Agricultural Credit in India
In this chapter we will discuss about Agricultural Credit in India. After reading this chapter you will learn about: 1. Meaning of Agricultural Credit in India 2. Types of Agricultural Credit in India 3. Sources 4. Disbursement in Recent Years 5. Problems 6. Suggestions 7. Conclusion.
Meaning of Agricultural Credit:
Agricultural credit is considered as one of the most basic inputs for conducting all agricultural development programmes. In India there is an immense need for proper agricultural credit as Indian farmers are very poor. From the very beginning the prime source of agricultural credit in India was moneylenders.
After independence the Government adopted the institutional credit approach through various agencies like co-operatives, commercial banks, regional rural banks etc. to provide adequate credit to farmers, at a cheaper rate of interest. Moreover, with growing modernisation of agriculture during post-green revolution period the requirement of agricultural credit has increased further in recent years.
Types of Agricultural Credit:
Considering the period and purpose of the credit requirement of the farmers of the country, agricultural credit in India can be classified into three major types:
(a) Short Term Credit:
The Indian farmers require credit to meet their short term needs viz., purchasing seeds, fertilisers, paying wages to hired workers etc. for a period of less than 15 months. Such loans are generally repaid after harvest.
(b) Medium Term Credit:
This type of credit includes credit requirement of farmers for medium period ranging between 15 months and 5 years and it is required for purchasing cattle, pumping sets, other agricultural implements etc. Medium term credits are normally larger in size than short term credit.
(c) Long Term Credit:
Farmers also require finance for a long period of more than 5 years just for the purpose of buying additional land or for making any permanent improvement on land like sinking of wells, reclamation of land, horticulture etc. Thus, the long term credit requires sufficient time for the repayment of such loan.
Sources of Agricultural Credit in India:
In India, agricultural credit are being advanced by different sources. The short term and medium term loan requirements of Indian farmers are mostly met by moneylenders, co-operative credit societies and Government. But the long-term loan requirements of the Indian farmers are also met by moneylenders, land development banks and the Government.
Nowadays, the long term and short term credit needs of these institutions are also being met by National Bank for Agricultural and Rural Development (NABARD).
Sources of agricultural credit can be broadly classified into institutional and non-institutional sources. Non-Institutional sources include moneylenders, traders and commission agents, relatives and landlords, but institutional sources include co-operatives, commercial banks including the SBI Group, RBI and NABARD.
Table 7.15 shows the contribution of these different sources to the total agricultural credit in India since 1951- 52 to 1996.
It can be revealed from Table 7.15 that among all the different non-institutional
sources the contribution of money lenders was highest and that was to the extent of 69.7 per cent. But its contribution gradually came down to 49.2 per cent in 1961-62 and then to 7.0 per cent in 1996. Total contribution of non-institutional source towards agricultural credit has gradually declined from 92.7 per cent in 1951-52 to 25.0 per cent in 1996.
The share of institutional sources to the total agricultural credit which was 7.3 per cent in 1951-52 gradually increased to 18.7 per cent in 1961-62 and then to 75.0 per cent in 1996. Out of these institutional sources, co-operatives contributed 40 per cent and commercial banks contributed 30.0 per cent of the total farm credit in 1996.
I. Non-Institutional Sources:
(i) Moneylenders:
From the very beginning moneylenders have been advancing a major share of farm credit.
Moneylenders are of two different types:
(a) Professional moneylenders
(b) Agriculturist moneylenders.
These moneylenders were supplying a major portion of agricultural credit (69.7 per cent in 1951-52) and indulged into malpractice like manipulation of accounts and charged exorbitant rate of interest on their loan- often 24 per cent and over.
Due to all these factors the share of moneylenders in total farm credit has declined sharply from 69.7 per cent in 1951-52 to 36.1 per cent in 1971 and then to only 16.1 per cent in 1981 and then to 7.0 per cent in 1995-96.
(ii) Traders and Commission agents:
Traders and commission agents are also advancing loan to the agriculturist for productive purposes before the maturity of crops and then force the farmers to sell their crops at very low prices and charge heavy commission. This type of loans is mostly advanced for cash crops.
The share of these traders in farm credit increased gradually from 5.5 per cent in 1951-52 to 8.8 per cent in 1961- 62 and then sharply declined to 5.0 per cent in 1996. Thus its importance has been declining in recent years.
(iii) Relatives:
Cultivators are also normally borrowing fund from their own relatives in times of their crisis both in terms of cash or kind. These loans are a kind of informal loans and carry no interest and are normally returned after harvest.
The importance of this source of farm credit is also declining as its share of agricultural credit has already declined from 14.2 per cent in 1951-52 to 8.7 per cent in 1981 and then to 3.0 per cent in 1995-96.
(iv) Landlords:
In India, small as well as marginal farmers and tenants are also taking loan from the landlords for meeting their financial requirements. This source has been following all the ill-practices followed by money-lenders, traders etc.
Sometimes landless workers are even forced to work as a bonded labour. The share of this source to rural credit has increased from 3.3 per cent in 1951-52 to 14.5 per cent in 1961-62 and then sharply declined to 8.8 per cent in 1981 and then to 10.0 per cent in 1995-96.
Thus, the non-institutional sources of farm credit have been facing serious loopholes like exorbitant rate of interest, loan for unproductive purposes, non-repayment of loan etc.
II. Institutional Sources:
The main motive of institutional credit is to assist the farmers in raising their agricultural productivity and maximising their income. Institutional credit is also not exploitative in character. The following are some of the important institutional sources of agricultural credit in India.
(i) Co-operative Credit Societies:
The cheapest and the best source of rural credit in India is definitely the co-operative finance. In India the active primary agricultural credit societies (PACS) cover nearly 86 per cent of the Indian villages and account for nearly 36 per cent of the total rural population of the country. The share of co-operatives in the total agricultural credit increased to nearly 40 per cent in 1996 as compared with only 3 per cent in 1951-52.
In 1993-94 nearly 88,000 primary agricultural credit societies (PACS) of India provided Rs 6461 crore as short term and medium term loans to the farmers. In 2006-2007, the same loan has increased to Rs 42,480 crore, which was financed by co-operative banks.
But these co-operatives have a long way to go. In some states like Bihar, West Bengal, Orissa and Rajasthan the co-operative movement did not spread much of its net world. Even in some places the working of the co-operatives had been wrecked hopelessly by unscrupulous and dishonest members leading to large scale sufferings of huge number of needy farmers.
(ii) Land Development Banks:
Land development banks are advancing long term co-operative credit for 15-20 years to the farmers against the mortgage of their lands for its permanent improvement, purchasing agricultural implements and for repaying old debts. The number of state land development banks (SLDBs) increased from 5 in 1950-51 to 19 as on June 1986 which again consisted of 2447 Primary Land Development Banks (PLDBs) branches.
