Agricultural Credit

1
Agricultural Credit Crop Insurance
2
National Common Minimum Programme

• Flow of rural credit to be doubled in the next
  three years.
• Rural credit delivery system will be reviewed and
  immediate steps will be taken to ease the burden
  of debt and high interest rates on farm loans.
• Rural cooperative credit system will be nursed
  back to health.

3
Some recent GOI initiatives

• Targets fixed to double agriculture credit flow
  in 3 years - increase _at_ 30 per year
• Debt restructuring in respect of farmers in
  distress and farmers in arrears to make all
  farmers eligible for fresh credit
• Banks to finance for redeeming the loans taken by
  farmers from private moneylenders
• Com. Banks to finance _at_ 100 farmers/ branch - 50
  lakh new farmers in a year
• New investments 2 to 3 projects/ branch
• Refinements in KCCs and Scale of Finance
• Com. Banks to finance 10 Agri- Clinics/District

4
Achievement during 2004-05

• Credit flow
• Target for 2004-05 - Rs.1,04,500 crore
• Achievement Rs.1,08,500 crore
• Target for 2005-06 Rs. 1,41,050 crore
• Financing new farmers
• Target- 50 lakh Achievement (Jan., 05) 58.20
  lakh
• Restructuring of loans - as on Jan., 05
• Farmers in distress Rs. 6036.56 crore
• Farmers in arrears Rs.1436.97 crore
• One Time settlementRs. 475.61 crore
• Financing Agri Clinics
• Target _at_ 10 per district 5000
• Achievement ( Jan., 05) 490

5
Major Issues in Agri. Credit

• Poor health of credit cooperatives
• Low share of RRBs (11)
• High cost of borrowing - Cost of borrowing
  vis-a-vis rate of interest?
• Perceived high risk associated with agriculture
  lending
• Hassles in credit delivery viz.complex
  documentation, collateral requirement, delays,
  under financing
• Limited access to credit to MF/ tenant farmers/
  oral lessees/share croppers
• Provision of adequate timely credit

6
Future Agenda

• Reforming Credit Cooperatives Issues to be
  addressed
• Governance and regulation
• Capital adequacy
• Continued solvency, and
• Safety of public deposits
• To facilitate timely availability of credit,
  DCCBs should sanction credit limit to PACS in
  advance
• RRBs to emerge as niche operators their credit
  share to increase to at least 25.
• Need for encouraging a credit culture that
  provides incentive for repayment rather than
  default
• DLBC to ensure adequate timely availability of
  credit through adjustment in Scale of Finance

7
Future Agenda..

• Need for effective risk mitigation - production
  and price risk
• Correct regional imbalances in rural credit flow
• Cover all farmers within institutional credit
  fold
• Reverse declining capital formation in
  agriculture higher public investments,
  encourage private investments, improving
  infrastructure
• Promoting value addition in agriculture
  agro/food processing

8
Future Agenda - contd..

• Corporate Sector involvement in rural credit
  contract farming- legislative framework
• Role of State Governments -
• Effective extension and liaisoning with RFIs,
• Adequate publicity of Government initiatives
  intentions
• Demand side management enabling environment for
  facilitating hassle free credit flow
• Storage/processing marketing arrangements.
• Support for banks in dues recovery
• Revisit Stamp Duty structure on agricultural
  loans
• Creation of charge on the basis of declaration
• Computerisation of land records- lien marking
  instead of mortgaging land

9
Role of State / UTs

• Activate SLBC, DLBC BLBC
• Put in place an appropriate review and monitoring
  mechanism - Mid-term corrections in allocation of
  institution wise target
• Keep watch on interest rate movement on agri-
  loans and procedural complexities to remove
  distortions.
• Undertake pilot study on cost of borrowings

10
Risk Management and Crop Insurance

• Government sponsored National Agricultural
  Insurance Scheme (NAIS) in operation since Rabi
  1999-2000.
• Farm Income Insurance Scheme (FIIS) implemented
  on pilot basis in Rabi 2003-04 and Kharif 2004.
  Discontinued w.e.f. rabi 2004-05.
• Varsha Bima Yojana (Rainfall Insurance) being
  implemented by some insurance companies like
  ICICI- Lombard, IFFCO-Tokio, AIC on Pilot basis.

11
NATIONAL AGRICULTURAL INSURANCE SCHEME (NAIS)

• The scheme is implemented by 23 States and 2
  Union Territories.
• During first eleven crop seasons, 592 lakh
  farmers have been covered over an area of 1018
  lakh hectares.
• Claims to the tune of Rs. 4997.52 crores have
  become payable against the premium income of Rs.
  1689 crores.
• Crops covered are food crops (Cereals, Millets
  Pulses), Oil seeds and Annual Commercial/
  horticultural crops - Cotton, Potato, Sugarcane,
  Onion, Chilly, Ginger, Turmeric, Jute, Annual
  Banana, Pine-apple and Topioca.
• Government proposes to continue NAIS in its
  present form.

