The following points highlight the eight main sources of rural credit. The sources are: 1. Co-Operative Credit Societies 2. Land Development Banks 3. State Bank of India and Rural Credit 4. Reserve Bank of India 5. Agricultural Refinance and Development Corporation 6. Regional Rural Banks 7. Crop Loan Scheme 8. NABARD 9. Kisan Credit Card Scheme.
Institutional credit for agriculture has gradually increased. Cooperative Banks, Regional Rural Banks and Commercial Banks are the main sources of agricultural credit. The flow of agricultural credit since 2003-04 has consistently exceeded the target.
The table given below shows the flow of institutional credit to agriculture:
The target of agricultural credit for the year 2013-14 has been fixed at Rs. 7,00,000. Farmers have been receiving crop loans at 4.0 per cent rate of interest if they promptly repay the loan during the decided period.
Agricultural credit is disbursed though a multi-agency net-work consisting of Commercial Banks, Regional Rural Banks (R.R.Bs) and cooperatives. There has been gradual increase in the flow of agricultural credit from institutional sources. It has been a policy of the Government to promote the sources of institutional credit.
Total amount of institutional credit from various sources increased from Rs. 885.2 crores in 1970-71 to Rs. 51467 crores in 2000-01. At present Commercial Banks are the most important source of agricultural credit. The table given above shows the trend and amount of the flow of agricultural credit.
Source # 1. Co-Operative Credit Societies:
The rural credit societies were started to carry on the business of the rural banking and replace the money-lenders, yet they have not made any appreciable progress. The record of the performance of the co-operative credit has been very uneven as between different states. Even in the States, which have registered considerable progress, there are pockets where the performance of co-operatives has been very poor and weak.
It has been estimated that at the end of 1976-77, 1.23 lakh primary agricultural credit societies with a membership of 41.5 million covered over 97 per cent of the villages, 47 per cent of the rural population and 48 per cent of the agricultural families. Co-operatives supplied 3.3 per cent of the total credit in 1951-52. Since then the proportion has increased to 15.5 per cent in 1961-62 and to 33 per cent in 1969-70.
The co-operatives advanced Rs. 2740 crores during 1984-85. It was 4.7 per cent of the total credit advanced by all the institutional sources during 1984-85. Thus, cooperative is the largest institution supplying agricultural credit. The cooperatives advanced Rs. 9331 crores during 1993-94. Thus cooperative is the major institution supplying agricultural credit. It has been estimated that 97 per cent of the country have been covered by active primary agricultural credit societies. Membership of the societies have also increased considerably during the planning period.
Merits and Demerits of Co-Operative Credit Society:
Co-operatives enjoy many advantages such as:
(i) These societies possess intimate knowledge of the character and abilities of their members, and of local production possibilities;
(ii) Small co-operatives can instil in its members strong feeling of responsibility for prompt payment of interest and repayment of loans, and can also provide strong incentives to thrift and savings,
(iii) The procedure of deposit and withdrawal is far less complicated, since identification and similar problems do not exist; the official to be approached belong to the same village as the members and work in the same trade; and the fact that money accumulated through savings is generally to be spent within the village centres that additional sense of confidence needed to encourage villagers to practise the habit of banking.
(iv) Further, “as a means of reaching the last man in the last village, co-operative credit has no rival except the moneylender, it offers the only possible method of proved merit for reaching the people as a whole. It is the only practical alternative to usury.”
However, there is a considerable unevenness in the development of co-operative credit. Credit societies have hardly met even the urgent need of the tenant cultivators, small marginal farmers and landless labour, who are deeply indebted to the moneylenders and who are without securities to pledge and unable to accumulate adequate savings to repay the loans would be the correct estimation of situation in India and South-East Asia.
According to the Co-operative Planning Committee, the main cause of limited progress are- “the laissez faire policy of the State, the illiteracy of the people, and the fact the movement did not take the life of the individual as a whole….among the other causes, the small size of the primary unit and undue reliance on honorary services for even day-to-day work with resultant inefficiency in managements.”
According to the Rural Credit Survey the chief causes of failure may be summed up thus- “functional, structural and administrative defects, dearth of suitable personnel, lack of training, a background of illiteracy, the grave and chronic deficiency in roads, storage and other vital economic requirements—all these are relevant as part of the explanation.” The more fundamental of these causes of failure of the cooperative movement is the competition, virtually opposition, which the co-operative credit and other types of societies have to face from the relatively powerful private agencies.
