Agriculture and Priority Sector Lending

NITI Aayog presented its report to parliamentary standing committee on agriculture which mentions “Only 30-40% of the total loans distrusted under priority sector landing (PSL) are received by small and marginal farmers”

The possible region behind this are

1. Banking facing NPA and recovery problems

Small and marginal formers usually take credit generally to meet their short term demand like a) Social ceremonies – Marriage funerals or for paying old loans. These are not taken for any capital investment. This results into high Non-performing Assets and difficulty in Recovery.

1. Increase work burden

Banking staff particularity finds it difficult to regularity arranges pre and post sanction loan visits to interior and remote regions.

1. Political, Social and Target pressure.

Banking staff has to meet loan disbursal targets within a tabulated tenure therefore they prefer easily available PSL customers. The borrowers having political or social reference get loan vs small and marginal farmers.

1. Cost of lending

Entire cost of lending inclusive of logistical cost transportation cost etc. with respect to small and marginal farmers residing in remote village is high. Therefore Bank prefers it to lend urban wealthy farmers.

What can be done

1. Usage of technology can reduce cost of lending in rural areas.
2. More numbers of Bank Mitras (similar to Mobile ATMs) can be employed to reach out to small farmers
3. Institutions such as Post office, Common services centers can be effectively utilized to disburse loan.