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RBI asks banks to act on agricultural credit

The Reserve Bank of India today advised all scheduled commercial banks to take immediate appropriate action on the recommendations made by the R V Gupta Committee on flow of credit to agriculture. The committee was set up by the RBI in December 1997 to suggest measures for improving the delivery systems as well as simplification of procedures for agricultural credit.

The one-man committee submitted its report on April 21, 1998.

The apex bank asked the banks to ensure that pre-sanction appraisal of the borrower focusses on the income stream of the borrower, his credibility, his capability for taking up the activities, proposed integrity, and technical viability of the proposal.

The committee had recommended delegation of adequate powers to the branch managers so as to enable disposal of 90 per cent of loan applications at the branch level, including modification of the powers at the branch level, if the pattern of lending so warrants.

It also suggested introduction of annual composite cash credit limits to all agricultural borrowing families.

The banks have been asked to consider designing a fully liquid savings module with an appropriate returns and in-build the same in the loan product which will take care of farmers' interests in the event of adverse price fluctuations or natural calamities.

They have been told to disburse all loans for agricultural purposes in cash which will facilitate dealer choice to borrowers and foster an environment of trust and dispense with production of "no due certificates'' from banks/institutions by borrowers as a compulsory requirements.

The RBI also advised the banks to evolve an appropriate mechanism to monitor recovery performance in respect of agricultural loans, particularly in regard to old and sticky loans.

The apex bank suggested that banks ensure that the value of security taken is commensurate with the size of the loan and desist from asking additional collateral by way of guarantors where the land mortgaged is considered adequate.

The banks should use discretion on matters relating to margin/ security requirements for agricultural loans above Rs 10,000, an RBI statement said.

Banks have been directed to furnish the borrowers with a clear statement of the credit facilities availed by him separately, indicating various fees and charges for introducing an element of transparency.

They have been told to ensure that the officials of the internal inspection team visit a few service area villages covered by each branch and meet farmers to discuss their problems during the course of their inspection so as to obtain a feedback on the quality of interaction which the branch officials have at the ground level.

Banks should consider giving weightage in the performances appraisal system to increase in the outreach measured by the number of new clients, incremental increase in flow of credit and loan recoveries, the statement said, adding that they should consider evolving a package of incentives with a view to motivating the staff.

Banks should also design specific loan products to the borrowers in non-farm sector to enable them to pursue a number of non- agricultural activities alongside their agricultural activities for supplementing their income.

The RBI said banks should line up the activities of rural branches with farmers' clubs established with the initiative of the National Bank for Agricultural and Rural Development (Nabard), with a view to facilitating teachnology transfer regarding agricultural operations.

Also, the banks should undertake a review of the hi-tech agricultural branches with a view to identifying the branches which are not working well due to inadequate expertise and/or lack of demand. They banks should ensure that these hi-tech branches are used to disseminate information relating to agricultural operations specifically for providing teachnical information regarding cultivation of high value crops, the statement added.

UNI