105
loans to indirect advances but due to pressures from banks, corporate loans
for agriculture have again shifted to the direct advances category (More on it
later).
Such changes in guidelines in favour of corporates, combined with the
facility of making investments by banks in securitised assets representing
priority sector loans of other banks, have helped the banks in private sector, to
improve their participation in agricultural loans. As shown in Table 4.28, their
farm loans as percentage of their ANBC, which were below 8% until March
2005, have increased to over 11% in recent years, which have been close to 12
to 13% achievement of public sector banks.
Finally, we have the M.V. Nair Committee which examined the whole gamut
of priority sector targets
de novo
15
It may be recalled that as there were many distortions noticed in the
implementation of the extant priority sector guidelines, there were demands
from several quarters on the need to take a fresh look at those guidelines. In
particular, it was perceived that “banks are increasingly using intermediaries
in directing credit to the priority sector, and there is growing incidence of
misclassification of non-priority sector accounts as priority sector” (Subbarao,
August 2012, p.1407). It was in that spirit of the possibilities of a significant
diversion of funds and such other incidences of arbitrage, that the Malegam
Committee on Microfinance (January 2011) had recommended that the
existing guidelines on bank lending to the priority sectors be revisited. The
Malegam Committee had specifically recommended that those mFIs which did
not comply with the regulations on small income criteria, interest and margin
ceilings, etc. should be denied “the priority sector” lending status. Against
this background, it was expected that the Nair Committee would streamline
the coverage of items under the ‘priority sector’ category on the consideration
that “priority sector can deliver on its promise only if the eligible sectors are
restricted to a select few which are important from the perspective of improving
livelihoods”. (Subbarao, op.cit, p.1408).
Any detailed review of the Nair Committee recommendations is beyond
the scope of this note. However, we wish to make two observations on the Nair
Committee and its aftermath, which are germane to the prospects for better
agricultural credit delivery and which deserve to be highlighted.
15
A part of this sub-section has appeared as a note in
Economic and Political Weekly.
See
Deokar and Shetty, EPW, April 20, 2013.
