RBI increases collateral-free farm loan ceiling 60% to Rs 1.6 lakh

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New Delhi | Updated: February 8, 2019 3:26:39 AM

RBI proposes to set up an internal working group to review various issues plaguing farm credit

RBI, marginal farmers, interim budget, PM kisan scheme, agricultural loans, inflation, nabardThe RBI also proposed to set up an internal working group to review various issues plaguing farm credit, such as regional disparity, extent of coverage and limited capital formation from such credit.

Prabhudatta Mishra

The Reserve Bank of India (RBI) on Thursday decided to join the government in offering some relief to small and marginal farmers by raising the limit of collateral-free agricultural loans to Rs 1.6 lakh from Rs 1 lakh. The RBI also proposed to set up an internal working group to review various issues plaguing farm credit, such as regional disparity, extent of coverage and limited capital formation from such credit.

Seeking to alleviate farm distress that was blamed for the BJP’s recent electoral reverses in Madhya Pradesh and Rajasthan, the Interim Budget last week announced a cash transfer of Rs 6,000 a year to each small and marginal farmer under the PM-Kisan scheme. The current limit of collateral-free farm loan of Rs 1 lakh was set in 2010. The latest move enhances the limit factored in “the overall inflation and rise in agriculture input costs since then”, the RBI said. “This will enhance coverage of small and marginal farmers in the formal credit system,” it added.

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A circular for this purpose will be issued shortly, the central bank said. As many as 86% of farmers are small and marginal, according to agri census for 2015-16. Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices and current professor for agriculture at ICRIER,said: “It is a step to facilitate better access to institutional credit, especially for tenant farmers.

However, its progress needs to be monitored closely so that undeserving elements do not take undue advantage of it, creating a surge of NPAs in agriculture.” Farm credit disbursed by banks and cooperatives jumped almost four times, from Rs 3.01 lakh crore in 2008-09 to Rs 11.63 lakh crore in 2017-18. In 2018-19, such credit is expected to touch Rs 13 lakh crore, against the target of Rs 11 lakh crore. While a Nabard study suggests 64% farmers are outside the ambit of institutional credit (who will remain deprived of the relief offered by the RBI), experts have also been pointing out the suspected massive diversion in farm credit. According to official data, in many states fresh agricultural loans in a year were much higher than the estimated value of crop output in that year, clearly indicating that much of the funds don’t really go into farming.

In 2015-16, the latest year for which state-wise value of crop output is available, farm loans of Rs 1.05 lakh crore were disbursed in Tamil Nadu, 14% higher than the estimated value (at current prices) of the state’s crop in the year. Similarly, farm loans in Punjab and Kerala were 19% and 37% higher than the value of their crop output in 2015-16.

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