Shri Umesh Chandra Sarangi, who was Principal Secretary to the Chief Minister, Government of Maharashtra has taken charge as Chairman of National Bank for Agriculture and Rural Development with effect from December 3, 2007 for a period of three years. The seat had fallen vacant consequent on Dr. Y.S.P. Thorat demitting the office of Chairman on November 30, 2007.

A Gold Medallist in M.Sc (Botany), Shri Sarangi joined the Indian Administrative Service in 1977 and since then has had a distinguished career over the last thirty years.

Shri Sarangi has rich administrative experience and deep understanding of the issues in agriculture in general and cooperation in particular, having served as Director, Agriculture (1991-94), Secretary, Animal Husbandry, Dairy Development and Fisheries (1999-2000), Commissioner ( Cooperation ) & Registrar of Cooperative Societies ( 2003-05 ). An acknowledged expert in disaster management, he has successfully coped with the extraordinary situation post Latur Earthquake, Orissa super cyclone, Gujarat Earthquake, Mumbai floods etc. He also handled sensitive issues of procurement of Soybean, Cotton and Onion and crushing of surplus sugarcane.

He has received several gold medals and awards from the state government for outstanding public service. As Collector, he prepared a decentralized district development plan for Nasik district which was picked up as a model by the Planning Commission. He has been a guest faculty in a number of national and state level training institutions.

In his maiden message to Nabardians delivered on 4 December 2007 the Chairman states-

"I have joined NABARD yesterday - late night. My entire career so far has been revolving around agriculture, rural development and cooperatives. Naturally, I am extremely happy to get the opportunity to head this organization which touches the lives of a vast majority of the population. With your cooperation, I shall do my best to serve the interests of agriculture and that of the organization. I have been in touch with a number of Officers from NABARD at various stages in my career, more recently when I worked on the Vaidyanathan Committee. I am convinced that NABARD has tremendous talent which could be utilized for agriculture and rural development. At this stage, building the organization on the basis of available professional excellence is the only consideration for me - nothing else - and this is what I seek from you. Looking forward to more interactions! With Best wishes."

REPORT OF WORKING GROUP ON RURAL HABITAT

RECOMMENDATIONS OF THE GROUP

a) Strategies for financing the disadvantaged – making credit available for the non-salaried class:

After considering the various components of Rural Habitat and the needs of the rural population for the pursuit of different livelihood options, the Working Group dwelt upon the possibilities of developing different bankable schemes and has suggested suitable loan products for:

Housing for individuals linked to livelihood loans: A combined finance product to be developed by banks is suggested, which would address the rural poor who require livelihood supports to be able to pay back small housing loans. This will enable a larger number of the rural families to access institutional finance.

Housing for SHGs linked livelihood loans: It is suggested that members of Self Help Groups be facilitated with housing loans in combination with the livelihood credit so that they are able to improve their quality of life on a fast track. The peer pressure, existing accounts with banks and track record of credit worthiness of SHGs would make them ideal candidates for accessing house construction loans. A woman SHG member may be extended housing loan by banks even though the title of the land is in the name of the husband/or other family members, on the basis of the Panchayat certificate and an indemnity bond/undertaking from the husband/family members.

Sanitation for individuals and communities: The Working Group detailed out a specific loan product for construction of toilets and bathing rooms in rural areas. In addition, a product for construction of community toilets for the economically weaker section as a group loan has also been suggested.

Insurance Scheme for Members of Credit Linked SHGs: Formulation of an insurance package encompassing life insurance, accident insurance and insurance to take care of hospitalisation expenses, with affordable premium, is recommended.

Venture Capital support for setting up Building Material Centers: The working group has recommended the setting up of a Venture Capital Fund, which could generate finance needed for private sector to take up the challenge on large scale. The Group felt the Fund to be of the order of Rs.75 to Rs.100 crore, which may be contributed by the GOI, NHB and NABARD, and may also be partnered by some banks.

Promotion of Eco-Friendly Technologies

Various measures to promote the use of eco-friendly building technologies in rural areas are recommended by the Working Group. These measures are designed with a view to remove the constraints in supply and delivery thus facilitating cost reduction; and promote the application of these technologies thereby enhancing demand. Noteworthy products include Vertical Shaft Brick Kiln, Fly Ash Bricks and Pavers, Stabilised Compressed Earth Blocks, Ferro-cement Roofing and Micro Concrete Roofing. Related recommended measures include:

b) Extending rural housing development to village infrastructure development in collaboration with Panchayats

Finance to Village Panchayats for essential infrastructure: The Working Group suggested that bankable schemes for power, water, community sanitation and waste disposal services etc. should be developed.

