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for non-farm sectors when the farm sector too is crying for larger resources?
More significantly, mere reductions in reserve requirements do not assure
the system of higher levels of bank credit; banks continue to pretend that the
requirements were unchanged and keep placing their funds in government
securities. As a result, the annual growth rate in non-food credit during the
post-reform period has not improved at all; the average growth rate during
1970s was 18.9% which fell to an average of 15.9% during the 1980, and
improved only fractionally to 16.6% per annum during the 1990s.
Subsequently, in the first decade of the 21
st
century, there were two
committees, both headed by Professor V. S. Vyas, specifically, dealing with
agricultural credit, and a third working group headed by Shri C.S. Murthy
of RBI with focus on priority sector lendings. The first Expert Committee
on Rural Credit (Chairman: V.S.Vyas), appointed by NABARD in July 2001,
had suggested that the mandated 18% target for agriculture (and also 40%
for priority sectors) should be reviewed after five years. It visualised the
possibility of significant structural and other changes in this period, which
should constitute the base for a more realistic reappraisal of credit needs.
In the meantime, it was found that despite the preparation of
Special
Agricultural Credit Plans (SACPs)
by banks, there had been persistent
shortfall in the 18% target for agriculture. Therefore, the flow of credit to
different segments of agricultural producers without impairing the health of
the banking system, remained a live issues. Therefore, the RBI constituted
in December 2003 the V.S.Vyas Advisory Committee on the
Flow of Credit
to Agriculture and Related Activities.
The Committee made a number of
recommendations, the most important of which was that the existing target
of 18% of net bank credit for lending to agriculture should continue though
until a more comprehensive review of the priority sector targets including
that for agriculture is undertaken. The Committee was categoric that ‘fixing
targets on the basis of disbursements would not establish a link between the
total advances of any bank and its lending to agriculture - obviously taking
into account inter-sectoral equity considerations. The Committee noted with
satisfaction that all major actors in the financial system concerned that they
have to play a pro-active role in stepping up the flow of credit to rural masses
in a cost-effective manner, lest the rural-urban divide should further widen.
Other recommendations of the Committee related to indirect lendings within
the 18% target for agriculture, the time-phasing of the achievement by public
sector and private sector banks of 13.5% direct finance, the need to ensure the
share of small and marginal farmers in agricultural credit commensurate with
their land holdings, and interest rates offered to banks on RIDF.
