Banks may get incentives to extend loans of backward areas: RBI by GUV MK Jain

RBI Deputy Governor MK Jain on Wednesday propsed that the incentivising banks should extend loans to poor in backward areas in a bid to promote financial inclusion.

In an event which was organised by the National Bank for Agriculture and Rural Development (NABARD), MK Jain said despite the growth which can be seen in formal agriculture granted, there are many other challenges which are yet to be handled.

He added that as per the data of the agriculture households loans, 72 per cent of the credit is generally met by the institutions and the remaining 28% are met by non-insititutional sources. He quoted NABARD Financial Inclusion Survey Report 2016-17 as the source of information.

Further, he said, If the state wise flow is considered in comparison,to their corresponding share in their overall output, the analysis shows that credit in states is distributed unevenly from institutional agriculture sources. He said that such regional disparity is on account of variation in credit absorbtion capacity of these regions.

“We may also have to think of the ways to incentivise banks to lend in these backward areas so that both the demand and supply side issues are addressed,” he said. He also forced NABARD to think of steps by which funds like Rural Infrastructure Development Fund can be used in the most backward credit starved regions of the country to achieve faster development of the country.

Focusing on the other issue, he said that this problem is rising as there is no proper legal framework for the farmers who are landless because of the absence of documents, and providing credit to such segments becomes difficult in such cases specially where famrers are cultivation on oral lease.

“These issues and challenges impinge on the efficiency inclusiveness and sustainability of the agriculture credit system, which is a matter of concern,” he said.

He said that the RBI had set up an internal Working Group (IWG) in February 2019 to work on these issues by understanding them and finding and suggesting possible solutions for them.

He told the media tha in September 2019, based on all the analysis of data and researches IWG submitted its report.

“The recommendations of the IWG includes building up of an enabling eco-system through digitalisation of land records, reforming of land leasing framework, creation of a national level agency to build consensus between the state government and the central government with regard to agriculture related policy reform, because of the effects system,” he said.

He said that the other policies are suitable fo rmodifying the priority sector guidelines which are applicable to all the banks. It strengthens credit delivery channel through Kisan Credit Card, Self Help Group bank linkage programme to make the credit flow much more effective in the regions of the country where credit is low. and it also excludes farming community.

“The RBI will be initiating necessary steps for implementing regulatory recommendations and has requested the government of India to consider policy and other recommendations for its implementation, as these would go a long way in ensuring long term sustainability and viability of Indian agriculture sector,” he said.