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Technical inputs can be purchased and used by farmer only if he has money (funds). But his own money is always inadequate and he needs outside finance or credit.
Professional money lenders were the only source of credit to agriculture till 1935. They use to charge unduly high rates of interest and follow serious practices while giving loans and recovering them. As a result, farmers were heavily burdened with debts and many of them perpetuated debts.
With the passing of Reserve Bank of India Act 1934, District Central Co-op. Banks Act and Land Development Banks Act, agricultural credit received impetons and there were improvements in agricultural credit. A powerful alternative agency came into being.
14 major commercial banks were nationalized in 1969, co-operative banks were the main institutional agencies providing finance to agriculture. After nationalization, it was made mandatory for these banks to provide finance to agriculture as a priority sector. These banks undertook special programs of branch expansion and created a network of banking services throughout the country and started financing agriculture on large scale. Thus agriculture credit acquired multi-agency dimension.
The key problem of those dependent on agriculture, specially the poor, small and marginal farmers and weaker sections of the society, is finance. Therefore, in each Plan period, there has been a continued emphasis on rapid and progressive institutionalization for supply of timely and adequate credit-support to enable those engaged in agriculture to adopt modern agricultural technology and improved agricultural practices for enhanced growth, production and productivity. The traditional concern about accessibility of agricultural credit to the needy rural inhabitants is still alive even after increasing bank branch network, improving Co-operative Banking structure, evolving specialized rural banking institutions (i.e., Regional Rural Banks) and the setting up of various financial agencies like the National Bank for Agriculture and Rural Development (NABARD). 1
To study the emerging trends in agricultural finance. To study the changing role of agricultural officers in commercial bank. To study the changing needs of agricultural finance in India. To know what is the role of Self Help Groups in providing Micro Credit.
SCOPE OF THE STUDY:
The study was conducted on the following: Types of financing Criteria for financing Growth rate in the agriculture Changes in the agricultural finance
The methodology used in this study is Exploratory research method. A pilot survey is done to know the condition of Indian agricultural finance since nationalization of the banks.
DATA SOURCE: PRIMARY DATA:
It includes data collection from the discussion through questionnaire with concerned bank representative 2
It includes information from 1. Websites 2. Journal and Magazines
As a pilot study is done to collect the information the sample size is 5 which include 4 public sector banks and 1 co-operative bank.
The study is restricted to only academic purpose. The inexperience makes this research less precise when compared with a professional research work. Conclusion has been arrived based on the information given by the sources.
1.1 AGRICULTURE & FINANCE IN RURAL SECTOR
Indian economy is basically agrarian. Nearly 50% to 60% of the Indian population depends upon agriculture for its livelihood. Agriculture plays a crucial role in the Indian economy and is pivotal for ensuring food security, employment generation and social transformation of the nation. With 67 per cent of our population and 54 per cent of the total workforce depending on agriculture and other allied activities, agriculture not only meets the basic needs of India’s growing population, but its direct linkages with the industry is on the increase owing to the increased demand for processed agricultural commodities and goods by consumers. Agriculture in India is the means of livelihood of almost two thirds of the work force in the country. It has always been INDIA'S most important economic sector. The 1970s saw a huge increase in India's wheat production that heralded the Green Revolution in the country. The increase in post -independence agricultural production has been brought about by bringing additional area under cultivation, extension of irrigation facilities, use of better seeds, better techniques, water management, and plant protection. Dependence on India agricultural imports in the early 1960s convinced planners that India's growing population, as well as concerns about national independence, security, and political stability, required self-sufficiency in food production. This perception led to a program of agricultural improvement called the Green Revolution, to a public distribution system, and to price supports for farmers. The growth in food-grain production is a result of concentrated efforts to increase all the Green Revolution inputs needed for higher yields: better seed, more fertilizer, improved irrigation, and education of farmers. Although increased irrigation has helped to lessen year-to-year fluctuations in farm production resulting from the vagaries of the monsoons, it has not eliminated those fluctuations. Non-traditional crops of India, such as summer mung (a variety of lentil, part of the pulse family), soya beans, peanuts, and sunflowers, were gradually gaining importance. Steps have been taken to ensure an increase in the supply of non-chemical fertilizers at reasonable prices. There are 53 fertilizer quality control laboratories in the country. Realizing the importance of Indian agricultural production for economic development, the central Government of India has played an active role in all aspects of agricultural development. Planning is centralized, and plan priorities, policies, and resource allocations are decided at the central level. Food and price policy also are decided by the central government. Thus, although 4
Despite the fact that agriculture accounts for as much as a quarter of the Indian economy and employs an estimated 60 percent of the labor force. leading to floods in certain parts of the country and droughts in some others. India is a fisheries giant as well. One result of the inefficient use of water is that water tables in regions of rice cultivation. Indian farmers also grow pulses. At a time of increasing water shortages and environmental crises. it is considered highly inefficient. coffee. Despite the overwhelming size of the agricultural sector. however. The monsoons. Expansion in crop production. Improper water management is another problem affecting India's agriculture. One of the objectives of government policy in the early 1990s was to find methods of reducing this dependence on the monsoons Problems faced by Indian Agriculturist 1. these problems have continued to frustrate India for decades. the rice crop in India is allocated disproportionately high amounts of water. therefore. with the foremost food staples being rice and wheat. oilseeds. average. for example. and incapable of solving the hunger and malnutrition problems. It is estimated that as much as one-fifth of the total agricultural output is lost due to inefficiencies in harvesting. Despite progress in this area. yields per hectare of crops in India are generally low compared to international standards. however.agriculture in India is constitutionally the responsibility of the states rather than the central government. are on the rise. transport. This has partially been due to relatively unfavorable distribution of rainfall. while soil fertility is on the decline. play a critical role in Indian agriculture in determining whether the harvest will be bountiful. or poor in any given year. Aggravating the agricultural situation is an ongoing Asian drought and inclement weather. tea. has to come almost entirely from increasing yields on lands already in some kind of agricultural use. 5 . wasteful. A total catch of about 3 million metric tons annually ranks India among the world's top 10 fishing nations. potatoes. and such non-food items as cotton. the latter plays a key role in formulating policy and providing financial resources for agriculture. and storage of government-subsidized crops. India's agriculture is composed of many crops. 2. Lack of education and awareness about opportunities. rubber. Lack of Market Knowledge and Marketing skills. and jute (a glossy fiber used to make burlap and twine). sugarcane. such as Punjab.
