42
banking sector, including rural financial institutions. Towards that end, the
RBI gradually deregulated the interest rate regime to aid improvement in the
operational efficiency of banks. At the same time, the next two decades have
seen constant attempts by the authorities to reconcile the objectives of banking
reforms with social goals of the banking industry. The following subsequent
nine innovations introduced in the system of agricultural credit (vi-xiv) embody
such attempts made at reconciliation. They are:
(vi) Both direct and indirect credit to agriculture were recognised as
priority sector, albeit with some ceiling on indirect credit. What
is included under direct and indirect agricultural credit has been
revised from time to time in keeping with the changing requirement.
(vii) Starting 1995, banks that fell short of their target of priority sector/
agriculture/weaker sections lending were required to deposit the
shortfall amount in the Rural Infrastructure Development Fund
(RIDF) set up by NABARD. Funds in the RIDF are lent to state
governments for financing rural infrastructure.
(viii) Since 1994/95, commercial banks have been required to prepare
special agricultural credit plans
(SACPs) with prescribed annual
growth rates.
(ix) In 1989, NABARD introduced the Kisan Credit Card (KCC) which a
farmer could use to draw credit for all production needs, almost as
if on tap, through the production cycle. The KCC has, thus, been a
powerful mechanism for cutting down transaction costs both for the
farmer and the bank.
(x) In 2004, a ‘Comprehensive Credit Policy’ was announced with a
mandate to step up institutional credit to agriculture by 30% every
year. Also, banks were enjoined to ensure that every branch finances
at least 100 farmers (5 million farmers at the aggregate level) and at
least two or three agriculture projects every year.
(xi) The policy also included a host of debt relief measures such as debt
restructuring, one-time settlement and loans to pay off borrowing
from money lenders.
(xii) An interest subvention scheme was introduced in 2006/07 on the
short-term credit extended to farmers. The Union budget for 2011/12
announced an additional subvention of 3% for prompt repayment by
farmers
