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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 corporates, etc. exceeds
`
2 crore, the balance is
allowed to be treated as indirect finance for agriculture.
Such a vastly unequal competition between corporates and small and
marginal farmers for scarce bank resources could have been 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 such a sub-target for, amongst other poorer segments, small and
marginal farmers. They have similarly covered micro and small enterprises,
and other economically weaker sections. The RBI has not accepted these
recommendations.
(iv) Haphazard Way of Approaching the Branch Banking Issues should
be given up
Similar unhealthy and haphazard approach to branch banking, which
played a pivotal role in the 1970s and 1980s in achieving some inclusive
banking, has been adopted in recent years. After the banking reforms of the
1990s, the expansion of branch banking in rural areas was halted for
almost a
decade and a half, particularly since the mid-1990s when the branch licensing
policy was disbanded. The number of rural branches of scheduled commercial
banks fell from 33,017 in March 1995 to 31,500 in March 2007 or from
51.7% of the total bank branches to 45.0%. Given the option, the scheduled
commercial banks would not like to operate in rural areas. This has been
proved clearly since March 1995 after the disbanding of branch licensing
policy and the granting of freedom to bank boards to decide on their branch
expansion programme. Since then, there has been a reduction of roughly 2,500
rural branches instead of an addition of at least 10,000 bank branches in rural
areas under the erstwhile policy thrust. This approach has thus spawned a
serious institutional vacuum in rural credit structure.
The government approach to filling this institutional vacuum in recent
years has passed through many stages. First, it was dead set on not asking
the commercial banks to open ‘bricks and mortar’ branches. Instead, as a
substitute arrangement, the Government proposed the agency system, whereby
two models,
business facilitator
model
and business correspondent
model,