pesticides.e. He has to purchase many things such as high yielding seeds. fertilizers. Therefore. If we analyze this changing scene in agriculture. 6 . Naturally. from the market. No. Economic Evolution of Indian Agriculture: Indian agriculture is undergoing a rapid change particularly since mid-sixties i. Traditional farming was more or less self-sufficient.3. traditional farming is changing into modern farming. which includes fruit production. markets. The needs of the farmers are increasing. rapid urbanization and growing export markets. Traditional farming is slowly becoming absolute and uneconomic. Absence of innovative financing for agriculture. Our horticulture. the competition is also likely to increase. floriculture and vegetable production. Cost of transport to market. It was based on the experiences transmitted from father to the son. As a result. 5. However. with the developments taking place due to five-year plans and technologies developments in agriculture. Lack of professionalism and small land holding. Lack of reliable Agriculture publication and media to provide latest and reliable localized data. profits of the enterprise become significantly important. 4. This is nothing but ‘Agri-economics’. from the on-set of ‘Green Revolution’. returns. cost of fertilizers. The consideration of economic aspects in the production process is inevitable. Agriculture has become un-viable due to oversupply because new hybrids are giving excellent yield but due to oversupply. 6. machinery etc. the costs. the price realization is very low. is also making a tremendous heading and it is said that ‘yellow Revolution’ is in the sight. cost of living is going up several times but the selling price of agriculture produce is stagnating due to oversupply and record productions. However. This. we can notice that the traditional agriculture. 7. we have witnessed a ‘white Revolution’ marking a tremendous increase in the milk production. the demand for farm products is increasing and is likely to increase in the near future. Which was a ‘way of life’ for our farmers is now becoming a ‘business proposition’. In the traditional farming there was no much change in the cropping pattern. With increasing population. he has to produce and get income to meet the costs and also to make some profit. electricity for water pump. cultivation practices etc. his investment and financial needs are increasing. farming is becoming market oriented.
marketing. price fluctuations and so on. they are more economics oriented. is that a new generation of farmers who are more educated.As indicated above. In addition.2 RESERVE BANK OF INDIA & AGRICULTURE FINANCE In India. Along with the adoption of new technology in farming. young and energetic have taken up to this enterprise. There are problems of soil and water management. In finding the solutions for these problems. soils. Many of them are innovative and experimenting of their own. 1. color. packaging etc. finance. taste. which one can notice in this complex changing scenario of agriculture. new varieties of crops. New non-traditional crops. dairy. In addition to this. technical know-how. and poultry) on the farm. He has to consider the economics of each enterprise separately also of the farm as a whole. quantity. many non-farming community entrepreneurs are also attracted towards agriculture. Naturally. They are very keen on getting more knowledge about the new technology. In solving the problems of individual farmers all these situational factors are to be taken into account. Farmer has several enterprises (such as crops. It assumes special responsibility in the development of agriculture & industry. the problems faced by the farmer’s fare also increasing. economic criteria are to be applied. pests and diseases. An important ray of hope. surplus production. Farmer has to consider all these aspects and consider the costs and returns before entering into the venture. The RBI concentrates more on these two vital sectors of the economy. 7 . Which farmers should know. and ecological conditions. individual farmer is having his own set up of resources and socio-economic situation. new methods of cultivation are coming in very fast and farmers are adopting the same. India is a vast country with varied climate. choice of crops. there has been a technological break-through in agriculture in recent years. the Reserve Bank contributes to a great extent in the economic development in various ways. the time has come that every activity on the farm has to be viewed from the perspective of economics. A large number of farm products are being produced for exports. It helps in decision making and proper planning of the farm. Now. natural hazards. However there are specifications about the size. RBI does not presently provide these finances directly.
etc. B. it is required to set up a separate Agricultural Credit Department. D. Being the largest industry in the country agriculture is the source of livelihood for over 70% of population in the country. With the formation of NABARD in 1982. . Product contribution – making available food & raw materials. C. On recognizing the fact that Agriculture is the foundation on which the entire super structure of the growth of industrial and other sectors of the economy has to stand. E. 8 A. the RBI develops the Agricultural sector in the following ways: Agriculture Credit Department According to section 54 of the RBI Act. and Foreign exchange contribution. The Reserve Bank of India realizes the following basic contributions of the Agricultural sector in the overall economic development. Funds for Agricultural Development Financial Assistance to Co-operative Sector Establishment of agricultural Credit Board Establishment of NABARD Credit Functions Short-term Credit Medium-term Credit Long-term Credit Conversion & Rescheduling Facilities Financing Cottage/Village/Small Scale Industries. However. the Rural Planning and Credit Department in the Reserve Bank deals with the following agriculture related matters.Agriculture development is regarded as a prerequisite of economic development of the country. Market contribution – providing the market for producer goods and consumers goods produced in the non-agricultural sector. Factor contribution – making available labour & capital to non-agricultural sector. all the activities of this Department have been transferred to NABARD.