Therefore, it was not surprising to find the co-operative societies taking the line of least resistance, by giving loans to those who had substantial property. “Cooperation in India was a plant held in position with both hands by Government since its roots refuse to enter the soil.” The co-operatives supply only 35.0 per cent of the total credit requirements. Out of this little, the large part goes to the bigger agriculturists and only a minor fraction percolates to the smaller cultivator.
This is evidenced by the fact that the land held by the small cultivators of 2 hectares and lesser size accounted for 75 percent of the total holdings and 20 per cent of the total cropped area, but despite their heavy need, they received only 35 per cent of the short-medium-term loans advanced by primary societies.
Most co-operative societies lent on the security of lands, and tend to set aside as ‘non-creditworthy’ those who could not offer such security. Other reasons for failure of co-operative credit were inadequacy of funds and staff, dearth of sound and reliable workers, want of confidence in the movement, definite nature of agriculture and illiteracy among cultivators.
Source # 2. Land Development Banks:
These banks supply long term credit to the cultivator.
The need for these banks arises because:
(i) The primary co-operative societies cannot possibly give loans to the cultivators for long periods as they themselves draw their funds from the Central Co-operative Banks for short and medium terms;
(ii) The work of making long period loans on the basis of landed property requires expert assistance for valuation, title deed, which the primary co-operative societies do not possess. These banks can work satisfactorily if they are assisted by the State Government in the provision of requisite staff for managerial and evaluation work.
These banks have a two-tier structure with central land development banks at the state level and primary land development banks at the tehsil/sub-divisional/district level. These banks registered commendable progress in recent years—the quantum of loans advanced to individuals by the banks have risen to over Rs. 500 crores in 1984-85 from Rs. 3.81 crores in 1951-52.
The growth rate of advances from land development banks is also very high. Loans outstanding with individuals amounted to Rs. 37.74 crores in 1960-61; Rs. 166.41 crores in 1965-66; Rs. 402.17 crores in 1968-69 and Rs. 1117.52 crores in 1976-77. There were 20 central and 893 Primary Land Development Banks in 1976-77.
1. Government and Rural Credit:
The Government both at the Centre and in the States, provides finance indirectly as well as directly.
(i) Indirect Financing:
Indirect credit is provided through the co-operative societies.
Government assistance to the co-operative credit has been mainly in the following direction:
(a) Taking shares in co-operative credit institutions to give them prestige and to enhance their borrowing capacity. Such participation is ‘retirable’ after the end of a particular period in respect of primary cooperative credit societies and is met out of loans from the R.B.I. under its Long Term Operations Fund Scheme.
(b) Providing guarantees to the relatively weak apex banks to enable them to borrow from R.B.I.
(c) Providing subsidies to co-operative societies to enable them to employ trained and full time managers/secretaries. Loans and subsidies are also given to primary credit societies to construct small warehouses required for their marketing functions. Subsidies have also been given to co-operative banks for opening branches and for employing supervisory staff.
(d) Contributing to special bad debt reserve funds of primary co-operative credit societies and banks to help them finance the weaker sections of the membership.
(e) Providing grants in special cases to stabilize the position of co-operative banks which have become weak owing to abnormal reasons.
(f) Some of the State Governments have set up Agricultural Credit Relief and Guarantee Funds for giving assistance to co-operatives whose position is made vulnerable by irrecoverable arrears of debts which have arisen from causes beyond their control.
(g) Subsidies to enable co-operative banks to meet the difference between their economic lending rate and the rate at which funds are to be provided under certain Government schemes.
(h) Guaranteeing the debentures issued by co-operative central land mortgage banks and giving them interim accommodation to such banks, pending floatation of their debentures.
All this is intended to strengthen the co-operative credit structure so that in course of time, it becomes self-reliant. Secondly, this assistance does not imply Government interference with the day-to-day working of the co-operatives. Thirdly, the Government representation on the board of the banks and the societies is generally limited to 1/3rd of the board or 3 Government nominees, whichever is less. Thus Government is playing a complimentary role to the R.B.I. in the development of co-operative credit.
(ii) Direct Financing:
The Government has also been financing farmers directly. Agricultural credit from the Government is called taccavi and has a long history in India. It is provided under the Land improvement Loans Act of 1883 and the Agriculturists Loans Act of 1884. The former Act deals with long term loans and the latter with short-term loans.
(a) The Act of 1883 authorises the grant of long-term loans by local officers for permanent improvements on land, which add to its letting value such as construction of wells or erecting of embankments, the preparation of lands for irrigation, protection of land from flood or from erosion. Such loans are generally advanced for periods extending over 25 years on the security of landed property, at a rate of 6 to 10 per cent. The loan is repayable by equal annual instalments discharging by principal and the interest.
