Changing Face of Agri banking

Introduction :

The Banks in India have played a vital role in the development of the country’s economy, be it the rural one or the urban one. More specifically, the Indian public sector banks, The Regional Rural Banks and the cooperative banks have been serving the financial needs of the rural population of the country since their very initial days. In India, where more than 65% of the population lives in villages. These communities had only experienced banking in the last two to three decades. In the modern age of technology, the rural areas of the country are also not untouched by the adoption of technology. The majority of the farmers have small land holdings; the production of the farms is lower, and the income is lower. To increase the productivity of the farm fields, it is required to adopt modern technology, and that will also cost investment; hence, the importance of the lending institutions became more crucial.

Agriculturist in India

The Department of Agriculture, Co-operation, and Farmers Welfare conducts an agriculture census every five years to collect data on the structural characteristics of the agricultural sector, including the size of agricultural land holdings in the country. As per the latest information available from the Agriculture Census, the average size of operational holdings has decreased from 2.28 hectares in 1970–71 to 1.84 hectares in 1980–81, to 1.41 hectares in 1995–96, and to 1.08 hectares in 2015–16.

Due to rapid growth in the village population and the emergence of the nuclear family concept, the land holdings of Indian farmers are shrinking gradually.

Average Land Holding with Farmer as per agriculture census 2015-16 (Provisional)

S.no	State	Avg Area landholding (in Hec.)
1	Uttar Pradesh	0.73
2	Bihar	0.39
3	Andhra Pradesh	0.94
4	Odisha	0.95
5	Tamilnadu	0.75
6	West Bengal	0.76
7	Kerala	0.18
8	Jammu & Kashmir	0.59

The above-listed states are considered to be large states where the average land holding is very small, so it is very well understood that the dependency merely on farm income cannot suffice the needs of the families. Therefore, there are two options available to the families: one is migration, which is very common, and another is to evolve modern technology and improve the productivity of the small landholding farmers.

Initiatives of the Government and the Banks to cater the financial needs of the rural areas

The government of India is more focused on providing financial assistance to the agriculturists of the country. To facilitate banking in the unbanked areas, the RBI introduced “No frills a/cs”, “Zero balance savings a/cs”, “financial inclusion”, “financial literacy”, “collateral-free loans”, “margin-free loans”, special schemes like “Mudra”, “interest-free subsidies,” etc. Ultimately, the Banking industry tries to bring everyone under its fold and reach the poorest section of society.

The Indian Banking system is one of the most well-established financial systems in the world. The banks are well distributed to cater to the needs of the last village, and the following table depicts the number of bank branches in India and its categorization.

 Table 1: No. of Scheduled banks in India as of March 1, 2023

Scheduled Banks	No.	Branches
Public Sector Banks	12	91490
Private Sector Banks	21	30690
Regional Rural Banks	43	21756
Urban Cooperative Banks	1531	NA
Rural Cooperative Banks / Societies	97006	NA

 

Table 2: Branches of Scheduled Commercial Banks in India

 

SCBs*	March 2006		March 2020		March 2021		Dec 2022
	No.	%	No.	%	No.	%	No.	%
Rural	28167	39.11	52457	33.52	52767	33.33	53953	33.42
Semi-urban	16676	23.07	42689	27.28	43543	27.50	44444	27.53
Urban	12611	17.44	29856	19.07	30626	19.34	31178	19.32
Metropolitan	14726	20.38	31507	20.13	31385	19.83	31843	19.73
TOTAL	72280	100	156509	100	158321	100	161418	100

Steps to improve the agriculture sector in the country:

The agriculture sector in India has grown at an average annual growth rate of 4.6 percent during the last six years. This growth is attributable to good monsoon years and various reforms undertaken by the Government to enhance agricultural productivity. Many government-sponsored programs for sustainable agriculture have been implemented. Soil Health Cards, the Micro irrigation Fund, and organic and natural farming have helped the farmers optimize resource use and reduce cultivation costs. The promotion of Farmer Producer Organizations (FPOs) and the National Agriculture Market (e-NAM) extension Platform have empowered farmers, enhanced their resources, and enabled them to get good returns on their farm produce. The Agri Infrastructure Fund (AIF) has supported the creation of various agriculture infrastructures. Kisan Rail exclusively caters to the movement of perishable agricultural and horticultural commodities. The Cluster Development Program (CDP) has promoted integrated and market-led development for horticulture clusters. Support for creating a Start-up ecosystem in agriculture and allied sectors is also being provided to the farmers. All these measures are directed towards supporting the growth in agricultural productivity and sustaining its contribution to overall economic growth in the medium term (Economic Survey, 2022-23).

