A panel of the Reserve Bank of India (RBI) recommends the idea of setting up a federal body, similar to the GST Council, to reform the sector. The federal body must be strong enough to boost credit flow in the agricultural sector; the other perks of implementing this federal body could be a direct transfer of subsidy and no farm loan waivers.
The panel of RBI members also recommended banks to develop a management information system (MIS) that can flag the loans that are sanctioned against gold as collateral for effective monitoring of how the funds were used.
In February 2019, RBI had set up an internal working group to figure out the reasons for the regional disparity and other agriculture credit-related issues. They were also expected to suggest solutions that address the issues related to accessing agricultural credit from recognised financial institutions.
Regarding the farm credit flow, the panel suggested that farm loan waivers must be avoided. It also stated that the Direct Benefit Transfer (DBT) scheme must replace schemes such as interest subvention or subsidy; similar to the case of LPG and fertilisers. In addition, the panel asked the banks to increase the credit limit to allied farm activities and provide consumption loans for farmers of up to Rs.1 lakh.
Among many recommendations, the panel has mentioned that state governments should encourage digitisation by updating all the land records. They must also give banks access to this information so that the banks can verify the land title online; submission of land title documents must be avoided.
Also, state governments with highly restrictive legal framework must modify them on the basis of the Model Land Leasing Act, proposed by NITI Aayog.
The current limit for waiving collateral security by the banks of Rs.3 lakh must be revised to Rs. 5 lakh under the existing KCC guidelines; the tie-up arrangements must be done between the producers and processing units without middle-men.