Priority Sector Lending in Agriculture

What is meaning of priority sector lending in agriculture?

The recent move by the state-run Bank of Maharashtra, of not to extend loans in several zones in the state, have to lead the chaos amidst the farmers of the drought-hit state.

This more certainty makes the policymakers. Link the future of priority sector lending norms, which are generally decided by the Reserve Bank of India.

Priority sector lending refers to have mandatory specifications by RBI to the bank for providing a specified portion of banks’ lending to specific sectors, which government assume need to be upgraded and helped.

See all- WHY IS AGRICULTURE SECTOR IN DISTRESS IN INDIA?

Till PSL quota include the following:-

PSL quota:-

  • Agriculture
  • Housing
  • Education
  • Renewable energy
  • MSMEs
  • Imports
  • Infrastructure
  • Export or credit

Out of the above, the current distress that is local today is by the ‘agricultural sector’.

Courses of distress:-

In agriculture :-

  • High uncertainty in the sector
  • Water servicing to the crops.
  • Crop failure.
  • Issue of MSPC.
  • Does not have advanced technology
  • Lack of good infrastructure.

In banks :-

  • Rising NPAS.
  • Banks are overburdened by the given credit norms.
  • Apart from CRR and SLR, the banks are mandated to issue 40% in PSL quota(approximately), which leads to limited capital available.
  • Because of farm loan waiver given to the marginal terms, it is often noticed that the local farmers too, avoid repaying the local, further weakening the banking sector economy.

The question to the above-mentioned challenges that today are being faced by both the major sectors, it can be seen that there is a negative correlation between the two. Because one step in banking sector still definitely lead to failure in the agriculture sector. Further strengthening the utilize cycle.

  • NPA
  • Limited bank capital.
  • No waiver.
  • Lack of capital and source scarcity.
  • Crop failure.
  • Farm distress.

Remedial action:-

  • RBI needs to reduce the SLR quota. Hence for the bank and needs to reduce them, for generating more capital.
  • There is a huge requirement of technological and infrastructural boos to be given to marginal farmers.
  • Bank’s need to reduce its NPAS.
  • PSL norms need to be revised.
  • MSP of the crops must be raised and must be adhered.

The recent move has certainly made us realise the recent situation faced by the farmers and banks both, which is alarming. We need to focus on increasing the crop productivity and rising the PSL norms, which will boost the farmers. More ever the farmers are the backbone of our country and any of the regulation that distress then will certainly prove catastrophic to our economy.

NABARD 2019

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