New Delhi, February 28 Farmer Producer Organisations (FPOs) and land lease markets need to be developed in the country so as to enable farm credit to the small and marginal farmers, said Nabard CGM Niraj Kumar Verma on Friday.

Stressing that credit is a powerful tool in the agriculture sector, he pointed out that only 45 per cent of the small and marginal farmers are covered under institutional credit out of the 85 per cent belonging to that segment. Referring to trends in farm credit, he said 75 per cent of such credit goes through commercial banks, 12 per cent by cooperative banks and 13 per cent through RRBs; RRBs and cooperative banks have taken a backseat and stay away from extending credit to farmers. This is a very serious issue, and has to be taken care of very intensively to get maximum support for the small and marginal farmers.

Verma was delivering a presentation on ‘Access to farm credit for small and marginal farmers- the way forward’ at the BusinessLine Agri Summit here.

Financing issues

The declining size of land holdings, fragmentation of land ownership, reluctance on the part of banks to finance small and marginal farmers on account of high transaction and monitoring cost are some of the challenges being faced in the farm credit segment.

Lack of proper records offering small holders are hindering the access to proper credit due to absence of collateral. Increased share of tenant farmers, the notion of high NPAs, which is not supported by any data, are also problematic.

Nabard has started assisting small and marginal farmers as a last mile option for finance through self help groups (SHGs). The introduction of the Kisan Credit Card in India is a revolution in agriculture credit, which has had a cascading effect on farmers.

Priority sector lending

According to Verma, the share of agriculture credit in the eastern region is poor with regard to the gross cropped area of small and marginal farmers and area under tenancy, which is much high in eastern States compared to national figures.

He suggested that the increase in size of large loans, inclusion of dealers, food processing companies in priority sector lending may help.

High coverage of small and marginal farmers under priority sector lending, aggregation of farmers, digitisation of land records, use of technology, infrastructure development by focussing on building an agri value chain, diversification of agriculture etc are some of concepts that can provide a way forward in farm credit.

Related Topics