The amount of loan sanctioned annually by these PLDB branches has increased from Rs 3 crore in 1950-51 to Rs. 2039 crore in 1993-94. But benefits from these land development banks could not reach to small farmers and only the big landlords have been taking all advantages out of it. At present there are 19 central and 733 primary LDBs. In 1997, these banks advanced loan worth Rs 1,744 crore.
(iii) Commercial Banks:
In the initial period, the commercial banks of our country have played a marginal role in advancing rural credit. In 1950-51, only 1 per cent of the agricultural credit was advanced by the commercial banks. But after the nationalisation of commercial banks in 1969, the commercial banks started to extend financial support both directly and indirectly and also for both short and medium periods.
With the help of “village adoption scheme” and service area approach the commercial banks started to meet the credit and other requirements of the farmers. They also sponsored various regional rural banks for extending credit to small and marginal farmers and rural artisans just to save them from the clutches of village moneylenders.
Till 1969, direct advances by the commercial banks were restricted to only Rs 44 crore. But as on March 2007 the amount of loan has increased to Rs 1,40,382 crore. During 2006-2007 commercial banks along with Regional Rural Banks extended nearly 79.1 per cent of the total institutional farm credit in our country.
Again in 1999-2000, disbursements of agricultural advances by public sector banks under Special Agricultural Credit Plan (SACP) were Rs 19,755 crore.
Commercial banks are finding difficulty in advancing loans to the farmers particularly in respect of lending techniques, security, recovery etc. and are expected to overcome these gradually. But the commercial banks are not very much interested to advance loan to small and marginal farmers and as on March 1997 their farm credit was restricted to only 13.5 per cent of total bank credit.
The share of commercial banks in total institutional credit to agriculture is almost 69.0 per cent in 2006-2007.
(iv) Regional Rural Banks:
As per the recommendations of working Group on Rural Banks the Regional Rural Banks (RRBs) were established in 1975 for supplementing the commercial banks and co-operatives in supplying rural credit. Since 1975 these Regional Rural Banks are advancing direct loans to small and marginal farmers, agricultural labourers and rural artisans etc. for productive purposes.
Till June 1996, in total 196 RRBs have been lending annually nearly Rs 1500 crore to the rural people and more than 90 per cent of these loans were also advanced to the weaker section.
At the end of 1988 these RRBs jointly advanced loan to the extent of Rs, 2,804 crore among 11 million persons lying below the poverty line. In 2006-2007, the RRBs have disbursed agricultural credit amounting to Rs 20,435 crore which is just 10.05 per cent of total institutional credit to agriculture.
(v) Government:
Another important source of agricultural credit is the Government of our country. These loans are known as taccavi loans and are lend by the Government during emergency or distress like famine, flood etc. The rate of interest charged against such loan is as low as 6 per cent.
The share of the Government in the total agricultural credit has increased from 3.1 per cent in 1951-52 to 15.5 per cent in 1961-62 but then the share declined to only 5.0 per cent in 1996. During 1990-91, the state Governments had advanced nearly Rs 350 crore as short-term loan to agriculture. But the taccavi loan failed to become very much popular due to official red tapism and corruption.
Table 7.16(a) shows the flow of institutional credit to agriculture.
Change in Relative Share of Sources of Institutional Credit:
The relative share of the sources of institutional credit has been changing after the nationalisation of commercial banks, which can be seen from Table 7.16(a).
Table 7.16(a) reveals the changes in relative share of sources institutional credit. It is observed that after the nationalifiation of U commercial tanks of India in 1969, the commercial banks as a whole have increased consistently its share in institutional credit to agriculture sector from 38.4 per cent in 1980-81 to 75.8 per cent in 2008-09.
Resultantly, the relative share of co-operative societies declined from 61.6 per cent in 1980-81 to 15.3 per cent in 2008-09. Again, the share of co-operative societies in institutional credit increased to the level of 18.3 per cent and the Share Of commercial banks declined to 71.2 per cent in 2012-13. However, the RRBs have been contributing about 8 to 10 per cent of total institutional agricultural credit over the same Despite phenomenal increase in the volume of overall agricultural credit, there is a serious problem of over-dues which has been inhibiting credit expansion on the one hand and economic viability of the lending institutions especially the cooperatives and the RRBs, on the other hand. The waiver of agricultural loans in 1990 has further aggravated the problem of recovery.
In order to strengthen the co-operative credit structure of the country, the National Bank for Agricultural and Rural Development (NABARD) is contemplating an institutional strengthening programme. The Government has also introduced certain measures for revitalising the co-operatives on the recommendations of the Agricultural Credit Review Committee (1989).
These measures include amendment to state co-operative laws, augmenting the reserve base of the Primary Agricultural Credit Societies (PACS), holding elections of co-operative bodies, revitalising PACS by business development planning and formulating Deposit Insurance Guarantee Scheme for PACS.
In view of the increase in prices of agricultural inputs and with a view to enabling the NABARD to extend adequate credit support for the rabi crop operations, Reserve Bank of India has also announced additional lines of credit for short-term agricultural operations in January 1993.
Measures taken in 1998-99 to Improve Credit Flow to Agriculture:
In order to improve the flow of credit to agriculture, the Government has introduced the following measures in 1998-99:
(i) Procedural simplification for credit delivery has been made (as per R.V. Gupta Committee Report) through rationalisation of internal returns of banks.
(ii) More powers have been delegated to branch managers to raise the credit flow to agriculture.
(iii) Introduction of composite cash credit limit to farmers, introduction of new loan products with saving components, cash disbursement of loans, dispensation of no due certificate and discretion to banks on matters relating to margin security requirements for agricultural loans above Rs 10,000.
(iv) Introduction of at least one specialised agricultural bank in each state to cater to the needs of high tech.
(v) Introduction of cash credit facility.
(vi) Insuring Kisan Credit cards to farmers to draw cash for their production needs on the basis of the model scheme prepared by NABARD.
(vii) The Government has made arrangement for hassle free settlement of disputed cases of over dues.
(viii) To augment Rural Infrastructural Development Fund (RIDF) with a corpus of Rs 10,000 crore with NABARD to finance rural infrastructure development projects by states.
Thus the flow of institutional credit for agriculture and allied activities which was Rs 31,956 crore in 1997-98 is estimated to have increased to Rs 64,000 crore in 2001-02. The total credit now from all agencies is projected to reach the level of Rs 82,073 crore by 2002-03.
The total credit now to agriculture during the period 1997-2002 is likely to be of the order of Rs 2,33,700 crore which is close to the Ninth Plan projection of Rs 2,29,750 crore.
