Equitable & Effective Delivery of Agricultural Credit

From ASHA, we had an opportunity to make a brief presentation to Dr Raghuram Rajan, Governor of Reserve Bank of India, on September 21st 2015, as part of a delegation put together by Bharat Krishak Samaj. The following was the submission from our side.

Dear Sir,

Sub: Concerns and suggestions with regard to access to agricultural credit for marginalized farmers in India – reg.

Greetings! At the outset, we would like to thank you for making time to listen to the experiences and views of several outfits with regard to issues pertaining to agricultural credit so that effective interventions can be designed and implemented with regard to the same. ASHA (Alliance for Sustainable & Holistic Agriculture) is an informal alliance of more than 400 organisations from across 23 states of India, working on issues of sustainable agriculture and sustainable farm livelihoods.

Taking the opportunity created by Bharat Krishak Samaj which had facilitated this interaction on agricultural credit, we would like to raise a few pertinent points for your consideration and intervention. These are mainly from an equity perspective and the fact that the acute agrarian crisis in many parts of the country is linked to indebtedness and lack of institutional credit support to cultivators.

1. Expansive nature of priority sector lending to Agriculture needs a revision to ensure equity: The Master Circular of RBI on Priority Sector Lending Targets and Classification, dated July 1^st 2015 (RBI/2015-16/53) which also consolidates the circular of April 23^rd 2015 (RBI/2014-15/573) gives a very expansive definition to the 18% priority lending to Agriculture, with the April 2015 circular having dispensed with the distinction between direct and indirect agriculture, even as a target of 8% has been set for Small and Marginal Farmers within Agriculture.

The main sub-categories of Farm Credit, Agriculture Infrastructure (including soil conservation and watershed development with per borrower ceiling of a high 100 crore rupees) and Ancillary activities, with bank loans to food and agro-processing units now forming part of Agriculture, will take away from the acute need to address the credit needs in Agriculture equitably. Further, small and marginal farmers, SHGs and distressed farmers can also be shown in the 10% priority sector target for Weaker Sections, weakening the scope of that category too. It is seen that bank credit to MFIs for on-lending to agriculture will also be eligible for categorisation as priority sector advance. While the sub-classification and allocation of upto 8% for small and marginal holders is quite welcome, the need to have fixed allocations for direct lending and increase the allocations elsewhere for all other agricultural credit needs should be considered seriously.

NSSO 70^th Round data shows that agricultural households with less than 1 acre of land have just 17% of their outstanding debt (an average of Rs. 27500/-) from institutional sources – in this category of agricultural households, which are estimated at more than 3 crore households, about 30% of income comes from cultivation and livestock farming and their situation has actually worsened, compared to 2003 (59^th Round of NSSO), when it comes to access to institutional credit.

WE therefore request that equitable allocations be made first between direct and indirect agricultural credit, and within an 18% target for direct lending to agriculture, fix allocations for pre-harvest and post-harvest credit, in addition to allocations proportionately for different kinds of farmers including tenants, women farmers, small and marginal farmers etc. as well as for different components (short and long term, investments in land development, livestock credit etc.).

2. Credit for tenant farmers/sharecroppers/oral lessees:

The 70^th Round NSSO data indicates that around 99 to 107 lakh hectares of land is possessed through leasing-in of land. This amounts to 10% of land possessed by rural households. In states like the undivided Andhra Pradesh, this is as high as 33.75%. Despite legislative measures in Andhra Pradesh and Telangana expressly created to ensure institutional credit and other support to these tenant farmers through Loan and other Eligibility Cards (with a well defined system of identification and issue of LECs), it is seen that institutional loans are not accessible to them. It is seen that in states where tenancy/land leasing-in is quite high, it is the non-cultivators who continue to access the benefits of priority sector lending targets, fairer terms and conditions of credit and even facilities like interest subvention while the agrarian crisis is being most acutely experienced by tenant farmers. Meanwhile, even though guidelines exist for a collateral-free loan of upto one lakh rupees, banks repeatedly deny access to such loans to tenant farmers. To lend confidence to banks, there might be a need for a counter-guarantee fund to be set up so that LEC holders are eligible to all benefits as regular KCC holders. A separate note from Raithu Swarajya Vedika (the Andhra Pradesh and Telangana Chapters of ASHA) on this issue is attached.

We therefore request that the RBI issue express guidelines to all banks to respect and uphold statute-based systems created to support tenant farmers in states like Andhra Pradesh and Telangana, and ensure that banks lend to “LEC-holders” on par with KCC.

Bhoomiheen Kisan Credit: To address the needs of such tenant farmers and oral lessees, the new Bhoomiheen Kisan Credit scheme has been introduced in the JLG mode (which has been in existence from 2009 in fact). However, this Bhoomiheen KCC is not being given benefits on par with regular KCC. Scale of Finance is also being fixed with lower ceilings as per preliminary investigations; in fact, the scale of finance for tenant farmers should actually be higher, to account for the lease rent that they have to pay. Further, not enough publicity is being given to such new facilities, and the JLG promotion grant that NABARD provides to Promoting Institutions is quite low at Rs. 2000/group. The creation of a JLG and its nurturing requires as much investment as an SHG or an FPO to make this approach sustainable and disciplined. Even the targets that have been set for the Bhoomiheen Kisan Credit are quite low compared to the prevalence of tenancy/leasing-in. It should be ensured that crop insurance cover is made mandatory for all farm JLGs, and classification of other non-farm enterprises into the Bhoomiheen Kisan Credit targets has to be avoided.

We therefore request special interventions to publicise facilities and schemes like Bhoomiheen KCC adequately, set aside funds for promotion of such JLGs with adequate hand-holding support (rather than the loan being the ‘beginning and ending of such a JLG’) and also set more ambitious targets.

