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Contrary to this promise made based on the guidelines issued on July 20,
2012, very soon thereafter on October 17, 2012, the RBI guidelines were revised
based on feedbacks received from banks, which totally negated the earlier
objectives of “minimising the competition for the same fixed pool of resources”
and excluding the corporate borrowings for direct agriculture finance so that
the interests of the small and marginal farmers are protected. The October
17, 2012 guidelines have negated both these objectives. The revised guidelines
have not only reintroduced the direct agricultural advance provision in respect
of corporates, partnership firms, etc. but also doubled the limit from
`
1 crore
to
`
2 crore. What is more if the aggregate loan limit per borrower given in
favour of corproates, etc. exceeds
`
2 crore, the balance is allowed to be treated
as indirect finance for agriculture.
There cannot be any objection to the banks lending in favour of
corproates and such other entities engaged in agricultural activities. The
principal point that is sought to be made here is that such lendings should be
based on commercial judgement of banks and should not be dependent on the
clutches of the directed credit arrangement. It is not as though the borrowing
parties are hoping to get easier credit at a lower cost. As the RBI Governor
(August 2012) has clearly termed it as a possible myth: “The lower cost issue
is a clear misunderstanding since there is no regulatory interest rate ceiling on
priority sector lending (PSL)”. Likewise, the expectation of easier access too is
misguided. As cited above, the more sectors we include in PSL, the more they
will compete for the same fixed pool of resources and crowed each other out
(Subbarao, August 2012).
It is thus very clear that it is the banking fraternity which has put pressure
on the RBI to revise its guidelines and thus to allow corporates to compete
with small and marginal farmers for “the same fixed pool of resources”. By
granting loans to a handful of corporates, the banks would find it easier to
show improved performance under direct finance target for agriculture than
take the trouble of financing a myriad number of small and marginal farmers –
which is admittedly the social philosophy behind the priority sector guidelines.
Vastly Unequal Competition between Corporates and Small and Marginal
Farmers
Such a vastly unequal competition between corporates and small
and marginal farmers for scarce bank resources could have obviated to an
extent at least, if a separate sub-target of priority sector target was kept for the
neglected sections of society like small and marginal farmers. It was, therefore,
noteworthy that the Nair Committee under discussion thought it fit to prescribe
