Banking Assign

7/27/2019 Banking Assign

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Agricultural financing 2014

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1] Prog. Name-PGDBM

2] Course Name- Banking and Finance

3]Details of the Students forming the Group.

Sr. No Name of the Student Roll Number

1 Juzer Husain 216

2 Kriti Khetan 232

3 Toseef Lukka 235

4 Litesh Mahakalkar 236

5 Shamoon Noorbhay 246

6 Paromita Modak 242

7 Seema Umashankar 259

8 Swarali Shinde 263


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Agricultural financing

Understanding of the Group regarding the Opportunity chosen for the paper and its Scope, its

Importance to the Nation.

Three-quarters of the developing world lives in rural areas, and about nine out of every ten individuals

depend upon agriculture for their livelihoods. Agricultural investment is often regarded as one of the

most efficient and effective ways to promote food security and reduce poverty, with some studies

demonstrating a four-fold reduction in poverty over other sectors. Though widely recognized for its

social impact, agricultural investment particularly to farmers and agricultural SMEs is also

recognized by the financial sector as a profitable growth business.

Agricultural enterprise is identified as a major opportunity for banks and financial institutions for the

following four reasons:

First, global food demand is expected to grow 50 percent by 2030, led by increasing global

population According to FAO figures, by 2018, world food consumption is expected toincrease by approximately 30 percent compared to the 2005 reported figures. In addition to

the population growth, the per capita caloric consumption is increasing and there is a major

shift in caloric sources with a projected doubling of meat consumption in China, India, and

Africa by 2030.

Second, farmers in countries like India can contribute to food security and improve their

incomes by increasing their productivity and the quality of the crops they produce. For this

they would need to invest in new technologies, access better inputs, improve farm and off-

farm practices, and invest in sustainable production methods for their crops.

Third, for financial institutions, agricultural lending provides the opportunity to diversify into

larger and broader portfolios. For example, during the economic crisis of 2008, agricultural

commodities were enjoying high prices and commodity sectors were showing some veryprofitable opportunities.

Fourth, innovative financing, risk mitigation, and distribution models hold some promise

that the risks and costs of agricultural lending can be managed.

Initiative on the part of the Govt. & steps taken in the form of Reforms, Institutions, Laws, Budgetary

support etc

An amount of Rs.100 crores set aside for "Agri-tech Infrastructure Fund"

To provide institutional finance to landless farmers, it is proposed to provide finance to 5

lakh joint farming groups of "Bhoomi Heen Kisan" through NABARD.

A target of Rs.8 lakh crore has been set for agriculture credit during 2014-15. Corpus of Rural Infrastructure Development Fund (RIDF) raised by an additionalRs.5000

crores from the target given in the Interim Budget to Rs.25000 crores.

Allocation of Rs.5,000 crore provided for the Warehouse Infrastructure Fund.

"Long Term Rural Credit Fund" to set up for the purpose of providing refinance support to

Cooperative Banks and Regional Rural Banks with an initial corpus ofRs.5,000 crore.

Amount of Rs.50,000 crore allocated for Short Term Cooperative Rural Credit.


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Sum of Rs.200 crore for NABARD's Producers Development and up liftment Corpus

(PRODUCE) for building 2,000 producers organizations over the next two years

Setting a credit target of Rs 8 trillion for banks, the budget also introduced several measures to

improve credit availability to landless farmers and farmer-producer organisations. While renewed

focus on long-term loans for asset creation is a welcome move, close monitoring of grantapplications may be required. Overall, the focus on asset creation and productivity enhancement

indicates a positive thrust to address the critical bottlenecks faced by the sector while creating an

enabling environment for sustained growth.

Regulatory Guidelines {RBI} and steps taken

Efforts of the RBI toward Promoting Agricultural Finance

The Reserve Bank of India in a developing economy like ours may be regarded as an engine of growth. It

not only regulates bank finance, but deliberately promotes development finance. It has made special

efforts in catering to the growing financial needs of agriculture, industry and export sectors of thecountry. Agriculture is the king-pin of Indias rural economy. Thus, rural credit agricultural finance

is the prerequisite of agricultural growth and development. Since the inception of planning in our

country, the Reserve Bank of India has been paying specific attention to promoting rural/agricultural

finance.

To strengthen the co-operative credit movement in the rural sector, the Committee recommended the

Integrated Scheme of Rural Credit, with the following main features:

(a) State Partnership:

The scheme envisages State partnership through contribution to the share capital of co-operative credit

institutions.