Collaboration of banks with Panchayats for implementing development projects: The working group has recommended certain areas where the financial institutions can work with the PRIs to support and facilitate habitat development. These are: (a) role of Panchayats in certification of land titles for individuals and making available land for public infrastructure, and, (b) involvement of PRIs in the Rural Haat, Watershed Development and Pilot Project for Integrated Development of Backward Blocks schemes implemented with grant assistance from NABARD.

c) Measures to facilitate the banks to deliver rural habitat finance:

The Working group has recommended certain measures that would reduce the risk of the frontline bankers and facilitate the delivery of housing and habitat loan products These are the creation of a Credit Guarantee Fund for Rural Habitat Lending and provision of Loan and House Insurance as part of the loan package.

Interventions by banks to facilitate the flow of credit for housing and habitat development in rural areas

The Working Group recommended the following types of interventions by banks to facilitate the flow of credit for housing and habitat development in rural areas:

WORKING GROUP ON CAPACITY BUILDING OF RRB PERSONNEL

Regional Rural Banks (RRBs) are in the process of restructuring and consolidation under the on-going amalgamation process. The capacity building requirements of RRB personnel have assumed greater significance in the post amalgamation scenario. To address the same and to ensure that the training issues of RRBs receive a comprehensive understanding, a Working Group is constituted under the Chairmanship of Shri Amaresh Kumar, Executive Director. Besides him, the group also has Shri Pankaj Pandit, CGM, NABARD, Shri V. K. Verma, GM, Bank of Baroda, Shri Akshay Kumar, GM, Canara Bank, Shri M. K. Pareek, Chairman, Narmada Malwa Grameen Bank, Shri A. B. Jog,, Chairman, Uttar Bihar Ksh Grameen Bank, Shri M. Dhananjaya, Chairman, Karnataka Vikas Grameena Bank and Shri V. S. Bhadauria, Chief General Manager, NABARD/ Officer on Special Duty, Bankers Institute of Rural Development.- Member Secretary.

The Working Group will study in detail the training needs of RRB personnel, the existing training arrangements and suggest measures for addressing the key areas requiring training intervention.

RELEVANCE OF THE REPORT OF THE ALL-INDIA RURAL CREDIT SURVEY

In choosing the topic “Relevance of the Report of the All-India Rural Credit Survey”, I had the following considerations.

First, Shri Venkatappiah was associated with the Committee on All-India Rural Credit Survey as a Member, and played a critical role in shaping and presenting the survey findings, recommendations and its implementation. Aubrey Menen, the Irish-Indian novelist once said that the Report of the Survey Committee was “the best piece of Indian writing in English, he had ever read”.

Second, the Report vividly portrays the rural credit scenario under which the people, mostly cultivators, operated at that time and the dynamics of the interrelationship between the cultivators and the lenders, both formal and informal.

Third, the recommendations relating to rural credit were made more than half a century ago, when the country was pursuing an import substitution policy to attain self-sufficiency in food production. With a paradigm shift in policy now favoring a deregulated financial market and the thrust on ‘’sound banking’’ based on prudential norms on the one hand and an agrarian crisis looming large on the other, between a high growth India on the one hand and farmers suicides on the other, I considered it appropriate to test the validity of some of the recommendations made by the Committee to the current scenario.

In the first place the Committee laid the foundations of a sound rural credit policy, on which the edifice of the subsequent rural credit policies was assiduously built. Highlighting that unlike industrial finance, agricultural credit is usually the least institutional and the most dispersed of all types of finance, the Report makes a pithy statement on the role of agricultural credit and I quote “ Agricultural credit is problem when it cannot be obtained; it is also a problem when it can be had but in such a form that on the whole it does more harm than good. It may be said that, in India, it is this twofold problem of inadequacy and unsuitability that is perennially presented by agricultural credit”.

Not surprisingly, even after more than five decades of the Report, we are still grappling with the twin issues of adequacy, timeliness of institutional credit and exclusion from it and this indeed is one of the reasons why the rural sector is still in the grip of informal credit markets, characterized by high – often usurious rates of interest. The NSSO finding that institutional sources are responsible for providing 57.5 per cent of the total credit substantiates the observation of the committee.

