarantor for the loans extended by banks through executing joint liability agreements making them severally and jointly liable for the repayment of loans. A pilot project in this regard was under implementation in seven states in the coutry, he said.

The banks can also use Civil Society Organizations (CSO) including NGOs, Farmer Clubs, SHGs or corporates engaged in rural development as part of their social responsibility outside the formal banking system as vehicles for agricultural credit delivery.

He said that in a recent report the Reserve Bank of India has pointed out that this kind of approach can be operationalised under two models, the 'Business Facilitator' and the 'Business Correspondent' model. The business facilitator model involves banks reducing their transaction costs by outsourcing to an existing institution and person, the whole gamut of functions relating to identification of borrowers and processing of loans. The business correspondent model is a further extention of the facilitator model where the intermediary also taken on the functions of credit disbursal and recovery. Eventhough outsourcing some of the banking functions has its own risks this approach merits further consideration, and the use of such intermediary organisations must supplement and not substitute banks own initiatives to provide credit to farmers, he said.

Dr Rangarajan also felt that the credit had to be an integral part of an overall programme aimed at improving the productivity and income of such farmers. Placing an appropriate credit delivery system to meet the needs of marginal and sub-marginal farmers must go hand in hand with efforts to improve the productivity of such farm households, he said.

UNI