3. Credit support to Women Farmers: There is evidence from different parts of India that there is increasing feminization of agriculture in the country. While the National Policy of Farmers (2007) has given an expansive definition to “Farmers” without tying it up with land ownership, it is seen that women farmers who put in more labour into farming than men are not able to access institutional credit for farming for the same reasons as tenant farmers (lack of land ownership). RTI information has shown us that there is no gender-disaggregated data being maintained in the new Bhoomiheen Kisan Credit scheme, for instance, to have more focused and streamlined interventions to support women farmers.

We urge RBI to issue instructions for gender-disaggregated data to be maintained with regard to Kisan Credit Cards as well as Bhoomiheen Kisan Credit holders. We also request that women farmers’ credit needs are met on par with regular KCC holders who own land with similar benefits of crop insurance etc., brought in. This can be facilitated in the JLG mode envisaged in the Bhoomiheen Kisan Credit scheme but should have more investments on creation of such JLGs as well as handholding in the production and post-production phase. There is also a need to adequately publicise the availability of this support to women farmers.

4. NABARD’s assistance for FPOs: In terms of both pre-harvest and post-harvest credit availability, it would be ideal to have more and more credit flowing to Farmer Producer Organisations (FPOs) so that they can also benefit from processing and value addition. While investment in creation, registration and 3-year handholding has now been visualised under the 200-crore PRODUCE fund of NABARD quite well, the actual business plan is inappropriately financed. The business of the FPO is expected to take off from the start which may not be the case – for instance, an FPO which gets into value addition and branding in the market might require around 3 years to find appropriate markets before it can start repaying, for instance. Though the guidelines talk of moratorium of 1-2 years possibly, in actual sanction of business credit, this is not taken up.

It is therefore requested that the repayment schedule for the business enterprise of FPOs be made flexible with a moratorium of 3 years built in.

5. Share of livestock credit in agriculture credit: It is reported that this has declined, even as livestock-rearing is an important source of empowerment and autonomy for women farmers as well as an important source of income for marginal and sub-marginal agricultural households, as seen in the NSSO 70^th Round findings. The share of livestock credit would therefore need a fixed allocation/target within agricultural credit to address issues of equity.

RBI might consider fixing an appropriate target for livestock related credit within this sector.

6. A preliminary investigation shows that Scale of Finance fixed for different crops does not always match with another data set being collected, which is that of cost of cultivation per hectare under the DES Comprehensive Scheme (Ministry of Agriculture) used by CACP for MSP recommendations. The requirement to fix scale of finance realistically need not be over-emphasised.

At another level, it is apparent that if institutional credit on fair terms is not available for health and education needs, the utilization of agricultural credit for these purposes is but natural for credit-starved agricultural households/citizens, which in turn jeopardises future eligibility for further credit for agricultural investment. This then requires more comprehensive interventions from institutional credit sources to rural households for various development needs, to ensure that agricultural credit indeed results in productive investments in farming. Thanking you once again for this opportunity, and urging you to please consider the above described interventions,

Sincerely,

Kavitha Kuruganti

Convenor

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Submission by Rythu Swarajya Vedika

Submission to RBI about LEC Cards and credit to Tenant farmers

 

• As seen from the Fact-sheet, most of the tenant farmers (sharecroppers in some areas) are excluded from getting bank loans despite the LEC card system being in place from 2011-12 with a legal mandate through the Licensed Cultivators Act (2011).

 

• In 2013-14, the percentage of LEC cardholders who got bank loans was 14.4% in Telangana region and 37.4% in Andhra Pradesh region. This is despite the fact that they have a verified official proof that they are cultivating that particular extent of land. (See attached copy of a sample LEC card).

 

• Most bank officials ask the LEC cardholders to submit the pattadar passbook of the land owner in order to issue the loan – or at least obtain a consent letter from the land owner. Not only is this not required by law, but this undermines the very purpose of the Licensed Cultivators Act.

 

• This is also a violation of RBI guidelines which indicate that crop loans up to Rs.1 lakh should be given without requiring collateral security of land.

 

• Many LEC cardholders are told by the bank officials that crop loan has already been issued to the owner on that particular plot of land and so the LEC cardholder cannot be given a loan on the same land. Banks should be instructed not to issue loans to the land-owner when an LEC card has been issued on that plot of land. As per the Rules, the list of LEC cards along with details of the survey number and land-owner is circulated to all banks by the Revenue department at block and district levels.

 

• The problem of non-cultivator land owners obtaining crop loans is very widespread in Telangana and A.P. (and many other states). RBI and the banks should address this problem proactively. Thousands of crores spent by both the Centre and the states on interest subvention is being misused (in A.P. and Telangana, all crop loans up to Rs.1 lakh are zero-interest, and up to Rs.3 lakh are at 3% interest). Many banks are happier lending to absentee land owners than tenant farmers.

 

• If banks have valid concerns about issuing loans to LEC cardholders, those should be proactively addressed by RBI and the state governments – thus taking responsibility not to leave tenant farmers in the lurch. One proposal made by Rythu Swarajya Vedika has been that a Tenant Farmers Credit Guarantee Fund be established by the government to provide partial backing to the loans given to tenant farmers.

 

• The RBI should recognize the various systems in place to enable credit to tenant farmers – whether LEC cards or JLGs or Bhoomiheen Kisan credit cards – and issue guidelines to the banks that depending on which system is in place in a particular state, the banks should put in place the processes to implement the system in order to meet the imperative of financial inclusion of the excluded sections.

 

• These measures will go a long way to address the agrarian distress and farmer suicides.