Need for providing farmers access to formal financial institutions: RBI governor

  • HT Correspondent, Hindustan Times, Chandigarh
  • Updated: Apr 25, 2015 08:58 IST

In the backdrop of farmer suicides triggered by crop damage due to freak rains and growing concerns over “below normal” monsoon this year, Reserve Bank of India (RBI) Governor Raghuram Rajan on Friday underscored the need for providing the farmers access to formal financial institutions.

Cautioning against taking farmer suicides “lightly”, Rajan termed the expansion of formal financing as the need of the hour. “In the last few days, we have seen the tragic pictures of farmer suicides, which like any other suicide, are a complicated matter. One should neither take it lightly nor offer too easy an explanation. Studies have suggested that a variety of factors come into play. Often when finance is involved, it is the lack of formal financing rather than the excessive burden of formal finance that is a factor,” he said in response to a question pertaining to the informal lending system of artiyas (moneylenders) in rural India.

He was participating in an interactive session with experts, academicians and senior officials at the Centre for Research in Rural and Industrial Development (CRRID) here.

The RBI Governor, who revised the priority sector lending norms a day ago, said the farmers were borrowing at high rates from artiyas, the middlemen with economic power as they not only provided the finance but also controlled outlets for the farmers. “The new attempts, including Prime Minister’s Jan-Dhan Yojana, at bringing financial inclusion through are important,” he added.

He said the RBI has also come out with the priority sector lending norms. The new norms require banks to ensure 8% of their loans go to small and marginal farmers and 7.5% to micro enterprises.


Continuing with the theme, Rajan said there was a need to look whether the existing institutions and incentives were right. “At times what we think as the right answer is the wrong answer. We have seen when loan waivers take place they actually impede the flow of credit in the future rather than enhance credit flow. There may be a group of borrowers who have much lower debt levels, but it turns out that lenders fear to lend. It can disrupt lending rather than enhance it,” he said.

He also said that agriculture had to be tackled in such a way so as to recognize its relatively low productivity and increasing risks. “Climate change may bring increasingly disruptions like unseasonal rainfall. We need to understand how to protect the agriculture better,” he said. “One part of the answer is to increase productivity. Then, there is the need to create opportunities in allied sectors like dairy to supplement income….create rural industry to create jobs for those farmers who want to work. Make in India could be an answer to agriculture problem.”

Asked about the autonomy of the central bank, Rajan said the RBI was a perfectly autonomous institution. “There are cordial discussions. The objectives the same, while horizon may differ. The dialogue is healthy,” he said.

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