A large part of Indian farmers still remains out of the banking ambit and those that can avail of banking services have to face high interest and transaction cost, said Reserve Bank of India governor D Subbarao.
By far the biggest challenge in farm credit is the demand-supply gap, Subbarao said, adding that even after giving interest rate subsidies, the weighted average lending rate for farmers has not reduced.
?We need further studies to understand whether the interest subvention scheme is distorting the flow of agricultural credit,? he said in a speech at an event organised by National Bank for Agriculture and Rural Development (Nabard).
Subbarao said high transaction costs have eroded the benefits from interest subvention since 2000.
Further, the financial health of some institutions that provide credit to farmers is also deteriorating, Subbarao said, adding that about 41 cooperative banks have not been given licences by RBI out of 313 cooperative banks that were operating without licences.
?We hope that over the next few months, these banks would meet the licensing criteria,? the governor said.
Subbarao also said that in order to tackle food inflation and increase farm productivity, it is necessary to focus on both agriculture and non-agriculture activities for credit disbursements.
