RURAL CREDIT

“Strengthen RRBs To Meet The Target”

RECENTLY, from June 24 to 26, chairperson of the National Bank for Agriculture and Rural Development (NABARD) convened a meeting of the chairpersons of all regional rural banks (RRBs) at different places --- Kolkata, Mumbai, Hyderabad and Lucknow. The purpose was to convey the new central government’s message of strengthening rural credit. In accordance with a recent announcement, the agricultural credit is to be increased to Rs 1,04,500 crore during 2004-05, up 30 per cent from Rs 80,000 crore in the previous fiscal. To this end, the credit target for commercial banks for the current fiscal has been pegged at Rs 57,000 crore, for RRBs at Rs 8,500 crore and for cooperative banks at Rs 39, 000 crore.

In a statement issued from Kolkata on June 26 by its general secretary Dilip Kumar Mukherjee, the All India Regional Rural Bank Employees Association (AIRRBEA) welcomed this move and pledged full support for effective implementation of the above programme. It will be noted that the AIRRBEA represents an overwhelming majority of the officers and employees in 196 RRBs operating through the most extensive rural network of 14,500 branches.

In this connection, the AIRRBEA pointed out that out of 368 DCCBs (District Central Cooperative Banks), about 148 are under section 11, as identified by the RBI. This means that 40 per cent of the cooperative banks are almost dormant and too financially weak to discharge the increased responsibility.

In case of commercial banks, maybe they are able to meet the said target with loans for high-tech farm mechanisation or for agricultural exports etc. Yet commercial banks account for only 10 per cent of the total rural credit, with larger landowners residing in towns/cities getting the largest share. Most of the small and marginal farmers are not able to get loans from commercial banks and their share in the latter’s rural credit has sharply declined.

The AIRRBEA says there are two kinds of targets --- one in terms of amount and the other in terms of covering the units under agricultural credit in rural areas. The target for and achievement of the RRBs in terms of the amount of credit to the agriculture sector may not be that big in comparison to commercial and cooperative banks. But in terms of outreach, i e the number of poor farmers or sharecroppers or landless to be covered by agricultural credit, the record of the RRBs is definitely very much significant insofar as facing the new challenge under the CMP of the UPA government is concerned.

The AIRRBEA has also put forth its considered opinion that if the RRBs are to face the challenge, they must be given full autonomy and fully delinked from the corporate culture of the sponsor banks. The RRBs must be restructured into zonal or state level RRBs under any public sector apex banking institution or NABARD, so as to ensure the unity of command and cross subsidisation. The RRB system as a whole has been earning net profit to the extent of more than Rs 500 crore each year for the last six years, and this year more than 170 out of 196 RRBs ran into profit. There are only a few RRBs in the eastern and north eastern regions, especially in Manipur, Nagaland, Arunachal and in the states of Orissa and Bihar, that are still running in loss. Therefore, as in any banking institution, if the central balance sheet is prepared at the apex level, the losses of these few RRBs due to infrastructural deficiencies can easily be taken care of with the huge aggregate profit of a majority of the RRBs.

The AIRRBEA statement also pointed out that the bulk of loans from the RRBs have been to priority sectors, which accounted for over 70 per cent of the total. Agriculture alone took up 46 per cent of the priority sector advances. The involvement of RRBs in providing credit support to small and retail trade and other non-farm rural activities is better than that of cooperatives and commercial banks. As on March 31, 2002, the outreach of RRBs in terms of number of deposits and advances was 50.02 million and 11.94 million respectively. The clientele for loans and deposits in the rural sector are low-value but large-volume. The RRBs have served this clientele in a more productive and efficient manner vis-a-vis other banks. Per employee, the RRBs handle 885 accounts as against the national average of 464 accounts per employee in the banking industry.

The AIRRBEA has expressed its strong belief that the RRBs would be able to face the challenge due to the following factors:

1. The RRB staff’s rural orientation and rural banking experience for nearly three decades.

2. Development of expertise both in farm and non-farm sector, micro and macro advances in the rural segment through the SHG/VVV and directly.

3. Highest outreach in rural areas. In case of cooperative banks, majority of accounts are defunct.

4. The nature of clientele, mainly small and marginal farmers, and the potentiality for such farmers in the enhanced developing areas.

5. Socio-economic relationship with human touch with the customers for 3 decades. In case of commercial banks, it is just a financial transaction without any human touch. In case of cooperative banks, since there is no direct finance, there is no direct relation with the actual borrowers either.

6. About 95 per cent of the RRB staff is from the same region and language, and 90 per cent of them are posted in rural branches.

7. For physical restructuring of the RRBs so as to enable them to face the challenge, and for recapitalisation as one time measure, minimum capital support will be required whereas huge capital support is required for revamping the cooperative banks.

The AIRRBEA has demanded that the RRBs must be restructured with an apex bank at the top, delinked from the 28 sponsor banks with 28 different cultures, and must be given the capital support as recommended by parliament’s estimates committee in its latest report. The refinance rate should be such that it must ensure minimum margin for viability since this would be then a major area of the advances. In contrast, agricultural credit will not be even 20 per cent of the total credit in case of commercial banks which may cover the risk of non-performing assets (NPAs) and margin by investing/financing the rest 80 per cent with higher margins. (INN)