To address the risk in lending to the agriculture sector, an RBI committee has recommended the establishment of Agriculture Credit Risk Guarantee Scheme for small and marginal farmers.
The scheme, to be on the lines of the Credit Guarantee Fund Trust for Small and Medium Enterprises, has been envisaged as there is perceived risk in bank lending to small and marginal farmers. These farmers operate in small fragmented holdings and are unable to meet adequate collateral requirement of domestic commercial banks.
The income of small and marginal farmers is also prone to a number of unforeseen factors such as weather, diseases and market conditions, including high price uncertainty.
The scheme will be for the purpose of guaranteeing credit facility/facilities extended by scheduled commercial banks to the eligible borrowers. The corpus for the scheme should be contributed by the Government and any fee collected as premium from member banks should also form part of the corpus.
The Government should appoint an appropriate institution as ‘operating agency' for the scheme, which will be operational initially for a period of five years as a pilot. Based on its track record, the scheme could be extended and considered also for coverage of larger size credits.
Under the scheme, guarantee will be for an amount up to 75 per cent of the principal amount of credit facility extended by the lender per borrower.
The fee payable by the lender to the operating agency should be fixed in alignment with the premium being charged by the Agriculture Insurance Company of India under the National Agricultural Insurance Scheme.