The goal of Union Government to double the flow of farm credit in three years [2004-05 to 2006-07]was achieved in two years. Actual flow of credit during the year 2006-07 is expected to exceed the target of Rs.1,750,000 million set for the year by Rs. 150,000 million. During April to December 2006, around 5,337,000 new farmers, as against target of five million, were linked with the institutional credit system. For the year 2007-08, target of farm credit disbursement has been fixed at Rs.2,250,000 million[28.6% over target of 2006-07] and an addition of five million new farmer-borrowers.

Performance of public sector banks in particular, alongwith their sponsored RRBs, has indeed been satisfactory in increasing flow of credit to farm sector, improving recovery and containing overdues & NPAs. Their involvement in financing weaker sections of the society and beneficiaries under Differential Interest Rate scheme & Government sponsored programs [ SJGRY &PMRY] has also improved. However,the share of institutional credit declined to 57% in 2001 as compared to 64% in 1991. Moreover, debt sourced from money lenders, the very informal agents the institutionalization of credit was designed to replace, increased in overall share of rural debt from nearly 18% in 1991 to nearly 30% in 2001. According to recent Survey, formal institutional credit provision in India now accounts for just 27% of total cultivator debt, & that this reduces to just 20% if data for the five States reporting the highest proportion of fromal rural debt are removed. Moreover, nearly 90% of households reporting no debt, either formal or informal are headed by small & marginal farmers suggesting institutional –rather than self-exclusion. Intriguingly, Andhra Pradesh, the State with the highest concentration of SHGs, MFIs & banks, reports the highest proportion of rural non-institutional debt [nearly 73%] and the highest proportion of rural money lender debt [nearly 57%] for all States in India, according to All India Debt & Investment Survey, 1991 & 2001. It is in this context an attempt is made here to analyse the data on the performance of banks, more importantly public sector banks, & appreciate the immediate need to create enabling environment that can facilitate banks to [i] expand outreach especially in remote locations to cover small/marginal & tenant farmers, share croppers, oral lesees, landless labourers and households residing in dryland, desert, drought prone, hilly & tribal areas of the country [ii] understand the new & diversified demand for rural financial products & services emerging in the changed rural socio-economic scenario & meet them [iii] introduce improvements in operational management, inter alia, HRM & Training policy for rural areas; reducing transaction costs & mitigating portfolio risk on a continuing basis and [iv] pursue rural finance research & development tasks.

Table No.1

Farm Credit Disbursements by Cooperative, Commercial & Regional Rural Banks

                                    [ 2001-02 to 2005-06]                                                                            Rs. in Million

Figures in brackrt indicate % share to total * Provisional figures

Farm credit disbursements progressively increased from Rs. 620,450 million in 2001-02 to Rs. 1,574,800 million in the year 2005-06 reflecting rise by 153.8%. Commercial banks & RRBs recorded phenomenal rise by 216% & 189% respectively as compared to 58% by cooperatives. While there has been progressive rise in each successive year in case of cooperatives, commercial & regional rural banks, there has been spectacular increase during 2004-05 & 2005-06 in respect of commercial banks & RRBs. The share of cooperatives in the total disbursements of short-term & long-term credit progressively declined from 37.9 per cent in 2001-02 to 23.65 per cent in 2005-06 whereas that of commercial banks recorded progressive increase from 54.13 per cent to 67.41per cent during the corresponding years. RRBs accounted for 7.82 per cent in 2001-02 which progressively rose to 9.91 per cent in 2004-05 but declined by one percentage point in the following year. Agriculture credit flow for the banking system as a whole during 2005-06 has surged to Rs 1,804,860 million, reflecting 128 per cent of the target of Rs 1,410,000 million that was set for that year.

Table No.2

             Flow of Farm Credit during April to December 2005 & 2006                                      [Rs. In Million]

Figures in brackets indicate percentage share in the total.

Figures in bracket with * indicate percentage increase during April-December’06 over April-December’05

Agriculture credit flow target for 2006-07 had been pegged at Rs 1,750,000 million. However, for the fiscal year 2006-07, agriculture credit up to December 2006 stood at Rs 1,493,430 million which  represented a 25.38 per cent increase over the achievement of Rs 1,191,150 million recorded in the same nine-month period in the previous year. Agriculture credit flow during April to December 2006 from public sector banks grew by 25.91 per cent to Rs 868,650 milion from Rs 689,910 million  during the corresponding period in the previous year. In case of private sector banks, it increased  by 40.90 per cent to Rs 141,340 million  from Rs 100,310 million. While  cooperative banks recorded increase by 14.60 per cent from Rs. 289,470 million to Rs 331,740 million during the  period, the RRBs showed increase by 36.10 per cent from Rs. 111,460 million  to Rs 151,700 million. Share of public sector banks in the total disbursement during April-December’06 accounted for as high as 58 per cent folowed by cooperative banks at 22 per cent where as RRBs & private sector banks had almost equal share of  10 & 9 per cent respectively.