On the continued dominance of the money lenders in the rural credit market, the Committee observed that “despite all measures to control, suppress or supplant him, have led to the suggestion that any realistic system of rural credit should seek to incorporate him in itself rather than compete with him or wishfully expect to eliminate him. Unless sufficient finance, mainly for production but where necessary also for consumption, is institutionally provided for, the objective of devising an effective alternative to the moneylender is bound to be frustrated.” Prophetic words indeed! The present rural credit policy has not only finally recognized the need for providing consumption loan as an inbuilt component of the loans disbursed by the institutional credit (micro-finance, KCC) but the RBI has also recently veered around to the view that under certain safeguards the activity of money lending can be mainstreamed through a system of accredited loan providers to be a part of the banking system 1 .

Let me draw your attention to the philosophy of rural credit policy propounded by the Committee and on which the recommendations were based. The Report states “ Two important considerations to be kept in mind in a scheme of reorganization are, therefore, the adequacy of resources available to the credit organization and the adaptation of the operations of the organization to the needs of those solvent producers who, for various reasons, now fail to obtain adequate credit. One of the objectives of policy has to be the creation of conditions in which co-operative and other institutions will function effectively in the interest of rural production and for the benefit of the rural producer for which necessary assistance, has to come from the State.”

The recommendations of the Committee stemmed from these objectives and were aimed at building up an integrated scheme of rural credit which facilitated augmentation of rural production and rural incomes and covered wide ranging aspects, including defining the role of the state and RBI; establishment of the State Bank of India for purveying rural credit by commercial banks; reforms in the cooperative credit structure – both short term and long term; finance for reorganization and development of rural credit; setting up the National Co-operative Development and Warehousing Board and underscoring the role of marketing. Many of these recommendations were accepted and implemented. The growth of the rural credit delivery system in the last half-century or more is largely the result of the implementation of these recommendations.

The Committee envisaged the importance of building financial resources that will be required to meet the ever increasing demand for rural credit and therefore recommended the constitution of the National Agricultural Credit (Long-term Operations) Fund and the National Agricultural Credit (Stabilisation) Fund with the Reserve bank of India. These Funds were set up to ensure state partnership in strengthening cooperative credit institutions by way of subscribing to the share capital of these institutions and for RBI’s lending to SCBs/DCCBs and Land Development Banks. The Stabilisation Fund was intended to prevent serious dislocation to the system of co-operative credit in the event of famine, drought, etc., by way of conversion of short term loans to medium term loans. The NAC (LTO) Fund was established in 1956, with an initial non-recurring contribution of Rs. 10 crores and an annual recurring contribution of not less than Rs. 5 crores. Presently, the amount in the NRC(LTO) Fund 2 is of the order of Rs. 13,214 crores. Similarly, RBI set up the NAC (Stabilisation) Fund in 1956 with an initial contribution of Rs. 1 crore. The amount in the Fund is Rs. 1533 crores (as on 31 March 2007).

The Committee also recommended the setting up of a NAC (Relief and Guarantee) Fund under the then Ministry of Food and Agriculture, GoI by way of annual contribution of at least Rs. 1 crore by GoI. The Fund was to be used for giving relief to co-operative credit institutions through grants for the purpose of writing off of irrecoverable arrears where these had assumed a magnitude threatening the very stability of the co-operative structure. The State Governments were also to create similar Funds. The object of the exercise was to enable the State Governments to meet their financial obligations in the writing off of such loans as well to meet its liabilities arising from guarantees given by the Government in respect of Long-term credit structures. I am pointing out this recommendation of the Committee to highlight the foresight and vision the Members had. The creation of such a Fund to take care of credit risks induced by climatic shocks is still relevant. In the past, both the GoI and State Governments had announced such loan waivers was hard put to find ways and means for mobilizing the resources to meet the financial obligations to the credit institutions. [Even recently, the Task Forces under the Chairmanship of Dr. A. Vaidyanathan for the revival of the co-operative credit structures has worked out a financial package involving an amount of nearly Rs. 19,000 crores for taking care of their financial impairment. Perhaps, the creation of such a Fund at various levels would have readily met, at least partially, the huge requirement financial resources.

An important recommendation of the Committee related to the setting up of Advisory Council and Standing Advisory Committee (SAC) on Agricultural Credit for advising the Reserve Bank from time to time on various policy matters. The Advisory Council, comprised of officials of RBI, MoFA, NCDC and NWHC, for reviewing policies while the Standing Advisory Committee was more broad based with representation from RBI, Planning Commission, economists and non-official co-operators. Over the years the Advisory Council and the SAC on agricultural credit have become defunct. In my personal opinion, the revival of such a system for tendering advise is very much called for, at an appropriate institutional forum in view of the present agrarian crisis and the need to reach the avowed goal of attaining 4 per cent annual growth for the agricultural sector.

