How do you see the current status of agriculture and food financing in India?
We can answer it in couple of ways.First, the public distribution by Food Corporation of India. In this form, bankers are giving annual credit of around 40,000 crores. However, it is not enough. The Government of India has not classified food processing industry as primary sector, so they do not get appropriate financing. In agriculture, they want to finance agri business which is easy rather than financing directly to agriculture. Financing direct agriculture is tough as they have to incorporate maximum number of farmers, with the same amount one can finance a single food processing firm. NABARD is the apex institution for agriculture financing, but , unfortunately, it does not do much in direct financing, they only refinance the banks. Also NABARD has no expertise in food financing.
Food processing industry does not get adequate finance from the banks as they lack understanding of the sector. Banks like Rabo Bank or YES Bank have focused on these sectors, we have built up expertise and hired people who are devoted to do it. Rabo is 100 percent dedicated to food and agriculture and YES Bank has also a dedicated division for this sector.
What are the challenges farmers and agriculture companies facing in India?
Land holding is very fragmented in India. If a company collects 100 tonnes of food grain they have to collect it from around 50 farmers. It means, agri-business companies do not get aggregated produce. In this way, they face problems in dealing with many people. Also, it is very inconsistent in maintaining the quality of the product.
In fragmented farming model, farmers cannot use best inputs. Post harvest, they cannot sell their produce properly, efficiently and have to depend on the middle men. They are not properly informed about the mandi rates. There is no transparency in the system. In foods and vegetables, farmers do not get more than 25-30 percent of the ultimate selling price of their produce. It means, the biggest share goes to the intermediaries and retailers.
The other problem farmers are facing is financing; they do not have easy excess to finance, which leads them to small money lenders who charge them high interest.
And how they can be tackled?
This can be handled by the rural branches of the banks. They need to be nearer to the ultimate beneficiaries. India needs to revive rural cooperative banking system tremendously, which is now rotting in the current scenario. Unfortunately, the banks are focusing on business correspondents in the villages which cannot fulfil the demand.
Another thing is, famers start investing with the sowing and get the payment only afterthe post harvest selling of their crops. This takes around six months. Hence, the issue is, how they would spend on their daily livelihood needs. For this period, they need consumption loan.There is no provision for it for the farmers in India. Then, again they are bound to deal with moneylenders.
There should be more appropriate crop and weather insurance. There are some in the market, but they still need to evolve as they do not cover all the crops. Another issue is data dissemination.
The financing companies do not seem to be very keen on agri finance. How can they be attracted to this sector?
Banks are not financing agriculture on their own, they are doing it because of RBI’s guidelines, under which they are bound to finance at least 18 percent. Banks think it as a bad debt or a loss making effort. They do not have expertise to evaluate the risk and expertise to monitor that portfolio.
If a banker lends to a company, it gets the money paid through monthly instalments. Whereas, in agriculture, monthly EMIs cannot be fixed. India’s agriculture is dependent on monsoon. If a bad monsoon affects agriculture then it is not easy for a farmer to pay back the money on fixed instalments. So, there is a need for the banks to get expertise in agri financing.
What relaxation, in terms of regulation and economic policies, the sector seeks from the government?
The way government of India has formulated Industrial Development Bank of India (IDBI) for industry, National Housing Bank for housing loan, Women Bank for women, there is a need to set up a specialised national food processing bank. Another thing is to change the policy of NABARD. Rather than refinancing to the banks, it can directly finance the farmers as it has a great network in the remote areas of India.
Do you think the RBI’s whip of mandatory 25 percent bank branches in rural India would help the farmers?
Yes, it should. Those branches should be oriented and trained to handle agri and food financing. Spreading the network alone is not enough. They would also need focused manpower to evaluate those challenges. In today’s scenario people in rural India are moving from farm job to non-farm job what do you think can be done to draw them back to agriculture?
The simple answer is, make farming job more remunerative. One thing we need to prioritise is land reforms. There is a need to allow farmers to lease land. If they will get handsome benefit in agriculture, why would they move to nonfarm jobs.
Kindly share with our readers your initiatives in agri financing.
We have invested our first pool of money completely. Now we are in a process of raising new pool of money. The next fund is double in size which we are now in the process of raising. So investors who understand the specific feature of agriculture and food business are very welcome to invest. We only invite those investors who understand that. If tomorrow there is a weak monsoon in the country, they need to have patience. We want people with patience with their capital, some understanding, some appreciation of the special nature of business like Rabo Bank.