Banking system ready to facilitate rural growth: RBI Governor

Hyderabad, Dec 16 (UNI) Sharing the concerns of Prime Minister Manmohan Singh to redress the weakness in the agricultural sector, Reserve Bank of India Governor Y V Reddy today said the RBI and the whole of banking system stood in readiness to serve the worthy cause of ensuring development of rural-agrarian economy by integrating it with vibrant services and manufacturing sectors.

''The financial sector as a whole, and banking system in particular may have to consider paradigm shift in strategies and processes consistent with new thinking as urged by the Prime Minister and the National Development Council,'' he observed while delivering the first Samajit Ray Memorial Lecture here.

Noting that the farm sector was in a ''deep crisis'' due to public investment, credit deficit, infrastructure deficit, market deficit, economy deficit and the knowledge deficit, he said ''agriculture development has to be led by ensuring commercial viability which has to be enabled by an appropriate credit system.'' ''In other words, credit can be a substitute for longer-term commercial viability only if a price is paid in the financial sector and fiscal sector. At the same time, costly or inadequate credit system may constrain growth and commercial viability'', he explained calling for an enabling fiscal policy by targetting the poor for subsidy, enhancing public investment while encouraging private investment that would benefit the rural economy.

Perhaps to make agriculture commercially viable, costs and benefits of continuing with existing allocation of resources for subsidising water, power and fertilizers need to be assessed vis-a-vis bestowing focussed attention to provide funds for risk mitigation, investments for enhancing supply, ensuring quality and rationalising availability.

Mr Reddy opined that trade policy, both domestic and external should facilitate commercialisation of agriculture and thus, enhance scope for investments. ''Restrictions to trade within the country at a time when economy is opening up, may, at times, be less than optimal'', he cautioned.

Lamenting that savings in rural areas and agriculture were now transmitted by the banking system to urban areas and for want of commercially viable avenues in rural areas, he urged banks to improve risk assessment, pricing and credit disbursement procedures on an urgent basis.

He called for mechanisms for risk mitigtion in case of natural calamities to make credit disbursal less risky.

Observing that fiscal support to industry was called 'incentive' while similar support to agriculture is called 'subsidy', he underscored the need for institutional arrangements and incentive framework that would facilitate attitudinal changes.

UNI SM PKS KN2011