New Delhi: Public sector banks (PSBs) could soon start financing the entire value chain around specific agricultural products identified for each district, rather than lend separately to farmers and businesses along the chain. This cluster financing approach could, therefore, shift the focus from financing individuals to supporting the broader farm ecosystem around district-level products.
As per a proposed framework of the finance ministry's department of financial services, in coordination with the department of agriculture and farmers welfare, banks would get six months to draw up cluster-based lending plans, covering farmers and farmer producer organizations (FPOs) as well as aggregators, processors, storage and logistics providers, two people aware of the development said. Details of the proposal are still being finalized.
The banks must look to use management information system (MIS) databases and data-driven insights to refine their farm lending within 6-12 months, said the first person in the know, requesting anonymity.
The approach would be built around the government’s One District One Product (ODOP) clusters, with banks mapping the financing needs of each link in a product’s value chain, with support from the National Bank for Agriculture and Rural Development (Nabard), the person said. The aim is to plug credit gaps that can leave one part of the chain funded while others, such as aggregation, processing, storage or logistics, remain starved of capital.
Under the framework, banks would map the full value chain of an ODOP and incorporate it into a cluster-specific chapter of the annual credit plan, with segment-wise sub-targets, said the first person.
The framework specifically assigns the cluster-financing approach to all public sector banks and Nabard, while the MIS component is marked for all PSBs.
The approach seeks to finance the cluster as an integrated system, rather than treat each participant as an isolated credit exposure, said the second person cited above. “This could allow banks to address financing requirements across the value chain and reduce instances where one segment receives credit while the upstream or downstream links remain underfunded,” the person added.
Under the proposed norms, banks would use MIS databases and data-driven insights to refine loan products, identify credit gaps and improve credit penetration within clusters. They would assess credit demand against credit extended, ticket-size distribution, segments seeking credit and delinquency across different activities in the value chain, according to the people.
The proposed agricultural cluster-financing model envisages coordinated participation by farmers and farmer groups, input suppliers, aggregators and processors, logistics and cold-chain partners, financial institutions, insurers and risk-management providers, government agencies and markets.
The initiative seeks to promote at least one distinctive product from each district to support local employment, investment, manufacturing and exports. Products are identified by state and Union Territory governments based on local ecosystems, clusters, geographical indication (GI) tags and other factors. As of July, 1,244 products had been identified across 773 districts under the initiative, as per government data. The products span agriculture and allied activities, food processing, textiles and handloom, handicraft and manufacturing.
Commercial banks are already required to direct at least 18% of their eligible lending to agriculture, and the proposed ODOP framework seeks to channel such credit more effectively across the entire value chain.
“A district-level approach to agricultural credit is directionally very useful. Agricultural conditions, distress and value-chain gaps are often far more localized than state-level planning recognizes, so banks understanding the financing needs of a district and its major value chains can improve both the quality and productive use of credit,” said Shweta Saini, an agricultural economist and founder and chief executive of Delhi-based Arcus Policy Research.
However, Saini cautioned against using the ODOP framework to dictate what farmers should grow. “The caution is that ODOP should not become a mechanism to direct farmers on what to grow. Farmers must retain the flexibility to respond to prices, weather and agronomic conditions," she said. "The stronger opportunity is to use cluster financing to build the ecosystem around a district’s products, particularly aggregation, storage, processing, logistics, FPO working capital and other post-harvest infrastructure. In other words, finance the value chain, rather than prescribe the crop.”
FPOs could play a key role in the proposed value-chain approach by aggregating farmers and helping them access markets, processing and other services. The government’s Central Sector Scheme for Formation and Promotion of 10,000 FPOs had resulted in 10,000 FPOs being registered across the country as of 1 March 2026, government data shows.
A value-chain approach could help strengthen market linkages and reduce post-harvest losses, said Puneet Singh Thind, founder and director of the Northern Farmers Mega FPO.