Recognising the need for ensuring coordinated functioning of the short-term and long term structure under the co-operative credit arrangement, the Committee had recommended their integration in terms of management, direction and administration while being independent legally and financially. The only state to experiment with this type of integration was Andhra Pradesh on the ground that there are advantages in terms of common organizational culture, governance, reduced transaction costs for the borrower under the single window concept. The Vaidyanathan Committee on the long term structure has recommended that both the structures should perform common functions and provide similar products to their members in a set-up which allows institutional changes to be made in their functioning according to market forces. In other words, what the Vaidyanathan Committee has recommended is merger of functions under an enabling legal, institutional and regulatory framework which will lead to evolutionary merger of the LT and ST CCS in future.

1. Early Warning System

The first of such action points is the need for putting in place an early warning system to deal with distress. Basically, in India, we deal with distress as post- facto and the question is whether it can be a preventive measure. For this, it may be necessary to identify distress conditions. Various committees have profiled distress features like deceleration of growth in agriculture production, technology fatigue and declining profitability, increasing stress on irrigation resources etc. These factors could be selectively used for developing an Index of Agrarian Distress. The Ministry of Agriculture in coordination with the ICAR, State Agriculture Departments and institutions like IMD, NCAER could be vested with the responsibility of preparing a Model Early Warning System based on such an Index. When it becomes evident that there are clear indications of distress emerging based on such assessment, the district administration could come out with an announcement of its being conscious of an emerging distress situation and preparedness for undertaking relief measures. This in itself would provide a level of comfort to those affected by such conditions and also send a signal to the banking system to be prepared for providing debt relief measures.

2. Credit Guarantee Scheme

Farmers are exposed to a variety of risks, including systemic risks. I believe that a Credit Guarantee Scheme to address the problems of systemic risks is necessary. A draft scheme has since been circulated by DICGC.

The salient features of the scheme are as follows:

3. Cyclical Credit

I believe that we need to try out a cyclical credit arrangement on a pilot basis. Cyclical credit is a way to break the vicious cycle of low productivity, low income, low surplus and low repayment capacity in drought prone areas characterized by rain fed farming. The pivot of cyclical credit is the matching of the “Credit Cycle” with the “Weather Cycle”. The rationale underlying the cyclical credit is that even with the adoption of dry land farming technologies, the effect of weather aberrations on yields during bad years can only be moderated. In such a situation, it was necessary to send a strong signal to the farmers in these areas that banks will stand by them to provide the required crop loan, irrespective of the repayment constraints as induced by the weather cycle and that the farmers will not face any resource constraint in carrying out his farm operations. There should also be an institutional mechanism to absorb unpaid accumulated debt at the end of the weather cycle.

Despite its limited success, there is a need to take a relook at the concept for implementation in all the drought as well as cyclone prone areas, after pilot testing it in select districts in the identified distressed districts. With a possible tie-up with the Credit Guarantee Scheme and other risk mitigation arrangements, the probability of success of the cyclical credit scheme will be significantly enhanced.

4. Agricultural Development Fund

The Expert Group on Agricultural Indebtedness has identified 100 agriculturally backward districts across the country, inter-alia, for stepping up public investments in agriculture sector and accelerating the flow of credit for capital formation as well as supporting seasonal agricultural operations.

While the Radhakrishna Expert Group has recommended the creation of a Fund for agricultural development with NABARD, it has not spelt out the details of the sources for such a Fund. In order to channelise the money for agricultural development through credit in these 100 districts, a dedicated Agricultural Development Fund may be created. This Fund could be created by levying an annual cess of 0.75 % on gross bank credit to agriculture. This amount estimated at Rs.1500 crore per annum. If so would be supplemented by contributions of Rs. 250 crore each from RBI, NABARD and Rs. 500 from State Govts and Rs. 500 crore from GoI, to build a corpus of Rs. 15,000 crore in five years time. I am suggesting this in view of the discontinuance of contribution by the RBI to NRC (LTO) Fund and GLC that has seriously impaired NABARD’s ability to extend refinance for both term loans and SAO. This Fund could be operated by NABARD for channelising credit/on-lending in the identified 100 districts by the RRBs/Co-operatives for specific agricultural development projects and for seasonal agricultural operations. Income earned on the deployment of the Fund shall be ploughed back by NABARD into the Fund.

