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RBI’s priority sector lending guidelines have a key role to play in providing credit to small farmers, artisans and micro firms
Bihar, one of India’s most populous, has a predominantly agrarian economy. Per Census2011 at least 88 per cent of the State’s population reside in rural areas. Per Period Labour Force Data, close to 50 per cent of the workers are employed in agriculture even today. Despite recent strides in infrastructure and economic development, Bihar continues to face challenges in accessing formal credit, particularly in rural areas.
As per NABARD’s State Focus Paper 2024-25, over the last five years (2018-19 to 2022-23), Bihar has seen a notable 101% increase in Ground Level Credit (GLC), rising from INR 1,09,582 crore to INR 2,20,520 crore.
This growth includes a 91 per cent surge in priority sector advances, which went from INR 75,894 crore in 2017-18 to INR 1,44,961 crore in 2022-23. Despite this progress, certain sectors show areas of concern.
For instance, while GLC for agriculture and allied activities grew by 62.77 per cent, crop loan disbursements declined from INR 19,446 crore in 2018-19 to INR 15,395 crore in 2022-23.
Additionally, the proportion of priority sector lending within overall GLC has decreased, from 69 per cent to 66 per cent over the same period.
As of March 2023, Bihar’s Credit Deposit (CD) Ratio stands at 53.01%, significantly lower than the national average of 75.80%, according to data from the State Level Bankers’ Committee (SLBC)., a reflection of how a significant portion of Bihar’s population remains under served by formal financial systems.
Per RBI master directions on Priority Sector Lending (PSL), 22 out of 38 districts have aper capita PSL flow of less than INR 9,000, impacting small farmers, artisans, and MSMEs.
Despite an increase in ground-level credit flow in the state, these figures highlight a substantial untapped credit potential. NABARD projected that there is INR 2,43,093 crore credit potential for Bihar in 2024-25.
RBI’s Master Directions can significantly help Bihar by ensuring that underserved sectors of the economy receive adequate financial support.
Under PSL incentive framework, fresh priority sector loans in districts with lower credit flow(per capita PSL less than INR 9,000) will be assigned a higher weight of 125 per cent. This incentivises banks to allocate more resources to underserved regions, including Bihar’s 22low-credit districts.
Banks are required to allocate a portion of their lending to critical sectors, with 18 per cent of Adjusted Net Bank Credit (ANBC) directed toward agriculture, including a 10 per cent target specifically for Small and Marginal Farmers (SMFs). Additionally, 7.5 per cent of ANBC must be allocated to micro-enterprises.
The Bihar government can play a proactive role in deepening credit penetration by leveraging the Business Correspondent (BC) ecosystem as a periodic monitoring mechanism. A mission-mode approach can be adopted to drive loan penetration through district-wise campaigns, such as loan melas, financial inclusion awareness drives, and mass outreach programs, particularly in the 22 districts with low per capita PSL. A targeted goal to double credit penetration over the next five years can be achieved through a robust expansion of the BC network, particularly increasing the presence of bank sakhis (women-led BCs) across rural areas. This will not only deepen financial inclusion but also empower women by making them integral to the credit delivery process.
The adoption of digital platforms for loan disbursement, mobile banking apps, and online credit assessments can significantly reduce the time and cost of accessing credit. Bihar government can also enhance the role of its BC network by equipping them with digital tools, enabling seamless onboarding, real-time monitoring, and better financial literacy for borrowers.
The updated PSL guidelines provide a critical opportunity for Bihar to address its regional disparities in credit access, particularly in underserved districts.
Targeted interventions, like loan melas and a focus on expanding the BC network with a special emphasis on women-led “bank sakhis,” will be key to doubling credit penetration over the next few years. With a coordinated, mission-mode approach, Bihar can unlock its economic potential.
This article first appeared in the Business line on 21 October 2024.