12
Constitution of the Joint Group

• Joint Group constituted by Govt. of India to
  study the improvements required in the existing
  crop insurance scheme submitted its report on
  20.12.2004.
• The Group has made recommendations for improving
  NAIS, covering Personal Accident Package
  Insurance Policy, encouraging private sector
  insurers weather insurance products etc.
• The Report of the Joint Group has been circulated
  to all States/UTs.
• Further consultation with all the stake holders
  will be done on the Joint Group recommendations.

13
Expectations from the States/UTs

• Create infrastructure for moving to Gram
  Panchayat (GP) as Unit Area of Insurance in
  respect of major crops ( even the NAIS requires
  this move)
• Arrange for identifying and training additional
  manpower required for moving to GP level for
  conducting additional CCEs.
• Arrangement for making available CCE data in
  time.
• Maintenance of Single Series of yield data.
• Strengthen upgrade weather stations
  infrastructure for implementing weather based
  insurance products.
• Take up location specific innovative crop
  insurance experiments
• Adequate provision in state budgets for
  settlement of claims in time.
• Display list of all insured farmers at GP office.
  Also arrange to display the list of benefited
  farmers together with claim amount soon after
  settlement of claims.

14
THANKS
15
Recommendations of the Joint Group

• Reduction in the unit area of insurance to the
  level of village panchayat for major crops.
• Threshold/guaranteed yield is proposed to be
  based on best 5 years out of preceding 7 years
  yield data.
• Indemnity levels will be 90 for low risk
  areas/crops and 80 for other areas/crops.

16
Recommendations of the Joint Group Contd.

• Coverage of pre-sowing/planning risks (i.e.
  prevented sowing on account of adverse seasonal
  conditions). The indemnity payable may range
  between 20 - 25 of sum insured.
• Post-harvest losses on account of cyclone are to
  be covered in coastal areas for a period of two
  weeks from harvesting provided the harvested crop
  is lying in the field.
• Uniform seasonality discipline for loanee and
  non-loanee farmers is to be followed in
  consultation with the States/UTs.
• On account payment of claims is to be made during
  the season on the basis of weather data or
  satellite imagery so as to make timely payment of
  claims.

17
Recommendations of the Joint Group Contd.

• An individual assessment of claims will be
  carried out in case of specified localized
  calamities viz. hailstorm, landslide and damage
  due to wild animals.
• Insurance scheme to be placed on actuarial
  regime. However, the premium to be actually paid
  by the farmers be suitably subsidized.
• AIC should expand its network in terms of
  district level franchise, rural agents,
  micro-insurance agents to provide better service
  to farmers.
• Insurance coverage should be provided to
  perennial horticultural crops and vegetables. A
  road map is suggested for designing and launching
  a pilot insurance scheme w.e.f. Kharif 2005
  seasons.

18
Recommendations of the Joint Group Contd.

• The Govt. should provide necessary solvency
  margin to AIC (as required under actuarial regime
  as per IRDA regulations) through budget
  allocation (non-plan).
• Banks will bear 25 per cent of net premium
  payable by loanee farmers subject to a maximum of
  1.00 percentage point of premium.
• The Govt. should allow private insurers in area
  based yield insurance on experimental basis. The
  method suggested would entail all insurers to
  enjoy premium subsidy at uniform rate.
• AIC should take up a pilot project on use of
  remote sensing applications in crop insurance,
  covering crop health, crop acreage, yield
  estimation reduction of sample size of CCEs
  etc.

19
Recommendations of the Joint Group Contd.

• Proposed crop insurance scheme (in place of NAIS)
  will continue to be compulsory for loanee
  farmers.
• The banks should display the list of all insured
  farmers at the village panchayat office.
  Further, the banks should also display the list
  of benefited farmers together with claim amount
  soon after the claims are received from
  implementing Agency.
• A single window approach is suggested for
  providing comprehensive package insurance to
  farmers. In this approach, crops will be covered
  under area approach and other assets under
  individual approach.
• Personal Accident Insurance and dwelling
  contents insurance should be made compulsory
  along with crop insurance.

20
Recommendations of the Joint Group Contd.

• Private sector should be encouraged to provide
  competitive environment and better service to
  farmers.
• State should be permitted to take up small
  experimental and innovative crop insurance
  products including weather insurance and
  insurance for horticulture and plantation crops
  in collaboration with AIC and other insurance
  companies.
• The existing infrastructure of IMD w.r.t. weather
  stations need up-gradation and automation to
  effectively feed data for weather insurance.
  Using the services of third party weather data
  providers should also be explored.
• There is no relevance for FIIS in the present
  form. The pilot project on FIIS, therefore,
  should be wound up w.e.f. Rabi 2004-05 season.