5. Debt Redemption Product

It has been estimated that private moneylenders accounted for Rs. 29,000 crore of farmers’ debts in 2003 and that about Rs. 18,000 crore of such debts carried interest rate of more than 30 per cent. In order to relieve such farmers from the clutches of moneylenders, the Radhakrishna Group has recommended transferring these debts to institutional agencies by setting up a Moneylenders Debt Redemption Fund of Rs.100 crore for meeting administrative and other expenses. Even earlier, under the Finance Minister’s package for doubling of agriculture credit, there was a provision for redemption of moneylender’s debt. The progress under this scheme has been slow and the amount so far disbursed by the banking system has been of the order of Rs.105 cr. A study revealed that lack of institutional arrangements at ground level for identifying the moneylenders and their debtors and effecting this kind of transfer was one of the reasons for unsatisfactory progress under the scheme. It is also quite likely that the portion of high interest bearing debt to non-institutional sources estimated at Rs.18,000 crore in 2003 could have now assumed greater proportions. This would mean the banking system has to be prepared to lend to the required extent for this purpose. The Debt Swap Scheme implemented in Andhra Pradesh under the Indira Kranti Patham, in which the voluntary declarations by the members of the SHG about the extent of their indebtedness to moneylenders has helped in redeeming such debts and this system borrowers could be replicated in other distressed areas. The State Government of Andhra Pradesh also provided interest subsidy to ensure that banks did not incur any income losses.

6. Business Correspondents Model – Changes Proposed

RBI has permitted banks to use the services of NGOs / SHGs, MFIs and other civil society organisations as intermediaries in providing financial and banking services through the use of Business Facilitators (BF) and Business Correspondent (BC) Models. The response of the banking system has not been very positive and the model is yet to be fully grounded. The banking system has not yet been able to fully appreciate the business gains that could accrue from adopting the model. Following recommendations in respect of the BC Model are made:

7. Designated Nodal Branches

(ADB Model)

One branch of the lead bank at the block/taluka level may be identified as the nodal branch to address the issue of exclusion. Lead banks may strengthen these nodal branches with technical staff to provide agricultural/business development services in farm and non-farm sectors respectively, comprising technical inputs and extension services. The services of the nodal branch technical staff may be made available to all other branches in the block, under an appropriate cost sharing arrangement.

In some districts, where RRBs have a dominant presence, sponsor banks may assist the RRBs in putting in place arrangements for technical staff for providing credit plus services. NABARD may defray the cost of such technical staff, particularly, in the North-Eastern Region.

8. Business Correspondent/Technology Touch Points in Each Village

Lastly, Technology can play a crucial role in securing financial inclusion for the excluded households through the dissemination of information regarding the variety of financial products for potential users. At the same time, it can provide cost-effective solutions, address security concerns of the financial institutions and increase the outreach. The BF/BC, when equipped with adequate technology support, can provide a touch point in each of the six lakh villages in the country and integrate them with the banking system and also achieve financial/credit inclusion. The Village Knowledge Centre (VKC), to be provided in each Gram Panchayat under the RIDF mode, needs to be integrated with the Financial Inclusion Technology by way of having a Kiosk for providing banking and other financial services. The costs of providing such kiosks could be shared between the Banks and the FIT Fund.

The financial system in India has grown rapidly in the last three decades and more. The functional and geographical coverage of the system is truly impressive. Nevertheless, data do show that there is exclusion and that poorer sections of the society have not been able to access adequately financial services from the organized financial system. There is an imperative need to modify the credit and financial services delivery system to achieve greater inclusion. The Interim Report of the Committee on Financial Inclusion has sought to address some of the issues for improving the delivery system. The suggestions that I have made can help to modify particularly the credit delivery system of the banks and other related institutions to meet the credit requirements of marginal and sub-marginal farmers in the rural areas in a fuller measure. However, creating an appropriate credit delivery system is only a necessary condition. This needs to be supplemented by efforts to improve the productivity of small and marginal farmers as well as other borrowers so that the credit made available can be productively employed. While banks and other financial institutions can take some efforts on their own to improve the absorptive capacity of the borrowers, it is equally important for government at various levels to initiate actions to enhance the earnings capacity of the poorer sections of the society. The two together can bring about the desired change of greater inclusion quickly.