(b) Whereas under the Act of 1884 short-term and intermediate term loans granted for current agricultural needs such as the purchase of houses destroyed by flood. Such loans are repayable after the harvest.
The direct institutional finance provided by the Government was of the order of Rs. 176.8 crores on June 30, 1973. It was Rs. 90.8 crores; Rs. 77.5 crores; Rs. 81.5 crores and Rs. 85.5 crores for the period ending June 30, 1974, 1975, 1976 and 1977 respectively.
These loans were formerly provided through the agency or Community Development and the Revenue and Agricultural Departments of the States. Now they are to be routed through the co-operatives. These may also be given through land development banks, where they are strong as in Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra, and Gujarat.
Merits and Demerits of Government Loans:
The advantages of taccavi loans lie in their long-term and low rates of interest. But the total amount lent under both the Acts is extremely insignificant and amounts to mere drop in the ocean. These loans play a very small part in agricultural financing. In this connection the Rural Credit Survey Report remarks, “The record of taccavi is a record of inadequacies.”
The different aspects of this problem are:
(1) Inadequacy of amount, inequality of distribution and inappropriateness of security;
(2) Inconvenience of timing, incidental delays and impositions of various kinds on borrowers; and
(3) Inefficiency of supervision and incompleteness of co-ordination.
The levy of illegal gratification by the village patwari and the B.D.Os. coupled with extremely rigid conditions set by the Government, inelasticity and inefficient administration have rendered these loans very unpopular. Further, Government loans like co-operative loans axe found on investigation to gravitate to the big and large land-holders in preference to the medium or small farmers because strict adherence is insisted upon collateral security.
Thus, the system of taccavi as conceived and administered by the Government is not a system of finance but one of casual advance. Apart from these defects, the more important shortcoming is that little attempt was made to follow up the loan with proper supervision as to its utilization for productive purposes.
Taccavi loans are given to the farmers at a low rate of interest and mostly unrelated to production efforts and as such have spoilt the credit markets.
However, such loans have declined particularly on account of the difficulties in finding budgetary resources for the purpose and also due to a feeling that the government is not properly equipped to function as a lender.
The Rural Credit Survey Report expressed dissatisfaction with the disjointed working of taccavi loans. In practice, such loans are to be little else than ill-performed disbursement of inadequate money by an ill-suited agency and suggested that it should be strictly limited to relief of distress. Even the Rural Credit Review Committee (1969) is not in favour of government granting loans.
According to this Committee, “the drawbacks of the system are that the disbursements are dilatory, there is lack of supervision and poor recovery, etc. ” This bureaucratic line of credit can hardly be expected to be operated with the degree of judgment, flexibility and responsiveness so very necessary for agricultural credit needs. Ultimately taccavi, as it is called, should not be provided except to meet widespread situation of droughts and floods though, in the transitional period, it may continue in the present form. In 1978-79 the upper limit of taccavi has been placed at Rs. 100 crores.
2. Commercial Banks:
The Commercial banks did not form an important source of agricultural credit before nationalisation of 14 commercial banks. These banks mainly cater to the needs of the urban centres at the cost of credit hungry agricultural sector. Between 1956-65, scheduled banks opened only 196 branches in the unbanked areas. In 1968, they opened 674 new offices.
The share of banks in the total borrowings of agriculturists was hardly one per cent in 1951-52. This proportion did not increase substantially during the 10 years as was revealed by 1961-62 survey. It was only 5.3 per cent.
The urban based commercial banks entered the field of rural credit in a big way only after the nationalisation of 14 major commercial banks in 1969. After 1969 commercial banks have opened their branches in rural areas and extended their value of credit to agriculture. Between June 1969 and June 1984, the total number of offices of commercial banks increased from 8262 to 45332.
The number of branches in rural areas are increasing at very fast rate. The number of branches in rural areas is about 76.4 per cent. Out of 37070 new branches opened since June 1969 as many as 23540 (63.5 per cent) and 5940 (16 per cent) were opened in rural and semi-urban areas respectively.
After the nationalisation of commercial banks, aggregate bank credit in agriculture is increasing. The credit advanced by commercial banks for agriculture was Rs. 188 crores in 1969-70. It was only 5.2 per cent of the aggregate credit. It increased to about 8.9 per cent in 1977-78. At the end of March 1984, banks lending to agriculture stood at Rs. 6133 crores accounting for 15.7 per cent of the total net bank credit and it was close to the target of 16 per cent to be reached by March 1985.
