Transcript Ed presnt - Rural Finance

Poor Reach, Poor Repayment:
Problems with Agricultural
Finance in India and NABARD’s
Plans to Tackle Them
Dr. R. Balakrishnan
Executive Director, NABARD,
Mumbai
March 16, 2007
Presentation Plan
Part I: Outreach of Credit
Part II: Repayment Performance
Part III: NABARD’s Initiatives
PART I
OUTREACH OF CREDIT
Access to Credit- Farmer Households
Particulars
Total No. of households
Indebted Households
of which:
(a)
formal
(b)
non-formal
(c)
both
Non-Indebted Households
No
(in
million)
89.35
43.4
% to
total
16.02
19.58
8.01
18
22
9
45.95
51
100
49
Source: Indebtedness of Farmer Households, NSSO,
2005(survey was conducted in 2003)
Regional Distribution of Indebtedness
Region
Northern
North Eastern
Eastern
Central
Western
Southern
Group of UTs
All India
Indebted Farmer Households
(Lakh)
(%) .
56.24
6.84
84.38
113.03
55.73
117.45
0.37
434.24
51.3
19.6
40.0
41.6
53.7
72.7
50.8
48.6
Note: Data Inclusive of inst. & non-inst. sources
Source: Indebtedness of Farmer Households, NSSO, 2005(survey was
conducted in 2003)
Cultivator Households-Sources of credit
(%)
Sources of
Credit
Institutional
1971
1981
1991
2002
31.7
63.2
66.3
61.0
Non-Institutional 68.3
36.8
30.6
39.0
Source: All India Debt & Investment Surveys, RBI and
NSSO(2005).
Institutional Agri. Credit Structure
GOI & RBI
NABARD
Commercial Banks
(61778 branches by 2004)
Rural Cooperatives Credit Instititutions
Regional Rural Banks
(14484 branches)
Long term Structure
Short Term Credit Structure
State Cooperative Agriculture and Rural Development Bank
(858 branches)
State Cooperative Banks
(31)
Primary Cooperative Agriculture & Rural Development Banks
(1008 branches)
District Central Cooperative Banks
(367)
Primary Agricultural Credit Societies
(1.06 lakh)
Credit Flow
(Rs. Crore)
Details
Short
Term
Long
Term
Total
1981-82
2160
(58)
1575
(42)
3735
(100)
2005-06
105350
(58)
75136
(42)
180486
(100)
17.6
17.5
17.5
CAGR(%)
(1981-82 to 2005-06)
Note:Figures are as on 31 March. Figures in the
parentheses are % to total.
Source: NABARD
Credit Flow

Credit Flow grew at 26.2% p.a during the period
2001-02 to 2005-06





contd…
CBs – 33.4% per annum
RRBs- 30.5% per annum
Coop. Banks – 12.2% per annum
Doubling of Credit (2003-04 to 2006-07)
During 05-06:



78.73 lakh new farmers into institutional fold
80.12 fresh KCC cards issued
1095 Agri-clinics financed
Agency-wise Share-Ground Level
Credit flow(%)
100%
80%
14
0
60%
40%
41
55
50
6
7
3
86
56
20%
60
65
67
9
9
24
2005-06
39
43
31
10
25
1991-92
1998-99
2003-04
2004-05
0%
1971-72
1981-82
Cooperatives Regional Rural Banks Commercial Banks
Coverage of Weaker Section



Share of small holding (<2 ha) Accounts
declined from 78% in 1990-91 to 74% in
2003-04 for CBs
Share of loan amount disbursed to this
category declined from 54.5% in 1990-91 to
48.0% in 2003-04 for CBs
For weaker sections (i.e.small and marginal
farmers, and those engaged in allied activities
with limits upto Rs. 10,000) PSBs had
extended 6.8% of net bank credit in 2003 as
against the stipulated norms of 10%
(Source: RBI Reports)
PART II
REPAYMENT PERFORMANCE
YEAR-WISE AND AGENCY-WISE
RECOVERY (%) POSITION
(As on 30 June)
Year
ST Coops
SCBs
LT coops
DCCBs
SCARDBs
RRBs
CBs
PCARDBs
1997
86
70
62
59
57.10
62.9
1998
84
70
60
55
60.42
65.0
1999
81
70
62
60
64.24
66.6
2000
83
69
62
58
68.20
68.2
2001
84
67
58
53
70.59
69.3
2002
82
66
55
48
71.52
72.3
2003
80
61
49
44
73.49
72.6
2004
83
63
44
44
77.67
74.5
2005
83
71
44
51
79.85
76.4
Source: NABARD Annual Reports
Recovery Position





