AgriStack alone won’t close rural credit gap; insurance, guarantees need fixing: NABARD chief

India’s push to digitise agriculture could make rural lending more targeted and data-driven, but credit guarantees, insurance and risk assessment will need to be strengthened if the country is to bridge the persistent gap in farm credit, NABARD chairman Shaji Krishnan V said.

With around 45% of India’s population living in rural areas and linked to the farm economy, a credit gap of about ₹1.3 lakh crore still remains, Krishnan said at the Global Fintech Fest in Mumbai on Thursday.

“We are adding layers to the India Stack which already has the identification layer. Now we need to link that identification, that is Aadhaar, with the activity,” he said adding that many farmers are engaged in agricultural activities but do not have adequate digital records linking them to the land or activity they undertake. Creating this link would help lenders establish the farmer’s economic activity and improve access to formal credit.

The government’s AgriStack initiative is expected to play a key role in this process. It brings together three important sets of information — the farmer’s identity, the land on which farming is undertaken and the crop being grown. However, agriculture being a state subject means the implementation of AgriStack will differ across states, Krishnan said.

Once this data is available, the next challenge is to ensure that the financial system can use it to provide farmers with the right products at the right time. NABARD has been working to connect the AgriStack with the India Stack and is also developing AI-based models that could help provide farmers with timely advice, particularly around weather-related risks.

Agriculture remains a relatively risky segment for lenders because several factors affecting farm income, particularly weather, are outside the farmer’s control. Agricultural NPAs, which were historically in double digits, have now fallen to around 5%, Krishnan said. However, there is still scope to bring them down further through higher productivity, better information and wider insurance coverage. “Risk emanates because these are uncontrollable things. NPA happens because of information asymmetry. Beyond that there is the hand of God coming in,” he said.

A key problem is that agricultural data already exists but remains spread across different systems. This makes it difficult for lenders to get a complete picture of a farmer’s activity and creditworthiness. Credit is also unevenly distributed across the country. Banks tend to lend more in regions where repayment rates are higher and the credit culture is stronger. As a result, some parts of the country continue to face a credit shortage even as overall agricultural lending grows. Krishnan said credit enhancement, credit guarantees and insurance gaps need to be fixed to address this imbalance and encourage banks to lend to farmers in higher-risk regions.

Insurance affordability remains another challenge. While the government has capped the farmer’s premium contribution at around 1.5-2% and bears the remaining cost, even this contribution can be difficult for some farmers. Some states have also opted out of the insurance scheme, he said.

NABARD is also building a state-specific database on climate-resilient agriculture, working with government agencies to improve the quality of information available for assessing farm risks.

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