This has enabled development of individuals. As one of the measures to develop the economy and to provide support for nation building. under priority sector.80 lakh borrowal accounts under Priority Sector credit fold and there are innumerable satisfied borrowers who have come up in life with our timely financial assistance. Keeping in view the rich past experience and in tune with the Government of India/Reserve Bank of India guidelines. the Bank’s achievement is consistently over 45% for the last 5 years. Presently. The Bank has achieved business level of Rs. the Bank has more than 13. the Bank has grown in size and stature with more than 2592 branches (1723 rural and semi-urban branches) spread across the length and breadth of the country. As against the benchmark of 40% prescribed by Reserve Bank of India under Priority Sector to Net Adjusted Credit. Bank of India commenced rural lending way back in 1968 even before the nationalization of banks. spanning more than 3 decades. Assistance to Co-operative Banks in SFDA and MFAL Reform Measures for RRBs Promotion of Warehouse Facilities Other Facilities to Agriculture National Agricultural Insurance Scheme Rural Credit The successive five year plans embarked upon the green revolution and white revolution for which modernization and mechanization of agriculture and allied activities was a must and that needed financial support. a village or even the given area by increased production and productivity. 16.800 crores as on February 2005. During the post nationalization period. The Bank has been supporting the task of nation building by implementing varied polices/guidelines of the Government with clear objectives. through 9 . Focused attention is given to build a loyal band of customers in Rural & Semi-urban areas where the Bank has more than 67% of its Branch Network. the Bank is adopting innovative and growth oriented administrative policy measures. smooth flow of credit.
Organization of Rural Credit (Fig 1.1) 10 .
Grapes. The Philosophy. 11 . For borrowers with established credentials. better operational flexibility in the operation of their accounts. v) Focused attention for development of crops being grown in the given area like Cotton. the package of assistance is redefined to take care of growth as well as seasonal credit needs without any hassles. concepts and various issues behind launch of our various new card products/schemes are as under:i) Intensive financing in service area with package of services to optimally utilize the resources at the command of the borrowers. marriages. Chilies. of late. and Oranges etc. Sugarcane. conveyance. Potato. documentation and disbursements has been further simplified. the products are re-modeled to make them attractive with longer gestation period and lowered EMI at affordable interest cost. education. Offering credit against stored farm produce so that farmers are not forced to sell in a buyer’s market. viii) In pursuit of achieving national objectives like better education and housing to all. sanction. launched innovative schemes/card products with defined objectives and refined methodology. iii) Providing credit for the diversified needs of the borrower’s family for farm. Building up infrastructure for preservation and processing these crops. health etc. vii) To promote growth of industries including small artisans. ii) To maintain continued relationship with existing borrowers by providing credit packages which take care of both the present as well as future aspirations of the borrowers in pursuing their various productive ventures. iv) Recognizing good borrowers and rewarding their loyalty by offering concessional rates of interest. ix) The process of submission of applications for loans. off-farm as well as consumption needs like housing. Mangoes.The Bank has. farm mechanization and supportive allied activities like Dairy etc. vi) Building up infrastructures at farm level through irrigation. services and business sectors. particularly farmers and rural entrepreneurs.
Banks main function also includes the implementing of the schemes that are announced by the government in line with the existing schemes. (CCC. 12 . KCC & KGC are now subsumed into KSC) 1. Devinder Sharma outlines five criteria that nation's finance minister must keep in mind while crafting budgetary policy for agriculture.Successive Finance Ministers have spared no effort in eulogizing agriculture.4 Making-agriculture-attractive With the 2003-04 budget giving agriculture the go-by. March 2003 . Star Artisan Credit Card (ACC). 1. Banks play as facilitator between the government and the farmers.The various innovative schemes/card products are: • • • • • • Star Composite Cash Credit (CCC): Kisan Credit Card (KCC) Kisan Gold Card (KGC) Star Kisan Samadhan Card (KSC) Star Bhoomiheen Kisan Card (BKC).3 FUNCTIONS OF COMMERCIAL BANKS The function of the commercial banks towards the agriculture finance is almost similar to that of the common functions carried on by the banks. But the functions towards agriculture are given more importance as about more than 50% of the population depend upon agriculture directly or indirectly The functions of the commercial banks towards agriculture are as follows: 1) Receiving deposits from the public 2) Making loans & advances 3) Restructuring of loans in case of calamities 4) Customize Loans.
therefore. In essence. where nearly 85-90 per cent of the 110 million farming families. It never was for a country."KISAN KI AZADI".clear pointers of the gathering storm clouds over the farm sector. In fact. empowering farmers to take informed decisions and so on.Presenting the Budget 2003-2004. Successive budgets showed emphasis. saying that his Budget was aimed at ensuring freedom of the farmer -.comprising the Bharat where more than 80 per cent population lives . he was expecting the States to accord top priority to the farm sector. A year earlier. And in the bargain. trade and industry. mounting rural indebtedness. In his famous 1992-93 Budget speech. Since the dawn of economic liberalization in June 1991. the chief architect of the new economic policy. the persistent neglect of agriculture has cast an ominous shadow. ever since liberalization became the economic mantra. Finance Minister Jaswant Singh had remarked that agriculture is the life blood of our economy.increasing suicides among farmers. Indian agriculture has been pushed into an era of unforeseen crisis ." And yet. be the obvious challenge for any Finance Minister. Yashwant Sinha had romanticized agriculture. Nor can we hope to provide sufficient jobs for our growing rural labour force unless we can transform the economy of our rural areas. This unfailing lip service glorifying farmers continues unabated. and the impetus shifted to business and industry. somehow make out a living from less than 2 hectares of land holding. Budget too is targeted at Indian urban centers. It all began with the former Finance Minister Mr. swelling rural to urban migration . What is needed is a fresh approach that takes the ground realities into consideration before embarking upon any policy imperatives. All budgetary allocation for agriculture should be made keeping these criteria for sustainable growth in mind: 13 . scientific management of scarce water resources. Manmohan Singh. What happens to the masses . through the use of clichés like strengthening marketing infrastructure. the annual Budget has become a political instrument to provide sops and tax holidays to the corporate sector.has never been the concern of the successive Finance Ministers. he concluded by saying that agriculture being in the concurrent list. unmanageable glut at the time of harvest. his predecessor. Singh had said "Agriculture is the foundation of national prosperity and no strategy of economic development can succeed in our country if it does not ensure rapid growth of production and employment in agriculture. A growing volume of evidence now clearly suggests that such jugglery in presentation has not helped. Resurrecting agriculture should.
