Samal panel may call for scrapping 18% loan target

The Samal Committee on rural credit is likely to recommend scrapping of the 18 per cent agricultural lending target of banks laid down by R...

The Samal Committee on rural credit is likely to recommend scrapping of the 18 per cent agricultural lending target of banks laid down by RBI. The committee, set up by the Indian Banks’ Association (IBA) on the suggestion of Ministry of Finance, is currently busy in finalising its recommendations. The committee is chaired by Allahabad Bank’s chairman and managing director Dr B. Samal.

“The RBI norm of a minimum 18 per cent agricultural lending target out of net bank credit has no relevance in today’s scenario”, a source who is a member of the committee said. He added: “The share of agriculture in country’s gross domestic product has been falling, and likewise, credit demand from the agri-sector is experiencing a matching fall”.

It may be recalled that the share of agriculture and allied activities in GDP was 24 per cent as on end-March 2001, down from 24.3 per cent in end-March 2000 level. The committee is also weighing the idea of deregulating interest rates on farm-loans. Pertinent to note here is that the R.V. Gupta committee on agriculture credit in 1997 also favoured allowing banks to fix interest rates on agricultural loans up to Rs 2 lakh and offer finer rates to borrowers with a good track record. At present, the RBI regulates the rates on loans up to Rs 2 lakh.

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Banks are finding it hard to match the 18 per cent target because of the fact that the base (net bank credit) has been growing faster due to large deployment of credit to the corporate sector, while agriculture is not able to keep pace with the increasing credit portfolio of banks.

Outstanding agri-lending is also low because the substantial portion of the advances are seasonal and crop-based, which is got repaid at the end of the crop season.

Bhavish Aggarwal (Photo via his Twitter page)

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