RBI working group supports no-frills accounts for farmers

The Radhakrishna experts group, in its report, had made wide-ranging recommendations to tackle the issue of agricultural indebtedness. The recommendations included immediate credit-related measures, reforms in financial and institutional architecture, risk mitigation measures, among others.

After the submission of the report the RBI’s internal working group was set up under the chairmanship of Mr V.S. Das, executive director of the RBI, to study the recommendations made by Radhakrishna experts group, has supported the committee’s suggestion to banks that they should open "no-frills" accounts in the name of small farmers to lend minor amounts as well as term loans.

The RBI internal group’s suggestion has come soon after the UPA government in the Budget announced a Rs 60,000-crore loan waiver package to debt-ridden farmers. However the experts group had included in its suggestions such a loan waiver package.

Professing for financial inclusion, the Radhakrishna experts group in its report has pragmatic that institutional credit should be extended to those excluded farmer households who do not have access to any source of credit. This should involve all institutions — scheduled commercial banks, regional rural banks and cooperatives and through them, agencies like business facilitators and business correspondents.

According to the experts group and agreed to by the RBI study, the first phase of this program, should focus on universal establishment of "no-frills" bank accounts.

In many cases, bank accounts should be accompanied by a small overdraft low-value general purpose credit card for small amount for first time entrants in banking system. Insurance policies are also part of the program in some districts.

"Routing of all payments to such households through the bank accounts, especially National Rural Employment Guarantee Scheme (NREGS), pension payments and other relief and social security payments will go further in capturing all cash flows in such bank accounts and encourage larger extension of credit to poor rural households," the RBI working group report said.