The green revolution areas are encountering serious bottlenecks to growth and productivity. Finance Minister must ensure that the Budget allocations are made in such a way that it helps bring back the shine on the golden grain. 2. tribals pay something around 160 per cent rate of interest. This unsavory phenomenon is a manifestation of the declining farm incomes and lack of farm credit. budget allocation must be made for assured food procurement at remunerative prices. 14 . The more the poverty level. comprising Punjab.1. Banking upon genetically engineered crops to take care of the second-generation environmental impacts is sure to worsen the existing crisis. Introducing new Centrally Sponsored Schemes to improve production in these areas is going to be counter-productive. 50-60 per cent rate of interest by private moneylenders is not very uncommon. And in Jharkhand State. Food grain productivity in the food bowl. Farm-incomes Growing indebtedness in agriculture is forcing an increasing numbers of farmers to end their lives. Asking private banks to go rural is merely an approach that may satisfy the galleries. agriculture has to be made attractive. Sustainable-farming Indian agriculture faces an unprecedented crisis in sustainability. Haryana. In neighbouring parts of Madhya Pradesh. the more is the rate of interest. In addition. Finance Minister must spell out schemes that encourage banks to provide easy credit facilities to farmers. procurement needs to be extended to coarse cereals. is on the decline. pulses and oilseeds to provide farmers an incentive to produce more. and western Uttar Pradesh. Bank loans for cars are available at a much cheaper rate of interest than tractors. In short. Some tribals in Kalahandi in Orissa who pay 460 per cent interest to moneylenders. Excessive mining of soil nutrients and groundwater have already brought in soil sickness. Banks are no longer treating agriculture for priority sector lending. the rate of interest is a little lower at 360 per cent. Agriculture credit has to be revived. Institutional finance and credit has almost disappeared over the years. Similarly. Even in the frontline agricultural States of Punjab and Haryana. Monocultures breed pests and waste resources. Cosmetic innovations like Kisan Cards and the likes are not much helpful unless banks have the willingness to provide support to the agrarian sector.
4. The increased emphasis on water harvesting notwithstanding. Requiring good fertile and irrigated land for cultivation. The food policy imperatives of public distribution system and announcing the procurement prices before the crop season have to be further strengthened. But before diversification becomes the new mantra. in fact. Drought-proofing Recurring drought continues to engulf vast tracts of central and north western India. With the per hectare productivity of food grains on the decline in the frontline agricultural states. its growth is at the cost of staple foods like wheat and rice. This can be ensured by making it mandatory for the foreign insurance companies to invest at least 40 per cent of their funds for farm insurance. a technology imported from the United States. Sugarcane. rather than importing exotic breeds) need to be encouraged. crop planning according to the water needs and availability and the emphasis on the local breed of cattle (and improving its productivity. Sugarcane farmers need to be encouraged to divert to other crops. is the biggest threat to India's food security. Fodder cultivation. the reduced availability of water is emerging as a major social and economic crisis. called the "Ridge to valley" system.ponds and tanks. diversion of good fertile land to sugarcane is not without accompanying hiccups. 5.3. Sugar-mills The unprecedented addition of new sugar mills by successive governments has created a major crisis on the agriculture front. Agricultural-processing 15 . This is because much of the investment is going into a faulty technology of rain water harvesting. What makes the switchover to sugarcane a pernicious trend is its enormous water requirement. it is important to first lay out the structures that would help in taking the produce to the consumers. Investments in rain water harvesting needs to be immediately shifted to the revival of the traditional forms of water conservation . The importance of drought proofing should have been obvious considering that food grain output had slumped by over 13% as a result of the severe drought that swept through the almost the entire country. Marketing Providing an assured and remunerative market for agricultural producers cannot be left to the market forces. Farmers in the rain fed areas also need to be insured against drought. Subsidies for drip irrigation and sprinkler irrigation need to be discontinued as it helps only the rich farmers and corporates.
