Uninterrupted credit scheme for farmers
By Our Banking Bureau | 10 Nov 2001
Mumbai: The Reserve Bank of India (RBI) is devising a scheme under which banks will provide an uninterrupted flow of credit to farmers for their productive purposes, irrespective of natural calamities. This will help the farmers if they are denied credit facilities once their crop is lost due to draught or natural calamities.
Presently, in a cycle of three to five years, a farmer gets a good crop in one or two years. During the lean years in this cycle, the farmer is unable to meet his debt obligations and obtain a fresh credit. A bank, therefore, needs to adopt a credit-cycle approach and set an overall term-credit limit for a period of three to five years with sub-limits for individual years.
According to the proposed scheme, banks would extend a term-credit limit of five years to the farmers. To fix the yearly sub-limit, banks should take 150 per cent of the scale of finance so as to provide a cushion for other small consumption and uncertain needs. The yearly sub-limit will be disbursed to the farmers before the cropping season, repayable after a period of 12 months on a due date to be fixed by the bank.
In case of a drought or a poor harvest, banks should recover the loan in proportion to the crop yield of that area. The balance amount due should be recovered later in a good year. The deferred amount and the fresh loan will be recovered in the next year again in proportion to the crop-yield level as in the previous year. This process of recovery shall be followed during the entire five-credit cycle.
In case the yields are higher in good and very good years, the entire amount will be recovered so that the credit cycle comes to a close and a fresh credit cycle starts with new limits.