For the Tenth Plan period (2002-07) the credit flow into agriculture and allied activities from all banking agencies is projected at Rs 7,36,570 crore, which is more than three times the credit flow during the Ninth Plan.
Farm Credit Package:
The Government of India announced the “Farm credit package” in June 2004 which aimed at doubling the flow of institutional credit for agriculture in the ensuing three years. Accordingly, the credit to the farm sector got doubled during two years, i.e., from Rs 86,981 crore in 2003-04 to Rs 1, 80,486 crore in 2005-06, as against the stipulated time period of three years.
The credit flow continued to increase at Rs 2, 29,401 crore in 2006-07 and then to Rs 3, 84,514 crore in 2009-10 and finally to Rs 6, 07,375 crore in 2012-13.
Steps Taken to Raise Credit Flow to Agriculture:
In recent years, the Government has taken some definite steps for raising the credit flow to agricultural sector.
Credit
(i) Targeting:
Targeting practice is followed for raising the flow of agricultural credit.
(ii) Crop Loans:
Arrangement has been made to provide crop loan to formers. Accordingly, farmers have been availing of crop loans up to a principal amount of Rs 3, 00,000 at 7 per cent rate of interest.
(iii) Discouraging Distress Sale:
In order to discourage distress sale of crops by farmers, the benefit of interest subvention has been made available to small and marginal farmers having Kishan Credit Cards for a further period of up of six months (post-harvest) against negotiable were house receipts (NWRs) at the commercial rates.
(iv) Relief for Natural Calamities:
In order to provide relief to farmers on occurrence of natural calamities, interest subvention of 2 per cent will continue to be available to banks for the first year on the .
Problems of Agricultural Credit in India:
Since independence, the institutional agricultural credit structure in Indiia was very poor. In the post-independence period, various attempts were made by the Government for enriching the institutional agricultural credit structure of the country leading to continuous growth in the base and sources of agricultural credit.
loan amount on account of natural calamities and such restructured loans will attract normal rate of interest from the second year onwards as per the policy laid down by the RBI.
The following are some of these problems:
(i) Insufficiency:
In spite of expansion of rural credit structure, the volume of rural credit in the country is still insufficient as compared to its growing requirement arising out of increase in prices of agricultural inputs.
(ii) Inadequate Amount of Sanction:
The amount of loan sanctioned to the farmers by the agencies is also very much inadequate for meeting their different aspects of agricultural operations.
(iii) Dismal Recovery of loans:
Nearly 40-42% of the loans have remained unrecovered during the last 3-4 years.
(iv) Marginalization of small Holders:
In the matter of availability of credit ( from institutional sources) small holders are often marginalised. This is owing to their low capacity to offer collateral for loans.
(v) Unproductive Use of funds:
While on the one hand funds are scarce, on the other hand , unproductive use of credit by farmers for family functions to be a serious problem.
(vi) Red Tapism:
Formalities are so cumbersome in obtaining institutional loans that the farmers are often compelled to divert upon to the non- institutional sources.
Suggestions for Removing Limitations of Agricultural Credit in India:
For effective modernisation of agricultural sector and also to stimulate its growth pattern, a broad based and simplified rural credit structure is very much desired and important. Accordingly, Prof. Darling has rightly observed, “A proper system of agricultural credit will not only lower the rate of interest but also imply a system in which productive loans will gradually replace the unproductive ones.”
Thus, in order to remove limitations and problems of agricultural credit in India the following measures may be suggested:
(i) To monitor the taccavi loan offered by the Government in a serious manner.
(ii) Co-operative credit societies should be organised to make it efficient and purposeful for delivering the best in terms of rural credit. Moreover, these societies may be transformed into a multi-purpose society with sufficient funding capacity.
(iii) Middlemen existing between credit agencies and borrowers should be eliminated.
(iv) Reserve Bank of India should arrange sufficient fund so that long term loans can be advanced to the farmers.
(v) Power and activities of the Mahajans and moneylenders should be checked so as to declare an end to the exploitation of farmers.
(vi) The Government should introduce the credit guarantee scheme so as to provide guarantee on behalf of the farmers for getting loans.
(vii) The banks should adopt procedural simplification for credit delivery through rationalisation of its working pattern.
(viii) The Government should issue Kisan credit cards to the farmers to draw cash for their production needs on the basis of the model scheme prepared by NABARD.
(ix) In order to check the fraud practices adopted by the farmer, for getting loans from different agencies by showing same tangible security, a credit card should be issued against each farmer which will show the details about the loans taken by them from different agencies.
(x) Credit should also monitor over the actual utilisation of loans by developing an effective supervisory mechanism.
Conclusion to Agricultural Credit:
From the above analysis it has been revealed that the extent of agricultural credit in India is very much inadequate and the private non-institutional sources still remained very important in supplying credit to the farmers. Further, the major This has resulted a bad health to the institutional credit and thus these lending institutions will not be able to advance more credit for meeting the growing needs of our farmers. In-spite of that, these institutional sources nowadays are advancing more than 60 per cent of the required short term production ‘credit of the Indian farmers.
But the major portion of these credits is being appropriated by the 30 per cent of the middle and affluent farmers of India. At the end of the Seventh Plan, co-operatives, commercial Banks and RRBs extended credit facilities to the extent of Rs 14000 crore as compared with only Rs 24 crore in 1960-61.of institutional credit faced by lending institutions, particularly the co-operatives, is the unsatisfactory huge level of over-dues ranging between 40 to 47 per cent.
Problems of Rural Indebtedness:
It is basically these loans which have caused the problem of Rural Indebtedness- the problem which is not only shocking in size but also viciously cyclical.
Causes of Rural Indebtedness :-
* Poverty
* Ancestral debt ( farmers consider the repayment of ancestral loans as their religious and social obligation.)
* Sub- Division and fragmentation of Holdings.
*Uncertainty of Monsoon
* Illiteracy of Farmers
*Extravagance
*Litigation ( frequent litigation by the farmers, compounds their problem of indebtedness.
*Desperate sale (farmers sale of his produce owing to his existing indebtedness)
How to Break the vicious circle of Rural Indebtedness:-
(1)Write-off old debts.
(2)Check on new Debts: (a) through discouraging unproductive loans.
(b)Encourage saving.
(c) Restrain the moneylenders.
(d) promote Institutional credit.
Recent Initiatives
Government of India & Reserve Bank of India:
In order to increase credit flow to the agriculture sector, the policy of doubling of agricultural credit in three years was introduced in 2004-05. In order to expand the outreach of the banking services, banks made available basic banking ‘no-frills’ account with low or nil minimum balances as well as low or no charges in 2005. The regional rural banks were also specifically advised to allow limited overdraft facilities in ‘no-frills’ accounts without any collateral or linkage to any purpose.