Commercial banks have faced great difficulty in providing agricultural credit, specially for these reasons:
First, credit requirements of Indian agriculture has been mounting up year after year. Such increasing requirements could not be fulfilled by these banks because of lack of refinancing facilities.
Second, the basic weakness of our agriculture continues to persist and they put very serious limitations on the expansion of the institutional credit, commercial or co-operative. The bulk of the farmers being small, their ability to use borrowed funds for productive purposes is very limited.
Third, the poor performance of repayment of loans is extremely poor usually between 20-30% of the borrowings. This creates a risk in financing the needs of small cultivators.
Fourth, the absence of proper account-books, remoteness of farms, difficulties in knowing the integrity and trustworthiness of the farmers, hardships in maintaining close contacts and absence of concrete policy (till recently) laying down the guide-lines for the commercial banks have added to the unwillingness of these banks to provide agricultural finance.
Fifthly, no guarantee facilities were provided to these banks in case of rural advances to small-scale industrialists.
Sixthly, seasonal vicissitudes and uneconomic nature of the farming industry, illiteracy among farmers, the imperative necessity of keeping their funds liquid also prevent these banks from advancing credit to the farmers.
Finally, there are precarious forms of security in as much as their value might depreciate on account of factors over which farmers have no control.
The nationalisation aimed at rectifying the existing functional deficiencies and operational changes in the structure of commercial banks. The commercial banks have taken suitable measures individually and collectively to provide agricultural credit. The 37 commercial banks set up an Agricultural Finance Corporation with an authorised capital of Rs. 100 crores.
The objectives of the Corporation are:
(1) To provide medium and short term credit for seed farms.
(2) To provide medium term loans for mechanisation,
(3) To finance vertical integration of processing industries with agricultural production,
(4) To finance construction of warehouse, godowns, silage and running of storage industries,
(5) To finance transport of agricultural produce,
(6) To finance regulated market construction,
(7) To finance building up subsidiary food industries through development of poultry and fisheries,
(8) To provide short-term loans through intermediaries like fertilizer companies,
(9) To finance medium term loans for pumping sets for lift irrigation;
(10) To provide loans to build up services to the farmer, and
(11) To provide loans for extensive spraying operations and financing pesticide companies.
Thus, the corporation is entrusted with two major functions, viz., to promote commercial banks’ advances for agricultural development and to finance individual institutions and organisations of undertaking agricultural operations.
The Corporation approved, since its inception, 62 schemes involving net commitments of Rs. 204.1 crores. Total disbursements upto June 1977 aggregated Rs. 92.2 crores. During 1977-78, the A. F. C. undertook formulation of four Command Area Development Projects, one Comprehensive Area Development Project, one Credit Plan for D. P. A. P. Project, 5 Integrated Tribal Area Development Projects, project for Integrated Horticultural Produce Processing and Marketing.
The entry of commercial banks has shown some new approaches which are as follows:
(i) Integrated or project approach to agricultural credit in the sense that short-term, medium-term and long-term requirements are treated as a total package. This has indicated the need for co-ordination between short-term and long-term co-operative banking structure as well.
(ii) Possibilities of streamlining procedures for the supply of credit. Here the need has particularly been for the improvement of land record so as to remove the difficulties faced by the banking agency.
(iii) The standards of viability and non-viability of the farmers have been changed. Consequent upon the introduction of improved seed and technology even the small farmer has been able to utilize new technology to raise his repaying capacity and thus became a viable farmer.
The traditional role of the commercial banks was a “purveyor of credit,” but now they act as “catalytic agents” in the nation’s economic progress. The commercial banks are to supplement their role as the emancipator of the farmers from the money-lenders, alongwith the co-operatives. Both these sectors can perform their work to achieve one and the same aim and there is less possibility for any type of conflict.
Firstly, credit requirements of agricultural development during the coming years is so vast that even the combined resources of both the co-operative and commercial banks may not be adequate to meet it. Secondly, the element of competition with the commercial banks should tone up and revitalise the co-operative system itself.
Source # 3. State Bank of India and Rural Credit:
On the recommendations of the Rural Credit Survey Committee, the Imperial Bank of India was nationalised and was replaced by the State Bank of India on July 1, 1955.
The Committee observed- “The creation of one strong, integrated, State-sponsored, State-partnered commercial banking institution with an effective machinery of branches spread over the whole country, which by further expansion (including minor amalgamation where necessary) can be put in a position to take over cash work from non-banking treasuries and sub-treasuries; provide vastly extended remittance facilities for co-operative, and other banks, thus stimulating the further establishment of such banks, and generally, in their loan operations, in so far as they have a bearing on rural credit, follow a policy which while not deviating from the canons of sound business, will be effective in consonance with national policies as expressed through the Central Government and the Reserve Bank.”
