Need to examine high growth in farm credit: RBI Dy Guv

Questioning rising agri-lending by banks despite cultivated land remaining unchanged, Reserve Bank Deputy Governor SS Mundra on Wednesday called for a "critical examination" of the issue.

"If the land bank is the same, the area under irrigation has not changed significantly, if the fragmentation is continuously happening, then what accounts for the increase in lending?" he said at an event here.

"If the credit absorption capacity of the segment has not increased but credit is increasing, how can that be explained? This is something which needs a critical examination by the practitioners and economists," he added.

Agricultural land has been stagnant at 140 million hectares in the last 40 years. Also, there is hardly any allocation for agri investments, he said.

He said despite all these factors, banks have been repeatedly showing an increase in credit disbursements and last year crossed the government target of Rs 8 trillion.

Mundra also questioned how even the rate of inflation can justify this pace of credit growth.

Mundra said the distribution of agri loans is also skewed, saying 80 per cent of the farmers having over 10 acres of holding are covered under formal finance, while for the small and marginal ones with less than an acre's holding, the penetration is just 15 per cent.

The Deputy Governor said we should not rest on incremental reforms alone to revive the farm sector, saying there is a need to accelerate the pace of reforms.

State-run banks need to revisit their agri practices and device localised strategies, he said.

Pointing to deficiencies in the practice of making it compulsory for state-run bank employees to undergo rural postings, Mundra said there is no connectivity with customers and continuity under the system.