National Agricultural Insurance Scheme (NAIS): NAIS is implemented since Rabi 1999-2000 season with the objectives to provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crops as a result of natural calamities, pests and
diseases and to encourage the farmers to adopt progressive farming practices, high value in-puts and higher technology in agriculture and to help stabilize farm incomes particularly in disaster years.
Government of India & NABARD
i. Rural Infrastructure Development Fund: RIDF was established in 1995-96 with a corpus of Rs. 2,000crores with the major objective of providing funds to state governments and state owned corporations to develop rural infrastructure such as rural roads, rural bridges, irrigation
works, soil conservation, flood protection, drinking water, infrastructure for rural education etc.
The total corpus of RIDF till 2007-08 (RIDF-I to RIDF-XIII) amounted to Rs.72, 000 crores with 2008-09 budget further adding the amount of RIDF XIV of Rs. 14,000 crores to this corpus.
The total sanctions and disbursements as on 30 June 2007 aggregated Rs. 61312.27crores and Rs.38581.82crores respectively.
ii.MicroFinance Innovations: The credit accessibility for the poor from conventional banking is limited due to lack of collaterals and information. Micro finance has emerged as an alternative financial vehicle that provides micro credit or small loans granted to the poor without any collateral. These loans are provided through micro finance institutions (MFIs). NABARD plays a key role in developing the MFIs by providing them refinance facility at low interest rates.
iii. Kisan Credit Card Schemes: The kisan credit cards (KCC) scheme was introduced in 1998-99 to facilitate short-term credit to farmers. Each farmer is given with a kisan credit card and a pass book for providing revolving cash credit facilities. NABARD provide refinance facility to commercial banks and cooperatives to provide credit under this scheme.
iv. Refinance under Swarnajayanti Gram Swarozgar Yojna (SGSY): NABARD provides refinance facility to institutions that support SGSY.
v.Co-operative Development Fund:
NABARD has set up the cooperative development fund in 1993 with objective of strengthening the co-operative credit institutions in the areas of resource
mobilization, recovery position etc. the assistance is provided to cooperatives by way of soft loans or grants.
Weaknesses in Rural Credit Structure :
1.Overemphasis of Monetary Credit: The rural credit institutions have given overemphasis on the financial assistance to the cultivators. While the finance is very important factor but it should be complemented with the extension of services in form of guidance, expertise and counseling on agricultural issues.
2. Multiplicity of Institutions: The rural credit structure is based on multi agency credit system whereby there exist numerous organizations providing similar kind of financial services. There is
a lack of coordination in the system and the commercial viability is adversely affected in this scenario.
3. Lack of Motivation: In order to fill the gap that occurred due to the failure of rural cooperative societies Government gave increasing role to the commercial banks. However, commercial banks lack the desired skills and expertise in the agro-credit. The banks have enough financial resources but the service consultancy is not available. Thus, there is a failure to provide complete package of assistance to the farmers. Further, financial sector reforms have put pressure on banks to improve their financial position and so these banks are now concentrating on selected clientele of large borrowers
4. Financial Exclusion: Despite of a large network of the institutional credit system, it has not been able to adequately penetrate the informal rural financial markets and the non-institutional sources continue to play a dominant role in purveying the credit needs of the people residing in rural areas. The results of the All-India Debt and Investment Survey (AIDIS, 2002) also indicate that the share of the non-institutional sources, in the total credit of the cultivator households, hadincreased from 30.6 percent in 1991 to 38.9 percent in 2002.
5. High Interest Rates: The rate of interest charged by rural financial institutions (RFIs) from farmers continues to be considerably higher than those charged by financial institutions from urban consumers. The owners of small or marginal farms, which are non-viable or viable at the margin, and self-employed in the informal sector, cannot afford to bear the level of interest charged by RFIs.
6. Procedural Delays: There is a problem of considerable delays in processing of loan
applications and collaterals. Thus farmers shy away from institutional financing and increase their dependency upon non-institutional sources.
7. Poor Recoveries: Banks are shying away from rural financing mainly because of poor recoveries which is inflicting the system. It is ironical that the recoveries position is adverse amongst rich farmers than amongst the small farmers. The political decisions of waiving off loans are further putting pressures on the financial system.
Suggestions for Improving Institutional Rural Credit System:
1. Financial Discipline to Improve Recovery: A national consensus among political parties should be evolved for not politicizing the RFIs and resist from announcement of loan or interest waiver schemes and giving calls for not repaying the institutional loans. However, given the risk involved in the agriculture credit the recovery system should be flexible and humane.
2.Revamping the Cooperative Credit Structure:
The Cooperative Credit Structure should be
strengthened to make use of its wider reach. These have to be recapitalised so as to provide funds for improving their financial positions. There is a need of capacity building, human resource
development, institutional restructuring to ensure democratic functioning, and improving the regulatory regime to empower the Reserve Bank of India (RBI) to enforce prudent financial management.
3. Better Physical, Social and Economic Infrastructure:
The long term policy framework needs to be designed to improve infrastructure facilities so as to boost rural economic growth. This requires increased public expenditure on social infrastructure (like education, availability of drinking water, health facilities), physical infrastructure (like roads, power) and economic Infrastructure like (irrigation, modern agricultural techniques). These measures would help to
improve the debt paying capacity of rural poor and provide greater opportunities to RFIs.
4. Financial cum Consultancy Approach:
RFIs needs to provide extension services like consultancy about seeds, availability and use of modern inputs, marketing strategies etc to the cultivators so that a holistic package of assistance can be provided to them.
5. Group Approach to Lending: The lending to homogenous farmer’s groups needs to be organized to improve credit delivery. This would help to improve recovery because of peer pressure. Further, group lending tends to be cost-effective. Involving NGOs or rural educated youths in organizing farmers or rural families in groups, scrutinizing applications, disbursement of loan and effecting recoveries would help RFIs in reducing lending costs.
6. Autonomy to RRBs: RRBs should be given more autonomy and flexibility in planning and lending policies, so that their comparative advantage in rural lending is restored.
7. Greater involvement of Micro Finance Organizations: The banks need to involve microfinance agencies like SHGs, NGOs etc. and other grass root level financial intermediaries who have better understanding of the credit needs and recovery situations.
8. Technological Up Gradation: Technological improvements like computerization can be
critical in building up a reliable credit information system and database on customers, reducing transaction costs and facilitating better pricing of risk, improving the efficiency of the financial
system, and thereby increasing the access of un-banked rural people in an efficient manner.
