The Reserve Bank of India appointed a one-man Committee of Shri R. V. Gupta, then Dy. Governor of RBI in December 1997 with a mandate to suggest measures for the removal of the constraints faced by the Commercial Banks in increasing flow of credit to agriculture.
Introducing new products and services and simplifying procedures and methods of working with a view to enabling rural borrowers to access adequate and timely credit from the commercial banking system.
The Report of the Committee was submitted to Reserve Bank of India on 21 April 1998. The major recommendations are:
Simplification of Procedures
i. Simplify application form and documentation.
ii. Delegation of powers to Branch Managers to dispose of at least 90 per cent of the applications.
iii. Non-insistence of “No Dues Certificate”, i.e., the certificate from borrowers saying that they do not owe any money to banks on previous borrowings.
iv. Abolition of Stamp Duty on mortgage of agricultural land for obtaining loans from banks.
v. Non-insistence on kind component, i.e., compulsory allocation for materials other than cash.
vi. Value of security should be commensurate with the size of the loan.
vii. Discourage additional collateral by way of guarantors where the land has already been mortgaged.
viii. Security and collateral requirements not to be prescribed by RBI or any other agency. Existing guidelines to continue for small loans up to Rs.10, 000.
Appraisal of Credit Needs
i. Include under short-term credit needs, the requirements of the farm related production, post-harvest and threshold expenses.
ii. To be based on borrowers’ income stream, track record, credibility and capability.
iii. Do away with scales of finance for ST loans and Unit Cost of investment credit and allow flexibility to banks in fixing these requirements with the available expertise with them.
Recovery of Loans
i. State Governments to set apart dedicated teams for recovery of bank loans.
ii. Improving the recovery climate through rurally-oriented field publicity campaigns.
iii. Tangible incentives to prompt repairs such as interest benefit or rebate besides offering a finer interest rate to those who opt for a savings module linked to the loan product.
i. Rationalize the number of returns to be compiled by banks so as to reduce paper work.
ii. Periodical visits to few service area villages and convening meetings of farmer borrowers to assess their problems and difficulties.
iii. Compulsory rural posting of staff may be done away with.
iv. Performance measurement to be based on number of new clients, volume of loaning and loan recovery.
v. Package of incentives like foreign exposure, training in prestigious institutions within the country, weight age in promotion, posting to centre of choice, improvement in accommodation and education facilities and corporate recognition for outstanding performance.
Commercial Banks to be made free to fix the rates of interest for small loan amounts as has been done in the case of Co-operative and RRBS.
Priority Lending Target
Target of 18 per cent for agricultural loans to be done away with and instead be based on the flow of credit through preparation of special agricultural credit plans.
i. Prescribe formats to enhance credit flow to NGOs, SHGs.
ii. Banks to disseminate recommended package of practices for crop cultivation regularly.
Co-operative Banking in India
i. Banks to be made free to operate outside their Service Area.
ii. Banks to design specific products for non-farm sector.
iii. Tenant farmers to be brought under banking.