In regard to the financing of co-operatives the Committee specifically recommended that “the State Bank of India should be responsive to the needs of co-operative institutions connected with credit, and particularly marketing and processing societies. Further, it was observed by them that the branch extension should be coordinated; and wherever possible positively associated with the development of the co-operative credit, from the point of view specially of the provision of cheap remittance facilities.”
The ad hoc Committee appointed by the Reserve Bank in 1957 to formulate a programme of action for the State Bank of India concluded that in meeting the credit requirements of marketing and processing co-operatives (which would be of a substantial order); the Bank should make a significant contribution in respect of rural finance, specially in States where co-operative banks were relatively weak.
The Committee did not agree either to the State Bank’s taking over the function of the Reserve Bank in the sphere of agricultural credit or the Bank substituting for the State Co-operative Bank or the Central Co-operative Bank or both.
The Informal Group on Institutional Arrangements for Agricultural credit, constituted by the Reserve Bank (1964) remarked that the Bank’s records in the matter of supporting non-credit co-operative activity connected with agriculture had been quite encouraging.
They suggested that the State Bank should finance the rural and cooperative sector by granting working capital advances for food grains procurement operations and extension and expansion of credit facilities to various types of non-credit co-operatives; with a view to ensure that the lending policies and procedures at different levels of co-operative sector are in tune with the requirements of sound banking, they considered it desirable to maintain a close co-ordination between the Rural Credit Department of the State Bank and the Agricultural Credit Department of the Reserve Bank.
As regards the provision of production or development credit for agricultural purposes to cultivators, the Group recognised that, under the frame-work of agreed policies, this responsibility was to remain with the co-operative credit structure, which was expected to discharge it with appropriate assistance from the Reserve Bank. Thus, the State Bank of India has been, and continues to be assigned a role of supplementary financing agency, the primary one being that of the Reserve Bank.
The objectives are:
(1) To have one strong state-partnered bank with a number of branches spread over the country.
(2) To provide larger and extended remittance facilities to the cooperatives and other banks,
(3) To follow a policy which would be in agreement with the national policy in the field of banking.
Functions of the State Bank:
The State Bank of India undertakes the following functions particularly in the field of rural credit:
(a) It stimulates and accelerates the development and growth of cooperative banking through general assistance in remittance facilities to cooperative banks, provides short-term credit to them and subscribes to the debentures of the Central Land Development Banks.
(b) It assists in the financing of cooperative marketing and processing societies.
(c) It renders all possible assistance to the scheme of warehousing in the country.
(d) It provides financial aid to industrial societies for working capital.
(e) It coordinates its policy with those of the cooperative financial structure.
By June 30, 1977, 1869 branches in rural and 1417 branches in semi-urban areas were opened with a view to developing banking habits amongst the people of these areas.
Source # 4. Reserve Bank of India:
The Reserve Bank of India was set up under Reserve Bank of India Act, 1934, in 1935.
In order to provide agricultural finance to the cooperatives, a separate Agricultural Credit Department was created in the Bank in 1935 (under Sec, 54 of the R.B.I. Act) to:
(i) Maintain an expert staff for studying all questions relating to agricultural credit;
(ii) To provide expert guidance to the governments and to cooperative institutions in matters of credit;
(iii) To finance the movement of crops and other agricultural operations through State Cooperative Bank and other suitable agencies of rural credit; and
(iv) To coordinate the operations of the Bank in connection with agricultural credit and its relations with state cooperative banks.
From 1942 to 1949, the role of the R.B.I. was limited to that of the “lender of the last resort,” in so far as the cooperative movement is concerned. It was lending under Sections 17 (2) (b) and 17 (4) (c) of the R.B.I. Act to the State Cooperative Banks and through them to the cooperative societies against government securities, agricultural bills and promissory notes of the cooperative banks and debentures of approved land development banks, at a rate lower than the Bank rate for seasonal agricultural operations and for marketing of crops and to tide over the financial crisis for short period.
Till 1942, no cooperative bank had approached the R.B.I. for assistance except very small amounts by way of advances against Government securities. This unhappy situation was due to the limitations under which the Bank advanced loans. First, loans could not be advanced directly to agriculturists. It had to be passed through the co-operative banks first at the state level and then at the district or village level. This necessitated the existence of a state co-operative bank and a co-operative credit society in the state and the village, which requirement was not readily fulfilled before 1947.
