The Reserve Bank of India’s Internal Working Group (IWG) to review agricultural credit has proposed a host of steps, including replacing interest subvention scheme with Direct Benefit Transfer (DBT) and crop loans only through kisan credit card (KCC) mode to boost and improve the reach of institutional credit even, as it asked the central and State governments to avoid loan waivers.
The IWG, headed by RBI Deputy Governor MK Jain, recommended that the interest subvention scheme be replaced with DBT to targeted beneficiaries, i.e. small and marginal farmers, tenant farmers, sharecroppers, oral lessees and landless labourers as individual borrowers or through SHG/JLG model with overall limit of Rs 3 lakh per individual farmer.
It said there is a need to address the issue of sanctioning of agricultural loans against gold as collateral. At present, such loans are not separately flagged in core banking solution (CBS) platform of banks. “Hence, banks should develop an MIS (management information system) to flag agricultural loans sanctioned against gold as collateral in CBS in order to segregate such loans for effective monitoring of end use of funds.”
In order to curb the mis-utilisation of interest subsidy, banks should provide crop loans, eligible for interest subvention, only through KCC mode, it added. “Banks should be allowed to give consumption loans to farmers up to a sanctioned limit of Rs 1 lakh under priority sector lending (PSL), provided banks are able to obtain collateral security and are satisfied with their repayment capacity based on the cash flows of the borrowers,” the IWG said.
The government should set up a federal institution, on the lines of GST Council, having participation from both the Centre as well as the states to suggest and implement reforms in the field of agriculture, the RBI group further said.
The Jain panel stated that the central and state governments should undertake a holistic review of the agricultural policies and their implementation, as well as evaluate the effectiveness of current subsidy policies with regard to agri inputs and credit in a manner which will improve the overall viability of agriculture in a sustainable manner. “Loan waivers should be avoided,” it said.
As per 2019 data, the number of operative KCCs is approximately 66.2 million and as per Agriculture Census 2015-16, the number of land holdings were approximately 145 million, which implies that only 45 per cent of farmers possessed operative KCCs. However, there may be farmers with multiple KCCs and the actual coverage may be lower.
The panel said the Centre, with the help of state governments, should develop a centralised database capturing details related to crops cultivated, cropping pattern, output, sown/irrigated area, health of soil, natural calamity, etc. “Besides, farmer-wise details like identity, land records, loan availed, subsidy given, insurance and details of crop cultivated, etc. should also be captured.”
It added that the central and state governments should set up a credit guarantee fund for the agriculture sector, on the lines of credit guarantee schemes implemented in the MSME sector. “At present, there is no database of the Indian agriculture sector due to which the planning/ policy formulation lacks effectiveness and is difficult to monitor,” it said.
Among other measures to improve the reach of institutional credit, the IWG said the Centre should push state governments to complete the digitisation process and update land records in a time bound manner. “State governments should give access to banks to digitised land records in order to verify land title and create charge online. In such states, banks should not insist on submission of land title documents.”
It recommended that states having a highly restrictive legal framework should be encouraged to reform their legal framework on the basis of Model Land Leasing Act proposed by NITI Aayog/ Land Licensed Cultivators’ Act, 2011 of the state of Andhra Pradesh so that formal lending to tenant farmers can improve.
“Aggressive efforts are needed to improve institutional credit delivery through technology driven solutions to reduce the extent of financial exclusion of agricultural households,” it said.