contd….
State Coop. Banks- average recovery hovered
at around 80% (highest among all
agencies)during 1997-2005
DCCB have improved their recovery since
2002.
SCARDB recovery declining during the period
1997 and 2005. ( 44% in 2005)
PCARDBs exhibited a declining trend since
1997 but showed improvement in 2005
Both RRBs & Comm. Banks have continuously
improved their recovery percentages
RECOVERY POSITION- Regional
Dimension
(%)
(As on 30 June 2005)
Regions
ST Coops
SCBs
LT coops
DCCBs
SCARDBs
RRBs
PCARDBs
Northern
97.28
83.71
75.20
53.7
88.3
NorthEastern
43.32
--
25.09
--
65.8
Eastern
71.80
62.20
35.25
48.8
71.5
Central
80.98
60.06
39.51
58.4
78.1
Western
73.95
65.67
25.73
27.2
75.5
Southern
82.75
74.10
37.90
48.9
82.8
All India
83.47
71.23
43.70
50.6
79.8
Source: NABARD Annual Report 2005-06
Recovery Position


contd…
Recovery in Eastern and Northeastern
Regions relatively poorer & the ‘indebtedness’
levels are also lower in these regions
Higher recovery percentages translates into
higher rates of lending


RRB lending increased by 7 times with recovery
increasing by 20 percentage points during the
period 1997 to 2005(CAGR: 29% over the period)
For SCARDBs lending increased by 1.9 times with
recovery percentage reducing by 14 percentage
point during the same period (CAGR: 16% over
the period)
Agency wise - NPAs
Coop.(ST)
Years
(%)
Coop.(LT)
St CB DCCBs SCARDB PCARDB
Public
Sec.
Banks
1997-98
12.5
17.8
18.6
16.5
3.3
2004-05
(P)
16.3
19.9
31.3
31.9
1.0
P: Provisional
Source: RBI
PART III
INITIATIVES BY NABARD
Rural Lending –Core Principles






Economically active rural population need
financial services
Carpet banking for inclusion and viability
Single purpose credit counter productive
Credit marketing & relationships not only for
urban business
Credit to be coupled with technical and
commercial extension
Gaon ka pani aur paisa gaon mein
Credit led Agri-chain






Farmer at wrong end of value chains
Agriculture goes beyond production
All laws restrict farmer freedom
Producer groups and companies for
better bargain
Credit led value chain needed
Farmer clubs and SHGs as facilitators
Institutional




NABARD entrusted with implementation of Vaidyanathan
Committee Report on short term coop. structure (9
States in principle accepted to implement the package)
GOI setup a ‘Committee on Financial Inclusion’
(Chairman Dr. C. Rangarajan; Chairman,NABARD as
Member-Secretary)
Task Force looking into increasing the operational
efficiency of RRBs
Credit Innovations like KCC, SCC have to be further
propagated - Since 1998-99 around 590 lakh KCC issued
Financial Package
 Financial assistance to cover:
• accumulated losses (plus shortfall, if any, in
provisions)
• amount required to reach minimum capital norm
• technical assistance for computerization, capacity
building, installing common accounting system,
strengthening internal controls.
• NABARD is the implementing agency.
Financial Assistance – Sharing Pattern
GoI, State Govt & CCS to contribute towards financial assistance
(Rs Billion)
Elements
Total
Liability of
GoI
State Govt.
CCS
Accumulated losses 95.96
65.06
26.89
4.01
Technical
Assistance
10.30
26.89
4.01
10.30
Contingency
40.00
Total
135.96
40.00
105.06
The Self Help Group (SHG). . What is it ?



A homogeneous group of about 15 to 20
Every member to save a small amount regularly. Pooled savings
kept in a savings bank account in SHG’s name
 transaction costs of both the poor and bank reduced !
SHG to use pooled thrift to give interest bearing loans to
members – decisions taken in group meetings
Every member learns prioritisation and financial discipline.
Their capacities/ capabilities to think and handle larger
resources improves!
Depending on the SHG’s maturity, bank gives loan to the SHG as
a multiple of the pooled savings to augment its resources.
 Adequate & sustained access to financial services!