9. Information Dissemination to Rural Poor: counseling, awareness and financial
education regarding the benefits of institutional financing are important for effective expansion of financial services in rural areas. To do this, banks may utilize the services of nongovernmental organizations, village youth clubs, village panchayats, farmer clubs and self-help groups into confidence.
In this chapter we will discuss about Agricultural Credit in India. After reading this chapter you will learn about: 1. Meaning of Agricultural Credit in India 2. Types of Agricultural Credit in India 3. Sources 4. Disbursement in Recent Years 5. Problems 6. Suggestions 7. Conclusion.
Meaning of Agricultural Credit:
Agricultural credit is considered as one of the most basic inputs for conducting all agricultural development programmes. In India there is an immense need for proper agricultural credit as Indian farmers are very poor. From the very beginning the prime source of agricultural credit in India was moneylenders.
After independence the Government adopted the institutional credit approach through various agencies like co-operatives, commercial banks, regional rural banks etc. to provide adequate credit to farmers, at a cheaper rate of interest. Moreover, with growing modernisation of agriculture during post-green revolution period the requirement of agricultural credit has increased further in recent years.
Types of Agricultural Credit:
Considering the period and purpose of the credit requirement of the farmers of the country, agricultural credit in India can be classified into three major types:
(a) Short Term Credit:
The Indian farmers require credit to meet their short term needs viz., purchasing seeds, fertilisers, paying wages to hired workers etc. for a period of less than 15 months. Such loans are generally repaid after harvest.
(b) Medium Term Credit:
This type of credit includes credit requirement of farmers for medium period ranging between 15 months and 5 years and it is required for purchasing cattle, pumping sets, other agricultural implements etc. Medium term credits are normally larger in size than short term credit.
(c) Long Term Credit:
Farmers also require finance for a long period of more than 5 years just for the purpose of buying additional land or for making any permanent improvement on land like sinking of wells, reclamation of land, horticulture etc. Thus, the long term credit requires sufficient time for the repayment of such loan.
Sources of Agricultural Credit in India:
In India, agricultural credit are being advanced by different sources. The short term and medium term loan requirements of Indian farmers are mostly met by moneylenders, co-operative credit societies and Government. But the long-term loan requirements of the Indian farmers are also met by moneylenders, land development banks and the Government.
Nowadays, the long term and short term credit needs of these institutions are also being met by National Bank for Agricultural and Rural Development (NABARD).
Sources of agricultural credit can be broadly classified into institutional and non-institutional sources. Non-Institutional sources include moneylenders, traders and commission agents, relatives and landlords, but institutional sources include co-operatives, commercial banks including the SBI Group, RBI and NABARD.
Table 7.15 shows the contribution of these different sources to the total agricultural credit in India since 1951- 52 to 1996.
It can be revealed from Table 7.15 that among all the different non-institutional
The share of institutional sources to the total agricultural credit which was 7.3 per cent in 1951-52 gradually increased to 18.7 per cent in 1961-62 and then to 75.0 per cent in 1996. Out of these institutional sources, co-operatives contributed 40 per cent and commercial banks contributed 30.0 per cent of the total farm credit in 1996.
I. Non-Institutional Sources:
(i) Moneylenders:
From the very beginning moneylenders have been advancing a major share of farm credit.
Moneylenders are of two different types:
(a) Professional moneylenders
(b) Agriculturist moneylenders.
These moneylenders were supplying a major portion of agricultural credit (69.7 per cent in 1951-52) and indulged into malpractice like manipulation of accounts and charged exorbitant rate of interest on their loan- often 24 per cent and over.
Due to all these factors the share of moneylenders in total farm credit has declined sharply from 69.7 per cent in 1951-52 to 36.1 per cent in 1971 and then to only 16.1 per cent in 1981 and then to 7.0 per cent in 1995-96.
(ii) Traders and Commission agents:
Traders and commission agents are also advancing loan to the agriculturist for productive purposes before the maturity of crops and then force the farmers to sell their crops at very low prices and charge heavy commission. This type of loans is mostly advanced for cash crops.
The share of these traders in farm credit increased gradually from 5.5 per cent in 1951-52 to 8.8 per cent in 1961- 62 and then sharply declined to 5.0 per cent in 1996. Thus its importance has been declining in recent years.
(iii) Relatives:
Cultivators are also normally borrowing fund from their own relatives in times of their crisis both in terms of cash or kind. These loans are a kind of informal loans and carry no interest and are normally returned after harvest.
The importance of this source of farm credit is also declining as its share of agricultural credit has already declined from 14.2 per cent in 1951-52 to 8.7 per cent in 1981 and then to 3.0 per cent in 1995-96.
(iv) Landlords:
In India, small as well as marginal farmers and tenants are also taking loan from the landlords for meeting their financial requirements. This source has been following all the ill-practices followed by money-lenders, traders etc.
Sometimes landless workers are even forced to work as a bonded labour. The share of this source to rural credit has increased from 3.3 per cent in 1951-52 to 14.5 per cent in 1961-62 and then sharply declined to 8.8 per cent in 1981 and then to 10.0 per cent in 1995-96.
Thus, the non-institutional sources of farm credit have been facing serious loopholes like exorbitant rate of interest, loan for unproductive purposes, non-repayment of loan etc.
II. Institutional Sources:
The main motive of institutional credit is to assist the farmers in raising their agricultural productivity and maximising their income. Institutional credit is also not exploitative in character. The following are some of the important institutional sources of agricultural credit in India.
(i) Co-operative Credit Societies:
The cheapest and the best source of rural credit in India is definitely the co-operative finance. In India the active primary agricultural credit societies (PACS) cover nearly 86 per cent of the Indian villages and account for nearly 36 per cent of the total rural population of the country. The share of co-operatives in the total agricultural credit increased to nearly 40 per cent in 1996 as compared with only 3 per cent in 1951-52.
In 1993-94 nearly 88,000 primary agricultural credit societies (PACS) of India provided Rs 6461 crore as short term and medium term loans to the farmers. In 2006-2007, the same loan has increased to Rs 42,480 crore, which was financed by co-operative banks.
But these co-operatives have a long way to go. In some states like Bihar, West Bengal, Orissa and Rajasthan the co-operative movement did not spread much of its net world. Even in some places the working of the co-operatives had been wrecked hopelessly by unscrupulous and dishonest members leading to large scale sufferings of huge number of needy farmers.
(ii) Land Development Banks:
Land development banks are advancing long term co-operative credit for 15-20 years to the farmers against the mortgage of their lands for its permanent improvement, purchasing agricultural implements and for repaying old debts. The number of state land development banks (SLDBs) increased from 5 in 1950-51 to 19 as on June 1986 which again consisted of 2447 Primary Land Development Banks (PLDBs) branches.