(b) Co-ordination:The scheme implies full coordination between credit and other economic activitiesmarketing and

processing, in particular.

(c) Administration:

The scheme insists on administration through an adequately trained and efficient staff, responsive to

the needs of the rural population.

(d) Production-oriented Loan Policy:

The scheme envisages a crop loan system for granting short-term co-operative credit to the farmers. It,

thus, forms a production- oriented loan policy.

Under the Integrated Scheme of Rural Credit, the Reserve Bank had to play a crucial role in the following

respects:

i. Development of co-operative credit,

ii. Expansion of co-operative economic activity: processing and marketing,

iii. Training of co-operative staff.

Steps taken by the Government & Banking Sector like introduction of Products, Processes.

Delivery Mechanism including Tech support.


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Government to establish two more Agricultural Research Institute of excellence in Assam and

Jharkhand with an initial sum of Rs.100 crore.

Rs.200 crore provided to open Agriculture Universities in Andhra Pradesh and Rajasthan and

Horticulture Universities in Telangana and Haryana.

A scheme to provide every farmer a soil health card in a Mission mode will be launched.

Rs.100 crore has been provided for this purpose and additional Rs.56 crores to set up 100 Mobile

Soil Testing Laboratories across the country.

To meet the vagaries of climate change a "National Adaptation Fund" with an initial sum an

amount of Rs.100 crore will be set up.

A sustainable growth of 4% in Agriculture will be achieved.

Technology driven second green revolution with focus on higher productivity and including

"Protein revolution" will be area of major focus.

To mitigate the risk of Price volatility in the agriculture produce, a sum of Rs.500 crore is provided

for establishing a "Price Stabilization Fund".

Central Government to work closely with the State Governments to re-orient their respective

APMC Acts.

Sum of Rs.50 crores provided for the development of indigenous cattle breeds and an equal

amount for starting a blue revolution in inland fisheries.

Transformation plan to invigorate the warehousing sector and significantly improve post-harvest

lending to farmers.

Commercial Banks and RRBs:In the post-nationalisation era, the RBI has initiated several measures to induce commercial

banks to increase their share in agricultural financing. The RBI introduced the Small Loans

Guarantee Scheme in 1971 for providing guarantee to commercial banks (including the RRBs)

against the risk of lending to farmers and agriculturists, among others.

Regional Rural Banks are specially confined to rural finance. The RBI Act included them in the

Second Schedule and as such, they are entitled to receive refinance assistance from the Reserve

Bank. To improve their resource position, the RBI has been providing them with refinance

facility up to 50 per cent of their eligible loans and advances at a concessional rate of interest,

i.e., 3 per cent lower than the operating bank rate.

Ground yet to be covered and recommendations as regards steps Group would like to

recommend

Agricultural insurance scheme

Development of agricultural insurance markets represents an opportunity for public-

private partnerships to foster access to finance and improve agricultural productivity.

Governments can actively support growth of agricultural insurance through investments

in weather stations and data collection, such as weather and area yield data, necessary


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for commercial products to be developed, which may also require suitably designed

premium support. The government can also promote more traditional yield-based crop

insurance through appropriate incentives and support systems. Fiscal

support is necessary for reinsurance markets and funding for catastrophic risks.

Credit BureausSupport to extend credit reference bureaus, as well as other forms of client

identification and credit reporting, into rural areas is beneficial to facilitate increased

lending to agricultural producers. Efforts to establish credit bureaus are often

concentrated in urban areas, but access to better client information is especially

important in decision-making for agricultural loans given moral hazard concerns

combined with the broad geographic dispersion of rural clients. There are promising

innovations, such as biometric and fingerprint data, which support client identification

and reporting, but pricing and fee systems must be appropriate for rural clientele and

smaller loan sizes.

Collateral registriesImproved collateral registries for movable collateral and development of alternative

forms of collateral are particularly important to increase lending in the agriculture

sector. There are severe constraints to medium- and long-term finance for agricultural

producers, yet investments in assets such as machinery, equipment, and irrigation are

necessary to enhance productivity and agricultural development. Movable collateral

registries, which support borrowers ability to pledge such assets as collateral and

lenders ability to register their charge over these assets, are integral to support long-

term investments in agricultural production and value chains, especially when land

tenure rights are not secure. Additionally, improving creditor rights to register security

interests on sales contracts can support increased lending via value chain and contract

farming structures.

Challenges

o Seasonality with long gestation period

o Exposure to systematic risk

o Limited collateral

o Higher transaction cost

o

Banks competing priorities

o Limited access to long term funding

Documents

Banking Assign