Second, the bills could be discounted only for a short period and that too for seasonal agricultural operations for the marketing of crops. Third, the provision regarding the advance of security of goods pledged practically remained inoperative due to lack of warehouses and the absence of good rediscountable bills.
Thus, till 1949, the Reserve Bank’s role in providing rural finance was insignificant. For instance, in 1949-50, the co-operative banks borrowed only Rs. 2.71 crores from the Reserve Bank as against the total demand for rural credit estimated at about Rs. 800 crores a year.
As a result of the recommendations made by the Informal Conference on Rural Finance of officials and non-officials, in 1951 the R.B.I. was unable to work more efficiently within the existing frame work; for enlarging scope of rural credit and for eventually designing a new and coordinated frame-work in the light of the facts to be ascertained. Accordingly, a number of radical procedural changes were accepted in regard to its loan operations with a view to liberalising the scope and extent of the accommodation to the state cooperative banks.
The credit limits for the state co-operative banks were widened. Loans were given for seasonal agricultural operations and marketing of crops to these banks against the guarantee of the State Governments or on the security of bills and promissory notes carrying two good signatures. These banks were allowed to draw and repay any number of times against the credit limit provided their total outstanding’s did not exceed the limited amount sanctioned to these banks.
Amendments were made in 1951 and 1953 in the Act, as a result of which:
(i) The State Co-operative Banks were placed on the same footing as the scheduled banks in so far as the purchase, sale and discounting of bills of exchange and pronotes were concerned,
(ii) The period of accommodation for seasonal agricultural cooperatives and marketing of crops was increased from 9 to 15 months [Sec. 17 (2) (a)];
(iii) Mixed farming activities allied to agriculture, processing of crops etc. were included as valid reasons for advancing loans [Sec. 17 (2) (b)];
(iv) Loans could now be advanced to the cottage and small scale industries through the State and Central Co-operative Banks. [Sec. 17 (2) (bb)];
(v) Medium-term loam could be granted to the State co-operative banks against government guarantee for agricultural purposes for a period of 15 months to 5 years; provided the aggregate loans did not exceed Rs. 5 crores. [See 17 (4) (a)].
In 1955, this restriction of Rs. 5 crores was removed. In 1954, a scheme was formulated by the Agricultural Credit Department, for making advances to the State Co-operative Banks for marketing of crops at concessional rate.
The favourable effect of these measures enabled the State Co-operative Banks to make freer and fuller use of the financial accommodation provided by the R.B.I. In the words of the Rural Credit Survey Committee “In recent years, few aspects of the working of R.B.I. has been so striking as its role in the sphere of rural finance.”
Source # 5. Agricultural Refinance and Development Corporation (ARDC):
Agricultural Refinance and Development Corporation was set up under the Agricultural Refinance Corporation Act, 1963 with a view to provide finance (medium-term and long-term) for major agricultural development projects which cannot be satisfactorily financed by the existing institutional agencies like the land development banks and the scheduled banks, either on account of large outlay involved or because a long gestative period or because the projects are such as cannot be brought under the normal business accepted by the land development banks.
Functions of the Corporation:
The functions of the ARDC as defined in the Act, include:
(i) The provision of necessary resources by way of re-finance to the primary lenders for facilitating agricultural development, covering wide field including development of animal husbandry, dairying, pisciculture, poultry farming and stock breeding.
(ii) Purchase/subscribe the debentures floated by the Central Land Development Banks, State Co-operative Banks, scheduled banks, and cooperative societies (approved by the Reserve Bank) in the normal course.
Refinance is routed through the Central Land Development Banks and other eligible institutions for financing special development schemes for increasing agricultural production, which though remunerative in character involve considerable investment or long period of waiting.
Such schemes include:
(a) Land development, including reclamation, contour bunding, soil conservation and preparation of land so that facilities for irrigation are fully used.
(b) Development of plantation/horticulture i.e., special crops such as rubber, tea, coffee, coconut, cashew nuts, arecanuts, cardamoms, orchards and vineyards, etc.
(c) Development of mechanical farming, use of electricity through digging of tube-wells and energising of pump sets.
(d) Development of animal husbandry, dairying, farming, pisciculture and poultry farming.
(e) storage/market yards
(f) Agricultural aviation.
(g) Integrated Cotton Development Project (ICDP).
(h) Forestry.
Re-finance is available by the Corporation to eligible institutions for financing the above schemes approved by it in two forms, viz., one subscription to the special development debentures floated by the Central Land Development Banks, and second, loans to State co-operative banks and scheduled commercial banks.
