Innovations in Rural and Agricultural Finance - page 5

b. Directedpriority sector lending
Bank credit has an immense role in the development of the economy. Besides economic growth, it
should also lead to removal of poverty and equitable distribution of income. With this objective in
mind, Reserve Bank of India, the central bank of the country, conceived the idea of directed
lending and implemented through specic targets for priority sector (including agriculture)
lending since March 1980. Over last three decades, there have been several changes in the scope of
priority sector lending and the targets and sub-targets applicable to various bank groups. The
objective of the policy of priority sector lending (PSL) has been to ensure that vulnerable sections
of society get access to credit. It also ensures adequate ow of resources to those segments of the
economy which have higher employment potential and helps in making an impact on poverty
alleviation. Thus, the sectors that impact large sections of the population, the weaker sections and
the sectors which are employment-intensive such as agriculture and micro and small enterprises
were given high focus under priority sector.
c. Interest subvention and incentive
In order to make agriculture credit affordable to farmers, especially small farmers, the Central
Government supports banks with 2% interest subvention. Further, in order to inculcate nancial
discipline among farmers and timely recovery for the nancial institutions, the borrower farmers
get another 3% interest relief as an incentive in cases of prompt and timely repayment. Provincial
State governments join in and add an extra percent or two for those availing bank loans. These
statemeasures have helped in augmenting agriculture credit in India.
ii. Design andProcess
a. Scales of nance
Cropwise per unit area (acre/hectare) credit requirement, known as scale of nance, is xed at the
beginning of the crop season and updated annually so that at branch level interface, credit
assessment is done efciently, scientically and in a transparent way.
b. Kisan (Farmer's) Credit Card–Annually auto-renewed cash credit
NABARD has come up with a nancial product called Kisan Credit Cards (KCC) for easy and
hassle free delivery of cash credit to farmers with exibility in operations. Even groups of small
holders (known as joint liability groups) and oral lessees who cannot offer collateral have been
made eligible for this line of credit.
Under KCC, enhanced liquidity to farmers is ensured throughmandatedmark up (30%) to scale of
nance. This innovation of mark up to production cost in credit assessment has enhanced liquidity
among rural borrowers. Besides, there is provision for 10% annual increment in the loan limit
without going through the hassles of sanction procedure. The need and cost for seeking credit
from informal sources have fallen substantially due to thismark up to production cost.
The country is in the process of providing these borrowers with digitally enabled RuPay cards so
that farmers get better options in use of credit.
c. Issuance and trading of PSL certicates
To ensure efcient implementation of priority sector lendingmandate, allow the banks to leverage
on their sectoral domain expertise & geographical advantage and to avoid the compulsion of
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