The growth of the Indian food processing industry has been sub-optimal due to the prevalence of several aspects that have hindered fullest realization of the immense potential. India is a large consumption hub for food products. Already a number of manufacturing units. have begun to source the agricultural raw material. It has been estimated that one incremental percentage growth in agriculture leads to an additional income generation of Rs 10. including oranges. The impact of agricultural growth on farmer empowerment is apparent. West Bengal and the northeast. The post liberalization era has witnessed a high degree of correlation between India’s GDP growth and its agriculture growth. any tinkering with what is generally regarded as the "famine-avoidance" strategy can be catastrophic. popcorn. India has a 1. with a population of 1. Further. 30 per cent in Thailand and 60-70 per cent in United Kingdom and United States of America. grapes. peas etc. The 'rainbow' revolution that everyone talks about is actually aimed at helping the industry to exploit the farm sector.000 crores in 2002-03) share of global food & agricultural trade ($460 billion).000 crores in the hands of the farmers thereby increasing their disposable income and ultimately.too needs to be strengthened. despite its production leadership in agriculture. from America and Europe. The Finance Minister needs to take corrective measures to reduce inefficiency in the system while at the same time making it broad-based and widespread. PDS also needs to be extended to upcoming agricultural areas in Bihar. can translate into India becoming a leading food supplier to the world. but not at the cost of the domestic producers. growing at about 1. Orissa. for instance. While agricultural production in the country is significant. India is following the WTO dictates of doing away with the food procurement system. the agro processing industry is still at a nascent stage with less than 2 per cent of the fruit and vegetables production being processed as compared to about 80 per cent in Malaysia. Although.3 per cent (Rs 33.6 per cent per annum and with favourable demographics. In terms of agricultural trade. These advantages if leveraged optimally. Owing to diverse and favourable agro-climatic conditions. India’s exports still 16 .08 billion. wherein it has been estimated that for achieving the desired GDP growth of around 8 per cent. their purchasing power. The Finance Minister must ensure that food-processing sector uses the abundant raw material available within the country. agricultural growth in excess of 10 per cent is required. India has a significant comparative advantage in agricultural production and the potential to be globally competitive by producing a wide-variety of high quality produce.
a holistic and integrated approach is required to achieve sustainable development of the sector. In addition. The problem of isolated operation of stakeholders which is further compounded by the lack of adequate infrastructure (such as silos. Farmers suffer from lack of linkages to the demand side as they are unaware on the kind of crop varieties which have high demand potential. One of the major constraints hindering the progress of Indian agribusiness is lack of supply chain integration wherein different stakeholders (viz. Similarly. many products are showing single digit or negative growth. From the demand side the agro-processing industry also suffers due to the lack of backward integration. Such efforts so far have largely remained fragmented and confined to limited areas. lack of cost competitiveness. Agri-input players. the Agri-input players such as seed companies.. This lack of integration has created bottlenecks at each stage thereby creating mismatches in the demand-supply situation.constitute the low-value commodity and primary processed items where price realizations are low.5 Issues and challenges Indian agriculture sector has the potential to transform India into the leading agro economy of the world. The reasons for India’s insignificant share in global trade include supply side factors such as lack of consistency in supply and quality. warehousing and storage facilities) and ad-mixture problems as well as non-existence of value-added service provision are ultimately leading to the erosion of the competitive edge of Indian agribusiness. Specialized financial institutions with domiciled expertise in agribusiness are fully equipped to provide these solutions with orientation towards their technical and financial 17 . 1. Interaction between agro-processing industry and input players and farmers on the precise nature of inputs required for processing commodities is limited. processors and retailers) have been operating in isolation. However. and demand side factors such as non-tariff barriers and poor perception of Indian food products in the international markets. Integrated supply chain solutions are the key to achieving sustainable development of the food processing sector in India. This has deprived the agro processing industry from capitalizing on potential economies of scale and from achieving a degree of procurement comfort based on produce quality. agrochemical suppliers are not linked to the demand side to understand the processable or marketable varieties of seeds and inputs to be supplied. farmers.
many banks have taken softer options such as investing in the Rural Infrastructure Development Fund (RIDF) instead of directly lending to the farmers. entry of private sector. Adopting a knowledge18 . and plant protection chemicals is often felt by farmers and is critical for successful production of value added crops. A scientific and innovative agricultural approach to agriculture will enable us to compete globally in cost and quality with respect to global benchmarking and our core competitive strengths in various agriculture produces.6 Future of Agriculture Finance Over the years. The resultant lack of institutional financing options has forced the farmers to avail funding from money lenders at exorbitant rates of interest. Finally. leading to our country emerging as a sustainable economic superpower. although the technological (IT) and managerial revolutions in India have transformed the face of the urban and industrial India. Bankers’ reluctance to finance the agriculture sector stems from the fact that there is a dearth of bankable projects in the sector presently. the need imposed and expressed by agriculture and rural sector through recent electoral mandate clearly reflect need for urgent intervention in the sector. there is a pressing need for the banking community to ensure that government support to rural and agriculture sector gets leveraged multifold. co-operatives etc. power. Moreover. the role of the banking community in fueling agriculture growth has been limited. port. marketing and the value addition problems are significant. international trade. credit insurance. adopting a projectable approach in the micro sector will lead to the development of agribusiness in the country. banks have largely ventured into the agriculture sector only to fulfill their priority sector obligations. subsidies. the benefits of the same have continually eluded the Indian agriculture sector. domestic marketing. Yet another hindrance relates to unfavorable farm policies on farm size. In fact. Non availability and untimely availability of quality inputs like seed. and ensures empowerment of rural India by enabling entrepreneurship in them. 1. food laws. Poor infrastructure like roads. supply. Structured project development in the micro/rural sector is the key factors that can help India realize its true food and agribusiness potential and also sustainable farmer empowerment and rural entrepreneurship. storage. fertilizers. Till date. While immediate efforts by government towards increasing financial assistance in the sector are necessary. A paradigm shift is required in the outlook to agriculture. production to marketing orientation and from a quantity to quality focus. customized technologies.sustainability. In fact. processing.
