Agricultural credit acts as a catalytic agent to lubricate the process of agricultural development and is a sine qua non to raise farm productivity. Commercial banks alone disbursed Rs 1,81,088 crore in 2007-08, Rs 2,28,951 crore in 2008-09 and Rs 2,74,963 crore in 2009-10, which in aggregate accounted for 57.84 per cent of total credit disbursed by them during 2001-10.

Farmers' inability to withstand unfavourable climate, drought, floods, adopt yield-maximising technology and secure remunerative prices jeopardised their capacity to a larger extent, and willingness, to some extent, with regard to loan repayment.

This created non-performing assets (NPAs), of public sector banks in particular, of the order of Rs 8,266 crore as on March 2008, which significantly declined to Rs 5,708 crore as on March 2009, mainly due to wholesale write-off of agricultural dues during 2008-09.

RISING NPAs

NPAs, however, increased to Rs 8,331 crore as on March 2010, which can largely be attributed to existing policy prescriptions substantially increasing agricultural credit, such as mandatory agricultural credit target of 18 per cent of adjusted net bank credit, fulfilling credit targets announced in the annual budget, targeting to disburse 20 per cent to 25 per cent more than the previous year through formulating a special agricultural credit plan, and aggressively marketing Kisan Credit Cards. Besides, farmers were too incentivised through interest subvention for obtaining crop loans.

With the significant annual increase in credit disbursement, outstanding credit also increased from Rs 2,48,685 crore in 2008 to Rs 2,96,858 crore and further significantly to Rs 3,70,729 crore in the following two years.

BANKS' PERFORMANCE

Agriculture NPAs accounted for 20.8 per cent, 13.0 per cent and 14.5 per cent of total NPAs of public sector banks as on March 2007-08, 2008-09 and 2009-10 respectively, whereas they constituted 3.3 per cent, 1.9 per cent and 2.2 per cent of outstanding agricultural credit during these years.

At least 10 banks (Andhra Bank, Indian Bank, Syndicate Bank, Vijaya Bank, IDBI Bank, SBBJ, SBH, SB Indore, SBM and SBT) were consistent in managing NPAs below national averages in 2008, 2009 and 2010. Major banks (SBI, PNB, BoI, BoB, CBI) had a significantly high level of disbursements, outstanding credit and NPAs.

ACTION NEEDED

In order to contain and efficiently manage NPAs in agriculture, data on NPAs (absolute amount, its percentage in outstanding agricultural credit, its share in total NPAs, etc.) for individual banks operating within a district must be analysed each year to assess comparative performance among banks.

This would help bank managers to identify the factors responsible for building up NPAs in agriculture in the district, discuss it at the District Level Coordination Committee meeting and seek cooperation of the village panchayats, block and district authorities to reduce NPAs.

Each bank's controlling office in each State must undertake similar studies each year and analyse data on NPAs district-wise within the State and discuss at the State Level Bankers Committee (SLBC) meeting to find a solution to problems contributing to the growth of NPAs.

Data on NPAs must be incorporated district-wise and bank-wise in the Annual State Focus document prepared by NABARD for discussion in the SLBC meeting.

Union and State Governments should create a favourable environment, more importantly, by investing adequately in connecting all villages by roads, with a progressive transport and communication network; strengthening research and extension services; establishing state-of-the-art agricultural meteorology in all regions; developing flood and drought codes and irrigation facilities; creating food processing, storage and marketing infrastructure, and in any case not vitiating repayment climate.

Each bank should focus on farmer-friendly lending procedures, systems and methods; human resources development and training, and concentrate on financial literacy and credit counselling of farmers.

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