Direct financial assistance can also be provided, in exceptional cases, to cooperative societies approved by the Reserve Bank of India.
A ceiling of Rs. 50 lakhs is fixed in respect of assistance granted by the Corporation in connection with individual transaction. Refinance facilities are available both for medium- term and long-term loans. Medium term financial assistance is available for periods of 3 to 5 years. Long term assistance is restricted to a maximum period of 15 years, and in exceptional cases upto 20 years on merit. Corporation’s rate of interest is 6 per cent per annum.
Management of the Corporation:
The management of the Corporation vests in a nine-member Board of Directors, including the Managing Director and the Dy. Governor of the R.B.I. (in charge of Agricultural Department) as Chairman, Other directors including three representatives of the Government of India; one of the R.B.I. and one each from Central Land Development Bank, State Co-operative Banks and Scheduled Commercial Banks, L.I.C., and Insurance and Investment companies.
At present there are 75 eligible institutions (named as above) which are the share-holders of the Corporation. Of these, 18 are Central Land Development Banks, 20 are State Co-operative Banks and 37 are Scheduled commercial banks.
Funds of the Corporation:
The Corporation’s authorised capital is Rs. 25 crores divided into 25,000 shares of Rs. 10,000 each. The issued and subscribed capital is Rs. 5 crores consisting of 5,000 shares of Rs. 10,000 each fully paid up and held by the R.B.I. Central Land Development Banks, State Co-operative Banks, Scheduled Commercial Banks, L.I.C., and insurance and investment companies. The shares are guaranteed by the Central Government as to the repayment of the principal and a payment of minimum dividend of 4 1/4 per cent annum.
The Government of India provided the Corporation with an interest free loan of Rs. 10 crores. By the end of June, 1970, the total amount of loan given by the Central Government stood at over Rs. 26 crores.
The Corporation is authorised to raise further funds by issue of bonds and debentures carrying Government guarantee, and accepting long-term deposits from the Central and State Governments, local authorities, co-operative institutions, scheduled banks and others. However, the aggregate amount borrowed in the form of loan and deposits is not to exceed 20 times of the paid-up capital and reserves.
Method of Working:
The Corporation provides re-finance to the eligible institutions for such projects which, in its opinion, are:
(a) Economically feasible, financially sound, operationally efficient;
(b) Located in a compact area so that intensive supervision is possible;
(c) Cover specially the small cultivators.
It also takes other factors into consideration such as the willingness of the farmers to avail the scheme, their capacity to provide mortgage security, availability of power and water supply commitment by the State Government regarding their share of contribution, etc.
Source # 6. Regional Rural Banks:
An Ordinance was promulgated for setting regional rural banks on September 27; 1975. Accordingly on October 2, 1975, five banks were established in four states; 2 in U. P. one at Moradabad by the Syndicate Bank and the other at Gorakhpur by the State Bank of India; 1 in Rajasthan by the United Commercial Bank, 1 in Bhiwani Haryana by the Punjab National Bank and 1 in Malda (West Bengal) by United Bank of India.
Each Bank has an authorised capital of Rs. 1 lakh and paid-up capital of Rs. 25 lakhs. The share capital is raised by the Central Government, the State Government concerned and the sponsoring bank in the ratio of 50, 15 and 35. There is no participation of other institutions and individuals in the equity of the regional rural banks.
These banks have a Board of Directors of 9 members- 4 to be appointed by the Central Government. 2 by the dominant nationalised banks, 1 by the State Government and 2 by the Government of India from amongst other shareholders.
At the end of June 1984, there were 162 RRBs covering 286 districts in 21 states and 2 union territories, the RRBs among themselves have opened 8727 offices upto June 1984. The deposits arid advances (direct and indirect) of 162 RRBs at the end of June 1984 amounted to Rs. 774 crores and Rs. 860 crores respectively. Of the total advances of Rs. 860 crores about 96 per cent were direct advances to the weaker sections like small and marginal farmers, landless labourer and rural artisans.
Purpose wise distribution of these advances showed that major portion of the advances are for agriculture. Out of the total advances of Rs. 860 crores about 59 per cent or Rs. 509.4 crores were for agricultural purpose, 317.4 or about 37 per cent were for non-agricultural purpose and Rs. 33.2 or 4 per cent were indirect and consumption advance.
These banks combine the good features of both cooperative and commercial banks and exclusively provide credit to small and marginal farmers, agricultural labourers and rural artisans.
These regional rural banks, are basically scheduled commercial banks but are different from the existing commercial banks in the following respects:
(1) Their area of operation is limited to a particular region comprising one or more districts in any state.
