RURAL banking embraces all economic activities that affect rural society. The purpose of rural banking is to support the creation of wealth and its distribution. With the opening up of the agricultural sector to global competition, the rural sector is poised for further growth. Though rural India continues to depend heavily on agriculture, it is increasingly becoming a diversified market with a strong demand for credit for agricultural and non-agricultural purposes and for savings, insurance and other financial services.
Maharashtra has a good network of banks and a comparatively strong cooperative banking system. With the average per branch population coverage in the State at around 9,600 as against the all-India average of 16,000, one can say that the State has a distinct advantage. As on March 31, 2005, there were 10,386 branches of banks, including cooperative banks. More than 20,000 Primary Agricultural Credit Societies affiliated to the District Central Cooperative Banks enable deep penetration of banking services into the hinterland. The cooperative banks account for nearly 20.6 per cent of the banking network. The Short Term Cooperatives in the State account for 27 per cent of the total volume of business handled by the entire Short Term Cooperative Credit System in the country.
The flow of credit to the priority sector through the banking system in the State had increased from Rs.10,820 crores during 2004-05 to Rs.13,144 crores during 2005-06. Agricultural credit has also gone up from about Rs.4,559 crores in 2000-01 to Rs.5,400 crores in 2004-05 and further to Rs.8,500 crores in 2005-06. The banks in the State will achieve doubling of credit to agriculture, as envisaged by the Ministry of Finance in the Union Budget 2005-06. Banks provide credit for activities and in sectors in which commercial potential exists. Several new activities and crops have been introduced in the State. Bankers have been persuaded through workshops and seminars to finance the new activities.
The performance of banks has been noteworthy in financing contract farming; horticultural crops such as grape, mango and pomegranate; and agro-processing activities including winery projects. The intensive attention being bestowed on the self-help group (SHG)-bank linkage helped increase the number of groups linked to the banking system to 1.31 lakhs by March 2006 from about 0.4 lakh in March 2004. About two million rural households are able to access financial services through SHGs. The banks have been active in setting up farmers' clubs as a vehicle of knowledge aggregation and dissemination. More than 1,500 farmers' clubs are functioning in the State, supported by the National Bank for Agriculture and Rural Development (NABARD) and other banks.
Still, there are problems in rural credit flow in the State. The per hectare credit flow is less than 30 per cent of the level achieved in States such as Haryana and Punjab. Short-term crop loans dominate the portfolio, while capital-forming long-term loans are not preferred by banks. There is some hesitation in financing new crops and new business models in agriculture. Innovative products are not being introduced in rural areas when compared to the urban areas. Numerous government programmes with varying levels of subsidy have depressed the appetite for bank loans. The real sector performance has been significantly affected by rainfall and as a consequence repayment rates have suffered. The higher risks and the repeated pleas for loan waiver have curbed the enthusiasm of bankers to lend to the rural sector even at marginally higher risks.
Real sector challengesIssues relating to real sector have to be addressed if credit flow at an adequate level is to be ensured. The challenges facing the real sector in rural Maharashtra are a low level of irrigation command and the low potential for expansion of irrigation, salinity in prime farming areas of western Maharashtra, large tracts of rain-dependent land with low rainfall, large tracts of wasteland, persisting poverty and low levels of development in some districts of Marathwada and Vidarbha, and infrastructural limitations (of power, roads and irrigation). Delays in the energisation and completion of irrigation projects and the failure to ensure an even flow of funds in all infrastructure projects have stymied infrastructure development. Use of the Rural Infrastructure Development Fund by the State could ease problems of financing infrastructure projects.
The real sector also offers many livelihood opportunities. Maharashtra, with its long coastline, dynamic dairy sector, good mix of horticultural crops, enterprising farming community, and raw material availability for agro- and food-processing industries, can create and sustain diversified livelihoods in rural areas. A supportive government machinery, several people-friendly programmes, and the presence of committed non-governmental organisations (NGOs) strengthen the potential of the rural areas.
