The problem between farmers and the banks lies in the hesitation of bankers to give loans to farmers and the massive entry barriers due to the procedural requirements of banks. Admittedly, the amount of loans taken by farmers from banks has increased considerably. In Gujarat, where farm prosperity has grown over the past decade, loans taken from banks for farming purposes have seen a ten-fold increase. Yet much needs to be done to facilitate bank loans to farmers.

While regulatory norms insist that 18 per cent of the total credit advanced by banks should be to agriculture, in actual practice direct agricultural advances amount to just 11 per cent or less of the net public sector bank credit. In case of private sector banks, this figure is an abysmal six per cent. But the only official effort to rectify the situation has been in the form of the report on the procedures of agricultural loans prepared by C.P. Swarnkar, chairman and managing director of Syndicate Bank, submitted to the government in April 2007. This report pointed out that bankers routinely made it difficult for farmers to take loans. The paper work, scrutiny of assets and procedures for investigations into previous loan records, remain cumbersome. Moreover, banks provided crop loans and insisted on the money being paid back with the next crop. So should the farmer need a loan for anything else or hope to defer the sale of his produce it would be almost impossible to access a bank. He, then, has no option but to take an informal loan on whatever terms it is available. Yet, beyond chiding the banks for their hesitation in advancing credit to farmers, the government has done little to help farmers obtain credit through formal sources.

... contd.