there are 14. a town located in the Kannada district of Karnataka. Chitradurga Bank Ltd. NABARD National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India.based approach to develop risk mitigating and innovative project financing structures is a key requirement for enhanced financing of the sector which will ultimately result in increased commercial viability and ensure sustainable development of Indian agriculture. Apart from SBI. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. It helps in securing rural prosperity and its connected matters. It also finances rural crafts and other allied rural economic activities to promote integrated rural development. handicrafts.. Karnataka Bank Karnataka Bank Limited is a leading private sector bank in India. The rural banks of SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. Rural banking in India started since the establishment of banking sector in India. the Karnataka Bank merged with other banks like Sringeri Sharada Bank Ltd. Karnataka Bank has emerged as one of the top financial service institutions in India. Rural Banks in those days mainly focused upon the agricultural sector. The total number of SBIs Regional Rural Banks in India branches is 2349 (16%). SBI has 30 Regional Rural Banks in India known as RRBs. Till date in rural banking in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture.475 rural banks in the country of which 2126 (91%) are located in remote rural areas. and Bank of Karnataka. small scale industries. The bank emerged as a major player during the freedom movement of 20th Century India. cottage and village industries. It was incorporated on 18th February 1924 at Mangalore. there are other few banks which functions for the development of the rural areas in India. During its process of expansion. Canara Bank 19 . Few of them are as follows. Today.
Ammembal Subba Rao Pai.4 percent of GDP in FY 1990.6 percent in FY 1970. The central government's budget deficits during the 1980s increased the total public debt rapidly until in FY 1991 it stood at Rs3. Initially.8 Indian Monetary Process The basic elements of the financial system were established during British rule (1757-1947). Syndicate Bank Syndicate Bank was firmly rooted in rural India as rural banking and has a clear vision of future India by understanding the grass root realities.9 percent in FY 1980. but later on the name was changed to Canara Bank Limited.8 percent in FY 1989. The deficit was cut to 5. mainly British and 20 . 5. allowing only small amounts of deficit spending.9 percent in FY 1991 and 5. and 7. the Indian government has pursued a cautious policy with regard to financing budgets. and the necessity of financing these deficits from foreign borrowing contributed to the 1990 balance of payments crisis. 1. up from 2. the Rupee. have a touch screen monitor and work on a bio-metric authentication system like finger print verification.9 trillion. in the Persian Gulf region. The national currency. The central government budget deficit reached 8. The bank was established in the year 1906 at Mangalore.Canara Bank is one of the most prominent commercial banks of India. Its progress has been abreast of the phase of progressive banking in India especially in rural bank Union Bank of India Facilities provided to farmers include Kisan ATM Cards and special Kisan ATM Machines. Karnataka by a well-known personality Mr. It was expected to recede to 6.7 Fiscal Administration Historically.4 percent in FY 1993. but widened to 7.2 percent in FY 1995. particularly the central bank 1. They are voice enabled in the local language. Foreign banks. for example. These ATM's are easy to operate and do not require farmers to have a high level of literacy. The bulk of this debt was owed to citizens and domestic institutions and firms. Budget deficits increased in the late 1980s. had long been used domestically before independence and even circulated abroad.2 percent in FY 1992. it was founded with the name Canara Bank Hindu Permanent Fund.
000 in 1969 to more than 60. self-employed persons. This colonial banking system. agriculture. provided banking and other services. The government nationalized fourteen major private commercial banks in 1969 and six more in 1980. The system effectively reached all kinds of savers and provided credit to many different customers. currency accounted for well over 50 percent of all the money supply circulating among the public. Deposit insurance and a system of postal savings banks and offices fostered use by small savers. commercial banks. The number of bank branches. In 1992 the nationalized banks held 93 percent of all deposits. 21 . and given broader powers. Nevertheless. Banking was concentrated in the major port cities. and agriculture. 1949. was geared to foreign trade and short-term loans. trade. The Reserve Bank was nationalized on January 1. and the banker to the central and state governments. It was the bank of issue for all rupee notes higher than the one-rupee denomination. and other borrowers not otherwise effectively covered by major institutions. After independence the government sought to adapt the banking system to promote development and formed a number of specialized institutions to provide credit to industry. It was given increasing responsibilities for the development of banking and credit and to coordinate banking and credit with the five-year plans. The Reserve Bank had a number of tools with which to affect commercial bank credit. but it also carried out some central bank functions. The Reserve Bank formulated and administered monetary policy to promote stable prices and higher production. Subsidized credit was provided to particular groups or activities considered in need and which deserved such help. and small businesses. for instance. transport operators. Nationalization forced commercial banks increasingly to meet the credit requirements of the weaker sections of the nation and to eliminate monopolization by vested interests of large industry. The deposit base rose from Rs50 billion in 1969 to around Rs3. A credit guarantee corporation covered loans by commercial banks to small traders.including some from such other parts of the empire as Hong Kong. and agricultural and industrial credit cooperatives were promoted. two-thirds of which were in rural areas. increased from about 7. the agent of the Ministry of Finance in controlling foreign exchange. state cooperative banks. and other financial institutions. however.5 trillion in 1994. Banking penetrated rural areas. The Reserve Bank of India was formed in 1935 as a private bank.000 in 1994. The banking system in India expanded rapidly after nationalization.