The amount of loan sanctioned annually by these PLDB branches has increased from Rs 3 crore in 1950-51 to Rs. 2039 crore in 1993-94. But benefits from these land development banks could not reach to small farmers and only the big landlords have been taking all advantages out of it. At present there are 19 central and 733 primary LDBs. In 1997, these banks advanced loan worth Rs 1,744 crore.
(iii) Commercial Banks:
In the initial period, the commercial banks of our country have played a marginal role in advancing rural credit. In 1950-51, only 1 per cent of the agricultural credit was advanced by the commercial banks. But after the nationalisation of commercial banks in 1969, the commercial banks started to extend financial support both directly and indirectly and also for both short and medium periods.
With the help of “village adoption scheme” and service area approach the commercial banks started to meet the credit and other requirements of the farmers. They also sponsored various regional rural banks for extending credit to small and marginal farmers and rural artisans just to save them from the clutches of village moneylenders.
Till 1969, direct advances by the commercial banks were restricted to only Rs 44 crore. But as on March 2007 the amount of loan has increased to Rs 1,40,382 crore. During 2006-2007 commercial banks along with Regional Rural Banks extended nearly 79.1 per cent of the total institutional farm credit in our country.
Again in 1999-2000, disbursements of agricultural advances by public sector banks under Special Agricultural Credit Plan (SACP) were Rs 19,755 crore.
Commercial banks are finding difficulty in advancing loans to the farmers particularly in respect of lending techniques, security, recovery etc. and are expected to overcome these gradually. But the commercial banks are not very much interested to advance loan to small and marginal farmers and as on March 1997 their farm credit was restricted to only 13.5 per cent of total bank credit.
The share of commercial banks in total institutional credit to agriculture is almost 69.0 per cent in 2006-2007.
(iv) Regional Rural Banks:
As per the recommendations of working Group on Rural Banks the Regional Rural Banks (RRBs) were established in 1975 for supplementing the commercial banks and co-operatives in supplying rural credit. Since 1975 these Regional Rural Banks are advancing direct loans to small and marginal farmers, agricultural labourers and rural artisans etc. for productive purposes.
Till June 1996, in total 196 RRBs have been lending annually nearly Rs 1500 crore to the rural people and more than 90 per cent of these loans were also advanced to the weaker section.
At the end of 1988 these RRBs jointly advanced loan to the extent of Rs, 2,804 crore among 11 million persons lying below the poverty line. In 2006-2007, the RRBs have disbursed agricultural credit amounting to Rs 20,435 crore which is just 10.05 per cent of total institutional credit to agriculture.
(v) Government:
Another important source of agricultural credit is the Government of our country. These loans are known as taccavi loans and are lend by the Government during emergency or distress like famine, flood etc. The rate of interest charged against such loan is as low as 6 per cent.
The share of the Government in the total agricultural credit has increased from 3.1 per cent in 1951-52 to 15.5 per cent in 1961-62 but then the share declined to only 5.0 per cent in 1996. During 1990-91, the state Governments had advanced nearly Rs 350 crore as short-term loan to agriculture. But the taccavi loan failed to become very much popular due to official red tapism and corruption.
Table 7.16(a) shows the flow of institutional credit to agriculture.
The relative share of the sources of institutional credit has been changing after the nationalisation of commercial banks, which can be seen from Table 7.16(a).
Table 7.16(a) reveals the changes in relative share of sources institutional credit. It is observed that after the nationalifiation of U commercial tanks of India in 1969, the commercial banks as a whole have increased consistently its share in institutional credit to agriculture sector from 38.4 per cent in 1980-81 to 75.8 per cent in 2008-09.
Resultantly, the relative share of co-operative societies declined from 61.6 per cent in 1980-81 to 15.3 per cent in 2008-09. Again, the share of co-operative societies in institutional credit increased to the level of 18.3 per cent and the Share Of commercial banks declined to 71.2 per cent in 2012-13. However, the RRBs have been contributing about 8 to 10 per cent of total institutional agricultural credit over the same Despite phenomenal increase in the volume of overall agricultural credit, there is a serious problem of over-dues which has been inhibiting credit expansion on the one hand and economic viability of the lending institutions especially the cooperatives and the RRBs, on the other hand. The waiver of agricultural loans in 1990 has further aggravated the problem of recovery.
In order to strengthen the co-operative credit structure of the country, the National Bank for Agricultural and Rural Development (NABARD) is contemplating an institutional strengthening programme. The Government has also introduced certain measures for revitalising the co-operatives on the recommendations of the Agricultural Credit Review Committee (1989).
These measures include amendment to state co-operative laws, augmenting the reserve base of the Primary Agricultural Credit Societies (PACS), holding elections of co-operative bodies, revitalising PACS by business development planning and formulating Deposit Insurance Guarantee Scheme for PACS.
In view of the increase in prices of agricultural inputs and with a view to enabling the NABARD to extend adequate credit support for the rabi crop operations, Reserve Bank of India has also announced additional lines of credit for short-term agricultural operations in January 1993.
Measures taken in 1998-99 to Improve Credit Flow to Agriculture:
In order to improve the flow of credit to agriculture, the Government has introduced the following measures in 1998-99:
(i) Procedural simplification for credit delivery has been made (as per R.V. Gupta Committee Report) through rationalisation of internal returns of banks.
(ii) More powers have been delegated to branch managers to raise the credit flow to agriculture.
(iii) Introduction of composite cash credit limit to farmers, introduction of new loan products with saving components, cash disbursement of loans, dispensation of no due certificate and discretion to banks on matters relating to margin security requirements for agricultural loans above Rs 10,000.
(iv) Introduction of at least one specialised agricultural bank in each state to cater to the needs of high tech.
(v) Introduction of cash credit facility.
(vi) Insuring Kisan Credit cards to farmers to draw cash for their production needs on the basis of the model scheme prepared by NABARD.
(vii) The Government has made arrangement for hassle free settlement of disputed cases of over dues.
(viii) To augment Rural Infrastructural Development Fund (RIDF) with a corpus of Rs 10,000 crore with NABARD to finance rural infrastructure development projects by states.
Thus the flow of institutional credit for agriculture and allied activities which was Rs 31,956 crore in 1997-98 is estimated to have increased to Rs 64,000 crore in 2001-02. The total credit now from all agencies is projected to reach the level of Rs 82,073 crore by 2002-03.
The total credit now to agriculture during the period 1997-2002 is likely to be of the order of Rs 2,33,700 crore which is close to the Ninth Plan projection of Rs 2,29,750 crore.
For the Tenth Plan period (2002-07) the credit flow into agriculture and allied activities from all banking agencies is projected at Rs 7,36,570 crore, which is more than three times the credit flow during the Ninth Plan.