To exploit the opportunities available and overcome the problems, NABARD has been taking proactive measures to improve the flow of rural credit in Maharashtra. Some of these are support for watershed development, integrated development of backward areas, promotion of cultivation of medicinal plants, floriculture, contract farming, bio-fuels, agri clinics and agri business centres, non-farm activities, SHGs, micro-finance institutions, women's development, and institutional development in the rural banking sector and rural infrastructure sectors. Some new initiatives taken by NABARD pertain to freshwater prawn farming in saline lands in western Maharashtra, emu farming, model integrated reservoir development plan, SHG enterprises for making fly ash bricks, holding of marketing events to provide on-event learning for rural entrepreneurs, and dovetailing ecological perspectives in watershed projects. Further, NABARD has been actively administering Centrally sponsored schemes on cold storage, rural godowns, venture capital schemes for dairy and poultry farming, production and marketing of organic inputs, development of farm ponds, and interest subsidy schemes for small-scale industries (SSIs).
The State has taken up the implementation of the Vaidyanathan Taskforce's recommendations for reform and revitalisation of cooperative banks. The State government has agreed in principle to implement the reform package; NABARD is actively collaborating with it to prepare the road map for reforming cooperative banks, thereby placing them on the path of sustainability.
With the State having over 150 sugar mills in the cooperative sector, cultivation and processing of sugarcane was one of the major agricultural activities here. But these mills had accumulated huge losses over time. NABARD chalked out strategies to formulate packages for restructuring loans for sugar cooperatives, in accordance with the announcement made by the Union Finance Minister in his 2005-06 Budget speech. Loans aggregating to Rs.1,780 crores were considered for restructuring 91 mills operating in Maharashtra. While this measure directly facilitated the rejuvenation of sugar mills, it also helped a large number of farmers engaged in cane production to access an assured market.
Rehabilitation packageThe distress in 31 districts in the country, including six districts in Vidarbha in Maharashtra, has challenged bankers and the Central and State governments. NABARD is implementing the special rehabilitation package announced by the Prime Minister to mitigate the distress of farmers. These measures include interest waiver, rescheduling of the principal and issue of fresh productive loans to farmers. NABARD will also help in getting irrigation projections completed and will implement watershed programmes at the rate of 15,000 hectares (ha) in every district and support the formation and linkage of 25,000 SHGs, including farmers' SHGs in these districts. NABARD has taken up a pilot project in 10 villages in two districts in the Vidarbha region to assist farming households to improve their income levels through a mix of optimal crop practices and subsidiary activities. NABARD has also prepared a dairy development plan for the affected districts; further, an area development plan for horticulture is on the drawing boards. The watershed projects for the districts in distress seek to integrate livelihoods in the project villages with watershed management principles.
Empirical studies show that credit absorption capacity is influenced by the level of infrastructural facilities. Inadequacy of infrastructure such as milk routes, minor irrigation projects and processing and marketing facilities is a common problem witnessed in most rural areas in India, especially in the 31 distressed districts. Hence infrastructure will need to be created, but in a planned and systematic manner rather than on a stand-alone basis. Here again, NABARD has been supporting various programmes for creating new infrastructure and strengthening existing ones.
Rural extension is another area that needs to be strengthened. The State government would need to make arrangements for providing farm advisory services by suitably deploying their extension machinery. NABARD is encouraging banks to promote farmers' clubs in order to ensure that the best farming practices are disseminated among a large number of farmers and that the agricultural universities in the respective areas are induced to act as nodal agencies to provide back-up technical advice and field testing facilities.
NABARD also works with the banking system to increasingly use information and communication technology to deliver better financial services to the rural population.
Using the SHG and Joint Liability Group (JLG) mode of financing is like riding a bicycle, as it can only go forward. Banks will adopt, over a period of time, a group approach in the form of SHGs and JLGs and use credit cards for financing those rural people who are otherwise unable to access financial services through the banking system.
Dr. Y.S.P. Thorat is the Chairman of NABARD.
