RBI to review Agricultural Credit through Internal Working Group (IWG), Key Points

Internal Working Group submits a report on agricultural credit to RBI, Recommendations & Details

The Internal Working Group (IWG) constituted by the Reserve Bank of India (RBI) to review Agricultural Credit submitted its report to the RBI Governor.

The report said that commercial banks contributed the majority share (78-80%) in agricultural and allied credit; the share of all co-operative banks constituted 15-16% and the regional rural banks (RRBs) contributed the remaining of the agricultural credit.

Key Recommendations:

The Indian Bank's Association (IBA) should introduce a web portal on the lines of PSB Loans in 59 minutes to allow quicker credit access for the agricultural sector. The Centre launched the portal in November 2018 to provide loans of up to ₹1 Cr to MSMEs in less than an hour.

State governments having a highly restrictive legal framework should be encouraged to reform in on the basis of the Model Land Leasing Act proposed by NITI Aayog or the Land Licensed Cultivators' Act, 2011 of Andhra Pradesh to improve formal lending to tenant farmers.

The government should set up a federal institution, on the lines of goods and services tax (GST) Council to suggest and implement reforms in the field of agriculture.

Banks should be allowed to give consumption loans to farmers up to a sanctioned limit of ₹0.1 million under Priority Sector Lending (PSL) on certain conditions. However, such loans will not classify for PSL-Agri.

GoI and state government should evaluate the effectiveness of current subsidy policies with regard to agri inputs and credit so as to improve the viability of agriculture in a sustainable manner.

GoI should develop a centralized database for agriculture capturing details related to crops cultivated, cropping pattern, output, sown/irrigated area, health of soil, natural calamity.

GoI in partnership with state governments should set up a credit guarantee fund for the agriculture sector on the lines of credit guarantee schemes implemented in the MSME sector to cover the default risk of the borrowers.