cloth.9 Growth rate in all sectors: The Central Government has revised the GDP growth estimates for both.6 per cent this year. 35 percent of their deposits have to be held in liquid form to satisfy statutory liquidity requirements. especially agriculture. and Standard Chartered Bank. Still. the Hongkong and Shanghai Banking Corporation. to keep stable the Second. either directly or indirectly. More than 50 percent of bank lending is to the government sector. In addition. Agriculture grew by 2. Seeking to stabilize the banking industry. the overall impact on the economy will be much lower. and 15 percent are needed to meet the cash reserve requirements of the Reserve Bank. and poor capitalization. including wheat. twenty-three foreign banks operated in India. monetary regulation has restricted growth in the money supply. thanks largely to the robustness in industrial and services sectors. The improved performance for the previous fiscal is not surprising. 1. India's banks were experiencing major financial losses as the result of low productivity. but only a small proportion of public-sector banks' resources can be deployed freely.5% to an even better 7. rice. the Reserve Bank of India developed new reporting formats and has initiated takeovers and mergers of smaller banks that were operating with financial losses. The FY10 estimate was raised from an already impressive 6. plus or minus 0. 2. the previous fiscal as well as for the current year. This is quite a 22 . the government has intervened.5% during fiscal 2010-11. to have an economy grow at nearly 7% on an extremely high base is just superb. bad loans. weakness of the unions in India's labor surplus economy. at favorable rates.9 per cent in the previous year. Three factors lay behind India's relative price stability. Both these percentages represent an easing of earlier requirements. and GDP is expected to grow at 8. compared to 4. the overall influence of the labor unions on wages has been small because of the price of certain staples. With the onset of economic reform. But. First.9%.25%. Citibank. What makes the upward revision in the current fiscal’s growth projection even better is that the farm output this year will be much lower than last year’s production. 1. The most important were ANZ Grindlays Bank.In FY 1990. Third. as it was on a low base. 3. and a bumper harvest. Public-sector banks in India are required to reserve their lending based on 40 percent of their deposits for priority sectors. and sugar.
The latest data too suggests that the ongoing buoyancy in the Indian economy is driven by greater investment. The Indian economy has become considerably resilient. Chidambaram could not implement the NCMP agenda for the rural sector in its entirety. The success of these steps will be crucial for achieving a higher GDP growth rate over a sustainable period of time. Another side of the Indian economy that looks to be on a roll is the services industry. It calls for large-scale investment in the rural sector and has already committed to boosting credit to the farm sector. whose fortunes are still tied with the southwest monsoon. That's when India will be really shining. the services have become a major driving force for the Indian economy. That is not to suggest that agriculture is not important for the economy. With both of them doing extremely well and no signs of any big hiccups on the horizon.8 per cent from last year's 8. Though agriculture now comprises just about a quarter of India’s GDP. 23 . What this data indicates is that domestic demand is now less dependent on agriculture. one can concur that India can maintain a growth rate of around 7%. Due to time constraint. the National Common Minimum Programme (NCMP) devised by the Congress-led regime seems to have its heart at the right place. Finance Minister P. The role of services has assumed a lot of significance even as that of the agriculture has diminished considerably. and has emerged as the major source of employment generation. All the more reason for the Government to come up with sound policies that will ensure stable and sustainable growth in the farm sector. he is expected to announce a series of measures in the upcoming budget to give a major fillip to the rural sector. total GDP would actually fall on account of poor agricultural growth. when a significant drop in farm output invariably led to an equally big decline in the manufacturing growth in that year and in the following one.departure from the past.1 per cent. But. Whatever slowdown is being witnessed in the IIP is due to lower growth in mining and construction sectors. That this negative trend has been reversed is definitely a welcome sign for the Indian economy. In the decades before the 1990s. irrespective of how bad the monsoons are. it provides employment to some 70% of its population. Together with the industrial sector. It now accounts for over 50% of the GDP. In light of this. The last time the Indian economy went through such a purple patch was in the investment-led boom of the mid-1990s. One statistic that puts this in perspective is the growth in the manufacturing sector. Industrial growth nearly dropped to half slipping to 4. and can sustain a growth rate of at least 7% without much help from the rain gods.
The homogenous area approach was found to be more favorable. This initial scheme was of course later substituted and replaced by the National Agricultural Insurance Scheme. Tracing the Crop Insurance History in India we see that it was started with the introduction of the All-Risk Comprehensive Crop Insurance Scheme (CCIS) that covered the major crops. The first aspect that was examined related to the modalities of crop insurance. for fixation of premium on actuarially sound basis. The Individual approach of the scheme indemnifies the farmer to the full extent of the losses. Also the premium that is to be paid by him is determined with reference to his own past yield and loss experience. This scheme was introduced in 1985. In the crop insurance history. The issue under consideration was about whether the crop insurance should be offered under an Individual approach or on Homogenous area approach. The Individual approach for these schemes necessitates reliable and accurate data of crop yields of individual farmers for a sufficiently long period.10. This is because it would facilitate the provision of a single unit treatment to various agro-climatically homogenous areas and the individual farmers and allow them to pay the same rate of premium and receive the same benefits. It is in a scenario such as this in India that the issue of crop insurance assumes a vital role in the stable growth of the agricultural sector. In fact this period of introduction also coincided with the introduction of the Seventh-Five-year plan. planning. The Homogenous area approach on the other hand was aimed at envisaging a homogeneous area from the point of view of crop production and similarity of annual variability of crop production. 1. 24 . experiments and trials on a pilot basis. This substitution came into effect from 1999.1 Crop Insurance Risks covered: The Crop insurance schemes aim at providing comprehensive risk insurance which covers the yield losses that occur to the agricultural output of small and marginal farmers due to non-preventable risks. the question of introducing a crop insurance scheme was taken up for examination soon after the Indian independence. Some of the other problems that the Indian agriculture is constantly tackling with are the large-scale damages that are caused as a result of the attack of pests and diseases. irrespective of their individual fortunes. These Schemes that have been introduced throughout the crop insurance history have been preceded by years of preparation. studies.1.10 Crop Insurance & History: In our country crop production has been subjected to the vagaries of the climate.