Farm Credit Package:
The Government of India announced the “Farm credit package” in June 2004 which aimed at doubling the flow of institutional credit for agriculture in the ensuing three years. Accordingly, the credit to the farm sector got doubled during two years, i.e., from Rs 86,981 crore in 2003-04 to Rs 1, 80,486 crore in 2005-06, as against the stipulated time period of three years.
The credit flow continued to increase at Rs 2, 29,401 crore in 2006-07 and then to Rs 3, 84,514 crore in 2009-10 and finally to Rs 6, 07,375 crore in 2012-13.
Steps Taken to Raise Credit Flow to Agriculture:
In recent years, the Government has taken some definite steps for raising the credit flow to agricultural sector.
Credit
(i) Targeting:
Targeting practice is followed for raising the flow of agricultural credit.
(ii) Crop Loans:
Arrangement has been made to provide crop loan to formers. Accordingly, farmers have been availing of crop loans up to a principal amount of Rs 3, 00,000 at 7 per cent rate of interest.
(iii) Discouraging Distress Sale:
In order to discourage distress sale of crops by farmers, the benefit of interest subvention has been made available to small and marginal farmers having Kishan Credit Cards for a further period of up of six months (post-harvest) against negotiable were house receipts (NWRs) at the commercial rates.
(iv) Relief for Natural Calamities:
In order to provide relief to farmers on occurrence of natural calamities, interest subvention of 2 per cent will continue to be available to banks for the first year on the .
Problems of Agricultural Credit in India:
Since independence, the institutional agricultural credit structure in Indiia was very poor. In the post-independence period, various attempts were made by the Government for enriching the institutional agricultural credit structure of the country leading to continuous growth in the base and sources of agricultural credit.
loan amount on account of natural calamities and such restructured loans will attract normal rate of interest from the second year onwards as per the policy laid down by the RBI.
The following are some of these problems:
(i) Insufficiency:
In spite of expansion of rural credit structure, the volume of rural credit in the country is still insufficient as compared to its growing requirement arising out of increase in prices of agricultural inputs.
(ii) Inadequate Amount of Sanction:
The amount of loan sanctioned to the farmers by the agencies is also very much inadequate for meeting their different aspects of agricultural operations.
(iii) Dismal Recovery of loans:
Nearly 40-42% of the loans have remained unrecovered during the last 3-4 years.
(iv) Marginalization of small Holders:
In the matter of availability of credit ( from institutional sources) small holders are often marginalised. This is owing to their low capacity to offer collateral for loans.
(v) Unproductive Use of funds:
While on the one hand funds are scarce, on the other hand , unproductive use of credit by farmers for family functions to be a serious problem.
(vi) Red Tapism:
Formalities are so cumbersome in obtaining institutional loans that the farmers are often compelled to divert upon to the non- institutional sources.
Suggestions for Removing Limitations of Agricultural Credit in India:
For effective modernisation of agricultural sector and also to stimulate its growth pattern, a broad based and simplified rural credit structure is very much desired and important. Accordingly, Prof. Darling has rightly observed, “A proper system of agricultural credit will not only lower the rate of interest but also imply a system in which productive loans will gradually replace the unproductive ones.”
Thus, in order to remove limitations and problems of agricultural credit in India the following measures may be suggested:
(i) To monitor the taccavi loan offered by the Government in a serious manner.
(ii) Co-operative credit societies should be organised to make it efficient and purposeful for delivering the best in terms of rural credit. Moreover, these societies may be transformed into a multi-purpose society with sufficient funding capacity.
(iii) Middlemen existing between credit agencies and borrowers should be eliminated.
(iv) Reserve Bank of India should arrange sufficient fund so that long term loans can be advanced to the farmers.
(v) Power and activities of the Mahajans and moneylenders should be checked so as to declare an end to the exploitation of farmers.
(vi) The Government should introduce the credit guarantee scheme so as to provide guarantee on behalf of the farmers for getting loans.
(vii) The banks should adopt procedural simplification for credit delivery through rationalisation of its working pattern.
(viii) The Government should issue Kisan credit cards to the farmers to draw cash for their production needs on the basis of the model scheme prepared by NABARD.
(ix) In order to check the fraud practices adopted by the farmer, for getting loans from different agencies by showing same tangible security, a credit card should be issued against each farmer which will show the details about the loans taken by them from different agencies.
(x) Credit should also monitor over the actual utilisation of loans by developing an effective supervisory mechanism.
Conclusion to Agricultural Credit:
From the above analysis it has been revealed that the extent of agricultural credit in India is very much inadequate and the private non-institutional sources still remained very important in supplying credit to the farmers. Further, the major This has resulted a bad health to the institutional credit and thus these lending institutions will not be able to advance more credit for meeting the growing needs of our farmers. In-spite of that, these institutional sources nowadays are advancing more than 60 per cent of the required short term production ‘credit of the Indian farmers.
But the major portion of these credits is being appropriated by the 30 per cent of the middle and affluent farmers of India. At the end of the Seventh Plan, co-operatives, commercial Banks and RRBs extended credit facilities to the extent of Rs 14000 crore as compared with only Rs 24 crore in 1960-61.of institutional credit faced by lending institutions, particularly the co-operatives, is the unsatisfactory huge level of over-dues ranging between 40 to 47 per cent.
Problems of Rural Indebtedness:
It is basically these loans which have caused the problem of Rural Indebtedness- the problem which is not only shocking in size but also viciously cyclical.
Causes of Rural Indebtedness :-
* Poverty
* Ancestral debt ( farmers consider the repayment of ancestral loans as their religious and social obligation.)
* Sub- Division and fragmentation of Holdings.
*Uncertainty of Monsoon
* Illiteracy of Farmers
*Extravagance
*Litigation ( frequent litigation by the farmers, compounds their problem of indebtedness.
*Desperate sale (farmers sale of his produce owing to his existing indebtedness)
How to Break the vicious circle of Rural Indebtedness:-
(1)Write-off old debts.
(2)Check on new Debts: (a) through discouraging unproductive loans.
(b)Encourage saving.
(c) Restrain the moneylenders.
(d) promote Institutional credit.
Recent Initiatives
Government of India & Reserve Bank of India:
In order to increase credit flow to the agriculture sector, the policy of doubling of agricultural credit in three years was introduced in 2004-05. In order to expand the outreach of the banking services, banks made available basic banking ‘no-frills’ account with low or nil minimum balances as well as low or no charges in 2005. The regional rural banks were also specifically advised to allow limited overdraft facilities in ‘no-frills’ accounts without any collateral or linkage to any purpose.