New Initiatives by the financial institutions for agriculture lending:

After going through the recent developments in the agriculture lending landscape and the introduction of technology for financing the agriculture sector by the different financial institutions, the below-mentioned points can be easily highlighted.

• All the Public Sector Banks (PSBs) and other financial institutions in India have given importance to agriculture lending.
• All PSBs have included Agriculture lending in their web pages, giving due coverage of the products and services provided by them to the farming community.
• The agriculture loan product’s details, including Crop Loans (KCC), Jewel loans for agriculture, SHG and JLG group lending for agriculture, Activities allied to agriculture with special reference to dairy and poultry, government-sponsored schemes, financing against Warehouse receipts, Horticulture, Farm mechanization, including Combined harvesters and tractors, Minor irrigation with special reference to micro irrigation, etc., are available on the corporate websites of the banks.
• The details of farm financing given on the websites are as follows:

• • Eligibility and KYC norms
  • Quantum of finance
  • Rate of Interest
  • Margin norms
  • Services charges
  • Security features
  • Documentation
  • Repayment period
  • Interest subvention
  • Whether application forms are available online or not

• The online application forms with the required details are to be submitted online.
• The officers sitting in the branches will have access to the pre-filled loan application. After approving the application, the loan can be sanctioned.
• Applications and other related forms for agriculture lending are given in PDF format and made available on the websites, where they can be downloaded and further submitted at a nearby rural branch.
• Documents needed for farm loans in PDF formats to facilitate banks taking of proper documents have been made available on the websites.
• Some of the banks have given clear Check lists for individual agriculture products.
• Most of the banks have computerized the processing of loan applications through processing centres or “hubs,” and a specific time frame for such processing has been fixed.
• Most of the banks are phase wise shifting the processing of the KCC (fresh loans and renewals) applications from physical mode to digital mode.
• Banks like State Bank of India, Punjab National Bank, Union Bank of India, Bank of India, and Punjab & Sind Bank have online tracking facilities for application status and loan status.
• Some banks are having a Straight Through Process (STP) for crop loans up to 1.60 lacs, wherein the farmer can directly get the loan without visiting the branch. The digital documentation with e-signature will ensure seamless processing and disbursement of the loans.

The major objective of STP in agriculture lending:

The automation in lending has been launched for agriculture lending (KCC) by many public sector banks and the private banks also. Farmer-friendly on-boarding is currently available through the bank’s website and mobile banking applications also.There are the following major objectives of the STP.

1. No document submission or branch visit is required for farmers.
2. Reduced TAT, sanction, and loan account opening within a few minutes.
3. Online farmland verification
4. Use of satellite imagery and mapping to verify cropping information, geotagging, etc.
5. Read bureau integrations for a credit history check.
6. Automated decision on loan, basis land ownership, cropping, bureau data
7. Option for execution of loan documentation digitally through Aadhar-based e-signing integration done with NeSL

Conclusion:

It is to be mentioned that the digitalization of agriculture is still in its nascent stages in the Indian banking system. The digital India initiative of the central government has been well received in the village areas too. There is proper infrastructure available in the rural part of the country through internet-enabled mobile phones. On the other hand, all the PSBs and private banks are aggressively shifting their lending styles from physical to digital. It will be a win-win situation for the farmers and the banks as well, as it will save time and money when lending or obtaining loans from the banks. Therefore, it is very important to make the initiative of changing the face of agriculture banking more popular through a process of aggressive financial literacy and awareness camps.