While it hopes to wrest the farm vote with its generous loan waiver scheme, a ground-level study of the UPA?s original flagship programme of doubling credit to farmers has revealed that though banks met their financial targets, the number of farmer accounts did not rise commensurately. Moreover, large farmers benefited far more from the scheme than small & marginal ones.
Alarmed at the mismatch between farmer accounts and the increase in credit disbursal, former finance minister P Chidambaram had, in January 2008, asked the country?s nodal agency for farm credit, National Bank for Agriculture & Rural Development (Nabard), to get to the bottom of the phenomenon. Submitted to the Centre recently, the Nabard study found ?notable inter-agency and inter-district variations? in credit doubling.
While doubling farm credit over three years, commercial banks were asked to bring in their fold at least 100 new farmers by each branch. But the study found that neither the guidelines for the ?mission-mode? scheme nor the management information system (MIS) in banks had any precise definition or provision for recording new farmers or new accounts.
In some states like Tamil Nadu, banks treated an existing borrower opening a new bank account for a fresh loan as a new loan. Nabard had proposed a new MIS, which seeks to streamline many of the infirmities in the current system. But though the agency had sought RBI approval for the new MIS in April 2007, the central bank is yet to issue operational guidelines.
According to RBI data, institutional credit flow to farmers registered a compound annual growth rate of 47% between 2003 and 2007, but the number of farmer accounts grew by 22.15% and average loan per account increased by 20.15%. The doubling of credit scheme was introduced in 2004-05 and closed in 2007.
The largest increase in lending came from commercial banks, which traditionally failed to meet their farm sector lending targets. ?We find that commercial banks performed better than other types of banks across states, with cooperative sector banks faltering in most states. Across states, there has been a shift in clients from cooperative sector to commercial banks,? the Nabard study found.
It was conducted in select districts of Uttar Pradesh, Maharashtra, Tamil Nadu, Rajasthan and Madhya Pradesh. Poaching existing clients from cooperative and regional rural banks may have helped commercial banks meet their financial target, but didn?t expand the number of farmers with access to formal credit. In fact, a key element of the doubling credit scheme–redeeming farmers? informal debt–failed to deliver. Describing the performance on this count as ?lacklustre?, the study notes that while bankers found it difficult to identify such farmers, farmers found it difficult to comply with their paperwork.
Another reason for the number of farmer accounts declining while disbursals rose is that from 2005-06, banks began treating each withdrawal from a Kisan credit card as a fresh disbursement (irrespective of the limit sanctioned). Thus, total disbursements rose in the scheme?s final two years without issuing any fresh loans to new borrowers.
According to the latest data, only 27% of cultivator households get formal credit. The rest, comprising mainly small & marginal farmers, have no access to credit, though their landholdings constituted nearly 80% of total holdings and 36% of area.
Mooting a uniform reporting system for ?new farmers?, the study has stressed the need to orient agriculture credit policies in a manner that is more conducive for small & marginal farmers, tenant farmers, share croppers and oral lessees to access credit from formal institutions.