 Table No.3

Priority sectors & Agriculture Outstanding Credit by Public Sector & Private Sector Banks

[31st March, 2000 to 31st March,2006] Rs. in Million &

Figures in bracket indicates % to Net Bank Credit

During the seven year period from 2000-2006 public sector banks’ outstanding credit to priority sectors
increased by 221.9% from Rs.1,274,780 million as on 31st March, 2000 to Rs. 4,103,790 million as on 31st March’06, whereas that of private sector banks shot up by 480.2% from Rs. 183,680 million to Rs. 1,065,660 million during the corresponding period. Priority sector advances of public sector banks as group accounted for over 43% of net bank credit in four years as against the target of 40% which, however, declined from 42.8% to 40.3% in three years. In this respect, private sector banks as a group had less than that of targeted 40% during initial three years but they showed impressive performance [42.8% to 47.3%] in the following four years.

Agricultural advances of public sector banks during the period rose by 242% from Rs. 452,960 million to Rs. 1,549,000 million whereas that of private sector banks increased significantly by 799% from Rs. 40,230 million to Rs. 361,850 million during the period. Share of agricultural advances in the net bank credit by public sector banks ranged between 14.3% & 15.7% whereas that of private sector banks varied from 8.3% to 14.2% during the period. Neither public sector banks nor private sector banks as a group could achieve targeted agricultural credit of 18% of net bank credit.

During 2005-06, all public sector banks [except State Bank of India (SBI) and State Bank of Patiala] were able to meet the priority sector target of 40 % of net bank credit in 2005-06 & only 10 public sector banks met the 18 % sub-target for agriculture. None of the private sector banks could meet sub-target for lending to agriculture.

Table No.4

Banks’ Outstanding Loan to Weaker Sections & NPA Status as on 31^st March’06  [Rs. in Million]

All banks’ outstanding loan to weaker sections of the society as on 31^st March’06 amounted to Rs. 1,045,768.9 million with NPA amount of Rs. 88,172.6 million accounting for 8.43 per cent of outstanding loan. Only eight banks in the public & nationalized sector could achieve the stipulated target of 10% of net bank credit, whereas  none of the old & new private sector banks could meet the target. 

While 19 nationalized & nine public sector banks as a group had 8.17% & 8.45% NPAs, respectively, eight  old & 20 new private sector banks as a group had higher percentage of NPAs at 11.3% & 9.43% respectively.

Table No.5

Targets & Achievements under Service Area Credit Plan &

Recovery of Direct Agriculture by Public Sector Banks during 2000-01 to 2005-06 [Rs. in Million]
        

Figures in brackets under Achievements indicate % achievements of targets

Figures in brackets under Recovery indicate % recovery to demand & under overdue indicate % overdue to demand

Rural & Semi-Urban branches of each of the public sector banks have been alloted Service Area comprising specified number of villages, since April, 1989. Each branch is expected to formulate Service Area Credit Plan every year for the purpose of providing credit to the rural households. This micro level credit planning exercise should help the bank to progressively bring within its fold all eligible house holds for providing credit & related services. In the ultimate process this exercise should prove to improve quality & productivity of lending. RBI has since the year 1994-95 has advised public sector banks to ensure 25% annual growth rate in the matter of disbursement of credit in their Service Area. Accordingly, the data presented in the above Table showed that annual growth was between 12.5% and 24.% during 2000-2001 to 2003-04. The growth was spectacularly high at 54.5 during 2004-05 which, however, declined to 44.6% in the following year. Disbursements of credit as against targets ranged from 92.1% to 117.3% during the six year period. Achievements were higher than 100% only in the last two years. This is attributed to Finance Minister’s directives to double the farm credit disbursement in three years effective from April, 2004.

Public sector banks recovery to demand under direct agricultural advance was 69.3% during the year 2001 which gradually increased during following three years. It, however, phenomenally rose to 84.1% in the year 2005. During the five year period the demand , loan amount to be recovered & percentage of recovery to demand have progressively increased in the successive years whereas over due amount has increased until the year 2004 & then it steeply declined by Rs.29,620 million in the following year.
As on 31st March’05 aggregate recovery of 196 RRBs was 79.8% and that of 20 State Cooperative Agricultural & Rural Development Banks [SCARDBs] was 43.7%; 727 Primary Cooperative Agricultural & Rural Development Banks [PCARDBs] at 50.6%, 31 State Cooperative Banks [SCBs] at 83.47% & 367 District Central Cooperative Banks[DCCBs] at 71.23%.

   Table No.6 

 Number of Self-Help-Groups & Credit Disbursed by banks during 2004-06  [Rs.in Million]

Fogures in brackets indicate % share in the total

As reported under the NABARD-GTZ Rural Finance Program, at around 98 % on time repayment to the SHGs is reported to be very high. As on March’06 the number of SHGs stood at just over two & quarter million , of which over one & a half million had outstanding bank loans. Even with this huge number of SHGs it is estimated by the Committee on Financial Inclusion that the number of SHGs will have to be doubled to