SHG-Bank Linkage



End March 2006, 2.2 million SHGs linked
with banks
Matured
SHGs
(0.3million)
being
graduated from consumption loans to
micro enterprises
Micro-Enterprise
Development
Prog.
launched in 2005-06 aiming at skill upgradation & sustainable livelihoods for
matured SHGs - Programme incorporates
training,
potential
mapping,
understanding
of
markets
&
entrepreneurship
Group Dynamics
Bank Linkage
The outreach
- as on 31 March 2006








2.34 million SHGs financed by banks
32.98 million households assisted
90 % SHGs are women groups
Average loan size Rs 3,637 per member
Average loan size Rs. 50,917 per SHG
Member level on-time repayment rates - nearly 95%
44,353 bank branches of over 560 banks involved
4,795 NGOs involved
What was the impact ?…..
Sample : 560 HH, 223 SHGs, 11 States
Membership
Savings
Loans
Level of
Graduation
Repayments
 84 % Economically Weaker Sections
 AL – 31% , farmers with < 2 Ha – 53 %
 50% Illiterate
 Increase in annual savings from $ 9 to $ 29 in 3
yrs
 Market driven interest rates
 Term loans, cash credit limits for 2 to 3 years
 Average borrowing/year/HH increased from $ 86
to $ 167
 60% members cleared old debts in three years
 Average net income/HH increased from $ 403 to $ 538
 Average non-land assets/HH increased from $ 137 to $ 236
 employment increased from 318 mandays to 375
 Almost 100 %
What was the impact ?…..contd…
Infrastructure building
(physical, social & community assets
Emergency Prevention
(recurring natural calamities)
Peace
(Interfaith,
inter-caste tolerance
and conflict resolution)
microFinance
(Savings and credit)
Banker friendly
market/recovery/image
Self-Help
Initiatives
Income Generation
(Encouragement and advice)
Leveraging Govt contractshatts/ quarrying/fish pond/
milestone/ health related
Social Evil Eradication
(Alcohol abuse,
spousal abuse,
excessive dowry,
Undesirable social practices
gender space,)
Watershed Management
Education
(Water users groups,
infrastructure maintenance,
share practices)
(School for children,
adult literacy.
Peer education )
Civil Society
(Women members
run for elected office)
Impact….
Innovations in Credit products –Kisan
Credit Cards (KCC)





To ensure hassle free production, investment and
consumption credit to farmers
In operation since 1998-99 and 59.9 million cards
already issued
Card provides insurance of US $ 1111 with nominal
premium from borrowers
Grameen cards in vogue for rural people and
Bhumiheen cards for landless farmers/ share
croppers.
Contradicts NSSO findings on outreach
Farmer Clubs






NABARD conceived Farmer Club an effective
instrument of development through credit.
Promoted 20215 clubs for 40885 villages(524 dist.)
Farmers need to be organised for better banking
relationships
The club is the best route for extension
They act as bargain counters against and links
with organised sector
FC in every village is the need of the hour
Risk Mitigation

•
NABARD participates through equity
contribution in MCX, NCDEX & Agri.
Insurance Corporation of India.[ Price
discovery mechanism can be improved so
as to benefit the farmer]
Village Knowledge Centers(IT based)Target is
6 million villages-NABARD
participates through RIDF
Risk Mitigation….contd




Concept of Joint Liability Groups (JLGs)
ensures credit to tenants/ share croppers
having no collaterals for availing institutional
loans
Introduced in 2004-05, and covered 850
groups with credit support of Rs. 12.40 crore.
Studies show encouraging results
Farmers’ Clubs being used for promotion of
JLGs.
RIDF corpus of 2000 crore in 1995-96
became 50,000 crore during 2006-07.
Future Reform Measures in
Rural Finance

Consolidation of Banks



Commercial Banks – Market driven Mergers and
Acquisitions
Regional Rural Banks – Sponsor Bank wise
consolidation done – further State Wise
consolidation
Cooperatives – Operational freedon –



PACS may act as Business Agents/ Correspondents of
Commercial Banks
Consolidation possible in Cooperative structure also
Migration to Basel II norms
Thank You