National Agricultural Insurance Scheme (NAIS): NAIS is implemented since Rabi 1999-2000 season with the objectives to provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crops as a result of natural calamities, pests and
diseases and to encourage the farmers to adopt progressive farming practices, high value in-puts and higher technology in agriculture and to help stabilize farm incomes particularly in disaster years.
Government of India & NABARD
i. Rural Infrastructure Development Fund: RIDF was established in 1995-96 with a corpus of Rs. 2,000crores with the major objective of providing funds to state governments and state owned corporations to develop rural infrastructure such as rural roads, rural bridges, irrigation
works, soil conservation, flood protection, drinking water, infrastructure for rural education etc.
The total corpus of RIDF till 2007-08 (RIDF-I to RIDF-XIII) amounted to Rs.72, 000 crores with 2008-09 budget further adding the amount of RIDF XIV of Rs. 14,000 crores to this corpus.
The total sanctions and disbursements as on 30 June 2007 aggregated Rs. 61312.27crores and Rs.38581.82crores respectively.
ii.MicroFinance Innovations: The credit accessibility for the poor from conventional banking is limited due to lack of collaterals and information. Micro finance has emerged as an alternative financial vehicle that provides micro credit or small loans granted to the poor without any collateral. These loans are provided through micro finance institutions (MFIs). NABARD plays a key role in developing the MFIs by providing them refinance facility at low interest rates.
iii. Kisan Credit Card Schemes: The kisan credit cards (KCC) scheme was introduced in 1998-99 to facilitate short-term credit to farmers. Each farmer is given with a kisan credit card and a pass book for providing revolving cash credit facilities. NABARD provide refinance facility to commercial banks and cooperatives to provide credit under this scheme.
iv. Refinance under Swarnajayanti Gram Swarozgar Yojna (SGSY): NABARD provides refinance facility to institutions that support SGSY.
v.Co-operative Development Fund:
NABARD has set up the cooperative development fund in 1993 with objective of strengthening the co-operative credit institutions in the areas of resource
mobilization, recovery position etc. the assistance is provided to cooperatives by way of soft loans or grants.
Weaknesses in Rural Credit Structure :
1.Overemphasis of Monetary Credit: The rural credit institutions have given overemphasis on the financial assistance to the cultivators. While the finance is very important factor but it should be complemented with the extension of services in form of guidance, expertise and counseling on agricultural issues.
2. Multiplicity of Institutions: The rural credit structure is based on multi agency credit system whereby there exist numerous organizations providing similar kind of financial services. There is
a lack of coordination in the system and the commercial viability is adversely affected in this scenario.
3. Lack of Motivation: In order to fill the gap that occurred due to the failure of rural cooperative societies Government gave increasing role to the commercial banks. However, commercial banks lack the desired skills and expertise in the agro-credit. The banks have enough financial resources but the service consultancy is not available. Thus, there is a failure to provide complete package of assistance to the farmers. Further, financial sector reforms have put pressure on banks to improve their financial position and so these banks are now concentrating on selected clientele of large borrowers
4. Financial Exclusion: Despite of a large network of the institutional credit system, it has not been able to adequately penetrate the informal rural financial markets and the non-institutional sources continue to play a dominant role in purveying the credit needs of the people residing in rural areas. The results of the All-India Debt and Investment Survey (AIDIS, 2002) also indicate that the share of the non-institutional sources, in the total credit of the cultivator households, hadincreased from 30.6 percent in 1991 to 38.9 percent in 2002.
5. High Interest Rates: The rate of interest charged by rural financial institutions (RFIs) from farmers continues to be considerably higher than those charged by financial institutions from urban consumers. The owners of small or marginal farms, which are non-viable or viable at the margin, and self-employed in the informal sector, cannot afford to bear the level of interest charged by RFIs.
6. Procedural Delays: There is a problem of considerable delays in processing of loan
applications and collaterals. Thus farmers shy away from institutional financing and increase their dependency upon non-institutional sources.
7. Poor Recoveries: Banks are shying away from rural financing mainly because of poor recoveries which is inflicting the system. It is ironical that the recoveries position is adverse amongst rich farmers than amongst the small farmers. The political decisions of waiving off loans are further putting pressures on the financial system.
Suggestions for Improving Institutional Rural Credit System:
1. Financial Discipline to Improve Recovery: A national consensus among political parties should be evolved for not politicizing the RFIs and resist from announcement of loan or interest waiver schemes and giving calls for not repaying the institutional loans. However, given the risk involved in the agriculture credit the recovery system should be flexible and humane.
2.Revamping the Cooperative Credit Structure:
The Cooperative Credit Structure should be
strengthened to make use of its wider reach. These have to be recapitalised so as to provide funds for improving their financial positions. There is a need of capacity building, human resource
development, institutional restructuring to ensure democratic functioning, and improving the regulatory regime to empower the Reserve Bank of India (RBI) to enforce prudent financial management.
3. Better Physical, Social and Economic Infrastructure:
The long term policy framework needs to be designed to improve infrastructure facilities so as to boost rural economic growth. This requires increased public expenditure on social infrastructure (like education, availability of drinking water, health facilities), physical infrastructure (like roads, power) and economic Infrastructure like (irrigation, modern agricultural techniques). These measures would help to
improve the debt paying capacity of rural poor and provide greater opportunities to RFIs.
4. Financial cum Consultancy Approach:
RFIs needs to provide extension services like consultancy about seeds, availability and use of modern inputs, marketing strategies etc to the cultivators so that a holistic package of assistance can be provided to them.
5. Group Approach to Lending: The lending to homogenous farmer’s groups needs to be organized to improve credit delivery. This would help to improve recovery because of peer pressure. Further, group lending tends to be cost-effective. Involving NGOs or rural educated youths in organizing farmers or rural families in groups, scrutinizing applications, disbursement of loan and effecting recoveries would help RFIs in reducing lending costs.
6. Autonomy to RRBs: RRBs should be given more autonomy and flexibility in planning and lending policies, so that their comparative advantage in rural lending is restored.
7. Greater involvement of Micro Finance Organizations: The banks need to involve microfinance agencies like SHGs, NGOs etc. and other grass root level financial intermediaries who have better understanding of the credit needs and recovery situations.
8. Technological Up Gradation: Technological improvements like computerization can be
critical in building up a reliable credit information system and database on customers, reducing transaction costs and facilitating better pricing of risk, improving the efficiency of the financial
system, and thereby increasing the access of un-banked rural people in an efficient manner.
9. Information Dissemination to Rural Poor: counseling, awareness and financial
education regarding the benefits of institutional financing are important for effective expansion of financial services in rural areas. To do this, banks may utilize the services of nongovernmental organizations, village youth clubs, village panchayats, farmer clubs and self-help groups into confidence.
No comments:
Post a Comment