The Government’s bid to push more credit to the farm sector appears to have had unintended consequences — bad loans of banks have increased.
During 2004-12, the gross non-performing assets (NPAs) or bad loans ratio in the agriculture sector was higher than the corresponding ratio in the non-agricultural sector, except during 2009 and 2010, said Reserve Bank of India Governor, Dr D. Subbarao.
The higher NPA ratio was partly due to the implementation of the agricultural debt waiver and relief scheme in 2008-09, the Governor said in his speech at Nabard’s 30th anniversary function
In 2011-12, agricultural NPAs rose by 47 per cent as against the NPAs in the non-agricultural sector, which rose by 40 per cent.
Dr Subbarao observed that the rise in agricultural NPAs during 2011-12 could be due to the lagged effect of double-digit growth in agricultural credit during the last four years (2006-07 to 2009-10), the general economic slowdown and also, possibly, the new system-wide identification of NPAs.
Banks, especially public sector and regional rural banks, stepped up flow of credit to the agriculture sector as the UPA-I Government in 2004 announced measures to double the flow of credit to the agriculture sector within a period of three years.
The actual disbursement by banks exceeded the targets in each of the three years. In 2004-05, banks were given a target to disburse Rs 1,05,000 crore to the agriculture sector. In 2012-13, they have been asked to disburse Rs 5,75,000 crore (against Rs 4,75,000 crore in 2011-12). To encourage credit flow to the agriculture sector, since 2006-07, the Government has been running an interest subvention scheme for short term crop loans to farmers for loans up to Rs 3 lakh per farmer at the interest rate of 7 per cent.
An additional subvention of 3 per cent is also given as an incentive to those farmers who pay their short term crop loans on schedule.
The RBI has also advised banks to waive margin/security requirements for agricultural loans up to Rs 1 lakh.