Sustaining CD ratio growth momentum in Assam

Assam has made spectacular progress in improving the credit deposit ratio to 66%, surpassing the Reserve Bank of India benchmark of 60%. The next challenge for the state is to remove disparity at the district level, increase the CD ratio in every district, and require all banks to breach the benchmark. Uniformity in credit disbursal across the state is crucial to end lopsided growth and prevent credit seekers in districts with low CD ratios from falling prey to loan sharks and informal credit markets. A closer look at the banking profile reveals that the increase of around 9% in the CD ratio from 57.5% in 2022 is primarily driven by the very high CD ratio of nearly 90% by private sector banks, which is above the benchmark CD ratio of 64.86%, while the CD ratio of public sector banks in the state remained at 54.64%. A quarterly review undertaken by the State Level Bankers’ Committee brought to light that credit offtake in agriculture lending is slow. Besides, the performance of the state Kisan Credit Card (KCC) has declined while coverage under the Pradhan Mantri Fasal Bima Yojana (PMFBY) has increased. Total priority sector advance in agriculture was to the tune of Rs 25,745 crore in 2023, against Rs 22044 crore in 2022. The advances towards micro, small, and medium enterprises (MSME) were Rs 36118 crore in 2023, compared to Rs 24278 crore in 2022. The substantial increase in the MSME sector is indicative of growth in demand for credit boosted by government efforts to ensure sufficient funding, incentives, and bridging the credit gap to boost production and employment creation. Growth in the agriculture sector is critical to strengthening the rural economy, and an easy flow of credit to farmers is essential to ensuring the required investment in the farm sector to prevent withdrawal from farming as the primary profession. Rising input costs compel farmers to seek farm loans from the informal credit market, but high interest loans and the non-remunerative prices of their farm produce make it difficult for small and marginal farmers to stick to agriculture. Distress selling and migration of agricultural labourers add to the agrarian crisis and lead to the conversion of agricultural land for the establishment of industry, a factory, or any other non-agricultural use. Failure to check this trend poses an increase in the in the vulnerability of farm families and jeopardises their food security. The solution to the problem lies in increasing KCC loan disbursement and improving crop insurance coverage for farmers, in which banks are required to play the most crucial role. The objective of the KCC scheme is to provide timely credit to farmers to meet short-term or long-term cultivation requirements,  postharvest expenses, and household consumption requirements. The KCC has been converted into an automated teller machine (ATM)-enabled debit card with one-time documentation, built-in cost escalation in the limit, and any number of drawls within the. It also plays a short-term working capital role in allied activities such as livestock rearing, dairy farming, fish farming, etc. Assam is a disaster-prone state, and the farm sector is affected by ravaging annual floods and erosion. A lack of crop insurance cover increases anxiety among small and marginalised farmers over possible crop loss, which prompts many of them to keep their farmland fallow. Low penetration of ATMs in 13 districts has also posed barriers for many farmers in these districts to use the KCC as debit cards. The establishment of more food processing units can boost demand for farm produce, ensure remunerative prices for farmers, and reduce post-harvest losses. The creation of the required infrastructure, such as cold storage, refrigerated trucks and vans, insulated vans, mobile insulated tankers, and improvements in connectivity to facilitate faster transportation of perishable agricultural produce to processing units, is essential to boosting food processing units. The state has a long way to go to bridge this infrastructure gap. The state has not been able to leverage the opportunities brought by the Pradhan Mantri Kisan Sampada Yojana, the umbrella scheme of the Ministry of Food Processing and Industries (MoFPI), which is aimed at providing incentives for the creation of preservation and processing infrastructure. The Pradhan Mantri Formalisation of Micro Food Enterprise (PMFME) is a flagship scheme aimed at assisting food processing units. The SLBC review found that the target of 3098 bank branches in the state for the financial year 2023–24 under PMFME was to disburse 4153 loans. However, banks rejected as many as 2591 loan applications, which is attributed to some banks asking for unnecessary documents and creating hassles in the disbursement of PMFME loans. It was also found that the standard operating procedure adopted by some banks was different from that issued by the MoFPI, which led to the rejection of loan applications. Addressing these gaps and banks increasing credit disbursal to farmers is crucial to sustaining the momentum of CD ratio growth in the state and improving it in areas where it is still far below the benchmark and stagnating below 40%.