Steps required to be taken

♤ Priority Sector Lending Certificate (PSLCs): it will provide a market-driven incentive for efficiency, will enable banks to sell their surplus lending and thus earning a premium for their efficiency/geographical spread. RBI has already issued instructions on trading in Priority Sector Lending Certificates in April this year.

♤ Popularising Negotiable Warehouse Receipts (NWRs): The small and marginal farmers with Kisan Credit Cards (KCCs) can also avail the benefit of interest subvention scheme extended for a further period of up to six months (post-harvest) against Negotiable Warehouse Receipts (NWRs) at the same rate as available to crop loan to discourage distress sale of corps by small farmers.

♤ Creating Big-sized banks: which unlike smaller ones, have the ability to cross- subsidize their stakeholders. Former RBI deputy governor K.C. Chakrabarty has highlighted the importance of big banks in improving allocation efficiency between rural and urban areas.

♤ The government may consider removing the subvention restrictions on interest rates. Then banks would be free to set interest at rates that cover their costs and it would make loans viable.

♤ The bank may channel credit through non-bank intermediaries such as MFIs and allow the MFIs to charge rate of interest above the rate charged by banks.

♤ There should be provisioning for delivering institutional credit to poor farmers without collateral. It may lead to increased credit availability to rural poor.

♤ Banking correspondents need to be appointed and adequately incentivized with commissions linked to loan repayments.

♤ There is also a need to incentivize the financial institutions to provide farmers with credit.