(2) They grant loans and advances particularly to small and marginal farmers, agricultural labourers and rural artisans, small entrepreneurs and persons of small means engaged in trade and other productive activities in the area of operation.
(3) The lending rates of the banks is not higher than the prevailing lending rates of co-operative societies in any particular state.
(4) The salary structure of the employees of the regional rural banks is prescribed by the Central Government, having regard to the salary structure of the employees of the state government and local authorities of comparable level and status in that area of operation of the bank.
The areas where regional rural banks are set up are comparatively backward or a tribal area or where coverage by the commercial banks and co-operatives is relatively poor. Secondly, the area has a real potential for development and should be poised for a breakthrough once the flow of credit is assured.
These Banks grant loans mostly for production purposes. But a small proportion may be earmarked for consumption purposes like educational or medical expenditure. A ceiling is placed on the limit of loans that can be sanctioned to an individual. They advance loan at 14%; the same as cooperative societies charge.
In preparing the prospective branch expansion plan, banks are asked to include as many offices as possible in the unbanked and under banked rural and semi-urban areas, unbanked taluk and tehsil headquarters and under-banked and backward districts; especially in the eastern and north-eastern states.
While preparing the branch expansion programmes banks are asked to keep in view centres:
(a) With high deposit potential,
(b) Where the state governments are keen on having bank offices for implementing the various developmental schemes formulated by them,
(c) Where the applicant banks have undertaken or propose to undertake financing of special schemes with refinance assistance from the International Development Agency, Agricultural Refinance Development Corporation,
(d) Which are identified as potential growth centres in the surveys conducted by the identified lead banks and are still unbanked and
(e) In adivasi, tribal belts etc.
Source # 7. Crop Loan Scheme:
It has been realised that if co-operative structure is to serve fully the small or uneconomic farmer and to liberate him from the moneylender-traders, it must make credit available for all production and consumption needs of the farmer. Till recently, co-operative loans were made for a twelve months’ period by the co-operative societies on the security of land in several States notably in West Bengal, Orissa, Tamil Nadu, M. P., Kerala, Andhra Pradesh and Karnataka. Such loans were renewable.
Formers have been receiving crop loan upto a principal amount of Rs. 3 lakh at 7 per cent of interest since 2006-07. The effective rate of interest for the farmers who promptly repay their crop loan is 4 per cent per annum.
Source # 8. NABARD:
In 1981 a committee was appointed by the Reserve Bank of India to review arrangements for institutional credit for agriculture and rural development (CRAFICARD) under the chairmanship of Prof. M. L. Dantiwala. The committee recommended a separate bank for rural credit called National Bank for Agriculture and Rural Development. According to the recommendations of the committee the NABARD Act was passed in 1981 and the new bank was established with effect from July, 1982.
NABARD is an apex institution empowered with all matters concerning policy, planning and operations in the field of credit for agriculture and rural credit. Paid-up capital of the bank was 100 crores. The paid-up capital has been raised to 200 crores during 1997-98. NABARD provides refinance facility to State Land Development Banks, State Cooperative Banks, Scheduled Commercial Banks and Regional Rural Banks. It operates throughout the country through, its regional offices.
Details of agency wise disbursements of refinance assistance by NABARD is given below.
The table shows that refinance assistance by NABARD has increased during 1981-82 to 1993-94:
The need to change over to a purpose-oriented loan policy by adoption of the crop loan system, used in Maharashtra and Gujarat since 1950, was recommended by the Committee of Direction, (All- India Rural Credit Survey, 1954) and the V. L. Mehta Committee on Co-operative Credit, 1960. While these recommendations were accepted by the co-operatives (both officials and non-officials) the scheme could not be implemented in several states for a long time.
Source # 9. Kisan Credit Card Scheme:
The Kisan Credit Card Scheme introduced in 1998-99 has made rapid progress with the banking system issuing more than 556 lakh cards by November 2005. Kisan Credit Card Scheme has helped in augmenting the flow of short-term crop loans for seasonal agricultural operations to farmers. The scope of the Kisan Credit Card Scheme has been enlarged to include term loans for agriculture and allied activities. Provision of consumption loan has also been made in the Scheme.
The credit delivery system of the banks is being simplified with more flexibility in the use of Kisan Credit Card.
The Self Help Group Bank Linkage Programme has emerged as the major micro finance programme in the country. By December, 2005, 18.3 lakh SHGs have been provided. The target group of Self Help Group Bank Linkage Programme broadly comprises small and marginal farmers, agricultural and non-agricultural labourers, artisans and craftsmen and other poor of the society.