RBI sets up High Level Committees to improve Delivery Systems and Simplify procedure for Agricultural Credit and SSIs Dr.Bimal Jalan, Governor, Reserve Bank of India today announced the decision to set up a one-man committee of Shri R.V.Gupta, former Deputy Governor, Reserve Bank of India in order to give a further impetus to the flow of credit to the agricultural sector. Shri Gupta has been requested to study the working of the agricultural credit system and the problems encountered by them. For the purpose of this study, Shri Gupta will personally visit select branches and regional offices of commercial banks, get a feedback from agriculturists, farmers, agricultural scientists, extension workers, etc., as well as the field level bank staff Shri Gupta will also make proposals on any further initiative that may be taken by commercial banks to meet all genuine credit requirements of agriculturists.

Shri Gupta has been requested to propose, on the basis of the feedback received at the ground level, further procedural improvements and simplifications, including reduction in paper work for the delivery of farm credit.

The Governor has also announced the setting up of another one-man committee under Shri S.L.Kapoor, former Secretary, Small Scale Industries (SSIs) to undertake a similar exercise in respect of flow of credit to SSIs. Shri Kapoor has been requested to review the working of the credit delivery system for SSIs with a view to making the system much more effective, simple and efficient to administer. S/Shri Gupta and Kapoor have been requested to give their recommendations to the RBI by March 1998.

Setting up of both the committees are reflective of the high priority the Reserve Bank attaches to make the credit system for agriculture and small scale entrepreneurs hassle-free and customer-friendly.

Background

Agriculture contributes 29.4 per cent of the GDP employing 64 per cent of the country's work force. During the Eighth Five Year Plan, agriculture registered an annual growth rate of 3.4 per cent with the foodgrain output growth at 3 per cent. In the Ninth Five Year Plan, agricultural growth has been targeted at 4.5 per cent.

Since the inception of the economic reform process, there has been a significant expansion of the flow of credit to the agricultural sector from Rs.11,202 crore by all agencies in 1991-92 to Rs.28,653 crore in 1996-97 and further to an estimated Rs.34,274 crore in 1997-98. This has been possible, among others, on account of the expansion in the institutional framework for rural finance, refinance extended by the National Bank for Agriculture & Rural Development (NABARD) to rural financial institutions, the Reserve Bank's support by way of General Line of Credit to NABARD for short-term credit, introduction of Special Agricultural Credit Plans, etc. The Reserve bank has played a key role in motivating commercial banks which have done this lending as a part of their normal activity and repayments in the sector have improved considerably. In spite of this, there is a perception that investment in agriculture, particularly 'non-farm' investments, have not kept pace with demand. The Gupta Committee has been set up to undertake a quick survey to ascertain the constraints faced by banks in increasing the flow of credit, introducing new products and services and simplifying the procedures and methods of working and to ascertain the difficulties faced by borrowers in obtaining adequate and expeditious credit.

Financing of Small Scale Industries

It may be noted that based on the recommendations of the Nayak Committee, the Reserve Bank of India has issued various guidelines to banks in 1993 with a view to stepping up the credit flow to the SSI sector. The banks were advised in particular to provide working capital limits to SSIs by adopting a simpler method of computing the working capital credit limits on the basis of a minimum of 20 per cent of the projected annual turnover for borrowers whose credit requirements are up to Rs.2 crore. The banks were also advised to give preference to tiny industries and other small industries within that segment. With the result, the flow of credit from public sector banks to SSI sector has improved from Rs.19,388 crore (14.6 per cent of the net bank credit) in March 1993 to Rs.31,542 crore (16.6 per cent of the net bank credit) in March 1997.

Despite the steady increase in the flow of credit to the SSI sector, there are, however, often complaints relating to the adequacy and timeliness of credit to this sector. The government had appointed an expert committee on small enterprises headed by Shri Abid Hussain which submitted its report in January 1997. The recommendations of the Abid Hussain Committee cover various facets of the SSI sector and in particular the definition for classification of a unit as SSI is being revised so as to cover units with investment in plant and machinery up to Rs.3 crore (from the present limit of Rs.60 lakh/Rs.75 lakh). The definition of tiny enterprises is also being enhanced to cover units with investment in plant and machinery up to Rs.25 lakh (present limit Rs.5 lakh). The banks have also been advised that 40 per cent of the funds available to all segments of the SSI sector should be made available to units with investment in plant and machinery up to Rs.5 lakh, 20 per cent to units with investment in plant and machinery between Rs.5 lakh and Rs.25 lakh and the remaining 40 per cent to other SSI units.

In recent years, the banks have also operationalised a number of specialised SSI branches (353 at end March 1997) with a view to paying special attention to the financing of small scale units. The adequacy and timely provision of credit was also reviewed by a Standing Advisory Committee on SSIs in June 1997. The Committee emphasised the need for adhering to various guidelines and the banks were urged to quickly take credit decisions. While all these initiatives have yielded considerable results, it cannot be gainsaid that access of small scale units to bank credit is generally inadequate. The Kapoor committee has been appointed against this backdrop to look into the problems confronting the SSI units and to suggest the necessary operational changes for the purpose.

Alpana Killawala
General Manager

Press Release : 1997-98/558