RBI directs banks to liberalise farm credit

Banks need to delegate adequate powers to branch managers to enable disposal of 90 per cent of loan applications at the branch level, including modification of powers at the branch level, if the pattern of lending so warrants, RBIsaid in a release here today.

They would have to ensure that pre-sanction appraisal of the borrower focusses on income stream of the borrower, his credibility, his capability for taking up the activities proposed, integrity and technical viability of the proposal and desist from asking for additional collateral by way of guarantors where the land mortgaged is considered adequate.

The committee headed by the central bank deputy governor R V Gupta was constituted in December 1997 and it submitted its report on April 27, 1998. RBI has urged banks to design specific loan products to borrowers in non-farm sector for enabling them to pursue a number of non-agricultural activities alongside their farm activities for supplementing their income.

Banks have been asked to consider designing a fully liquid savings module with an appropriate return and in-built the same in the loan product which will take care of farmers’ interests in the event of adverse price fluctuations or natural calamities. “Banks would haveto use discretion on matters relating to margin/security requirements for agricultural loans above Rs 10,000,” RBI said.

ReserveBank said it is referring to government of India the recommendations of the committee which require consideration of the union and state governments, viz., abolition of stamp duty for agricultural advances, matters relating to mortgage of land, subsidy related credit, etc.It has already requested Indian Banks’ Association to work out simplified application forms, documents, etc, for agricultural loans and rationalisation of internal returns of banks. Chairmen and managing directors of banks have been urged to pay surprise visits to their rural branches during tours to states which will send appropriate signals to the field level staff.

“Internal inspection teams must visit a few service area villages and obtain a feedback from farmers directly on the quality of interaction which the branch officials have at the ground level,” RBI said. Besides, banks would have to furnishborrowers with a clear statement of the credit facilities availed indicating separately various fees and charges for introducing transparency, it said. Banks should consider giving weightage to the performance appraisal system to increase the number of new clients, incremental increase in flow of credit and loan recoveries and evolve incentives to motivate the staff.

Banks have been asked to ensure operationalisation of a model set of documents prescribed by the working group on NGOs and self help groups (SHG) relating to loan formats, agreements and application forms and ensure that the farmers are given right advice regarding cultivation of crops or inputs to be used.

The central bank has asked banks to link up the activities of the rural branches with farmers clubs established with the initiative of Nabarad to facilitate technology transfer regarding agricultural operations, wherever possible. “Banks should review hi-tech agricultural branches to identify those that are not working well due toinadequate expertise or lack of demand and also ensure that these branches are used to disseminate information relating to agricultural operations specially for providing technical information regarding cultivation of high value crops,” RBI said.

Minister of State for Agriculture Sompal had recently said in the parliament that the two banks have also been asked to waive off loans advanced to weaker sections wherever necessary. He admitted that the flow of credit to farmers had not been good, forcing the farmers to take loan from money lenders who charged exorbitant rates of interest.

According to one MP, over 400 farmers had ended their lives in various parts of the country and these were not localised deaths as the affected areas included Punjab, Haryana, Karnataka, Maharasthra and Andhra Pradesh.