Dry spells The crops insurance risk does not cover any of the losses that arise out of war and nuclear risks. Cyclone. The first ones of the experimental crop insurance schemes has been a Pilot Crop Insurance scheme. Millets. Oilseeds. malicious damage and other risks which are preventable risks. in the case of the Loanee farmers. Hurricane. This scheme covered crops such as Cereals. Tornado etc. Potato and Gram. which have been outlined by the RBI / NABARD. This is usually subject to the option of the insured farmers. the insurance charges that will be levied will be additional to the Scale of Finance for the purpose of obtaining loan. Further.10. millets. are binding. pulses & oilseeds is expected to be made in a period of five years. In case of Loanee farmers the sum insured would be at least equal to the amount of crop loan advanced. Tempest. Nevertheless.The crop insurance risks covered under the non-preventable category are listed below: a) b) c) d) Natural Fire and Lightning Storm.2 Crop Insurance Schemes in India: In order to provide a boost to the agriculture in India. Some of the important features of the scheme were that the scheme was based on "Area Approach". The risk was shared between General 25 . Typhoon. Apart from the risks covered in the crop insurance scheme. 1. The sum insured under the crop insurance risks covered usually extends to the value of the threshold yield of the insured crop. Flood. what is important is the sum insured. Hailstorm. This was introduced by GIC from the year 1979. Apart from the above mentioned issues. the matters of Crop Loan disbursement procedures. a farmer may also choose to insure his crop beyond value of the threshold yield level up to 150% of average yield of the notified area on payment of premium at commercial rates. The insurance premium issues still stand at an undecided state as the transition to the actuarial regime in case of cereals. a number of experimental crop insurance schemes have been introduced in the country. Inundation and Landslide Drought. Cotton. The scheme was confined to loanee farmers only and on voluntary basis.
50% of the subsidy was provided for insurance charges which was payable to the small / marginal farmers by the State Government & the Government of India on 50:50 basis. The Scheme 26 . The premium and risk claims were shared in a ratio of 2:1 by the central and state Government. Under this scheme.000/. The Scheme was optional for the State Governments. The Government of India introduced the Comprehensive Crop Insurance Scheme with effect from 1st April 1985. The coverage under this scheme was restricted to 100% of crop loan subject to a maximum of Rs. Some of the important features of this scheme allowed a cover to the farmers availing crop loans from Financial Institutions for growing food crops & oilseeds on compulsory basis. which was later increased to 150%. This scheme was introduced with the active participation of State Governments. This Scheme was implemented until Kharif 1999. The premium rates for Cereals and Millets were 2% and for Pulses and Oil seeds 5%. This Scheme was linked to the short-term crop credit that was extended to the farmers and was implemented using the Homogeneous Area approach. was optional to State Governments.Insurance Corporation of India and State Governments in the ratio of 2:1.per farmer. The maximum sum that could be insured under the scheme was 100% of the crop loan. Among the earlier crop insurance schemes that were introduced was a comprehensive Crop Insurance Scheme. The number of states that were covered under the scheme was 15 States and the number of UTs that were included were 2. 10.
The increased outreach and access to agricultural credit in the post bank-nationalization period coupled with augmented demand due to the Green Revolution of 1960s and enhanced focus on directed priority sector lending could not correct the weaknesses in the rural financial delivery system over the years which adversely affected the viability and sustainability of these institutions. yet it failed to make a significant dent in the age-old attitude of the rural bankers towards financing the so-called less creditworthy but productive poor farmers. The short term and medium term credit needs of both industry and agriculture are met by the commercial banks and they also help finance developmental plans by investing funds in the government securities. Although the post-nationalization period in the Indian banking yielded significant changes in the operational policies and practices of the formal financial agencies in the rural areas. the commercial banks were concentrating only on the financing of the trade and industry.Immediately after the country’s independence. compressing both scheduled and non-scheduled banks. operations. the central bank and Government authorities focused on the prevention of bank failures and restoration of public confidence in the formal banking system. Initially. the attempt of bank-nationalization in India in 1964 gave a new direction to the structure. Commercial banks are the most important intermediaries for promoting and mobilizing the savings and for allocating investment among the different productive sectors. 27 . While the amended Banking Regulation Act of 1949 tried to consolidate the Indian banking network in the pre-bank nationalization era. Deposits paid up capital and borrowings from the Reserve Bank of India form the resources of the commercial banks. the commercial banks and the other financial institutions in their geographic jurisdictions for the development of credit-starved regions to its fullest. policies and practices of commercial banks in the country through features like social control and directed bank credit to priority sectors. Implementation of the service area approach and the lead bank scheme during 1969 envisaged to bring in a consortium of bank leaders for ensuring a co-ordination between the co-operative banks. The commercial banks form the core of the organized banking system and constitute quantitatively the most important group of financial intermediaries in the country.
1 STRENGTHS Rich Bio-diversity Arable land Climate Strong and well dispersed research and extension system OPPORTUNITIES Bridgeable yield crops Exports Agro-based Industry Horticulture Untapped potential in the N. with the nationalization of the banks. farmers get loans for purchase of electric motor with pump. Indian Agriculture Scenario SWOT Analysis of Indian Agriculture WEAKNESS Fragmentation of land Low Technology Inputs Unsustainable Water Management Poor Infrastructure Low value addition THREATS Unsustainable Resource Use Unsustainable Regional Development Imports However. the rural branches of the commercial banks account for a large percentage of the total network and the Agricultural Development Branches. Under the ‘Lead Bank Scheme’ all districts were allotted to commercial banks that were entrusted with the responsibility of preparing credit plans for their lead districts. The procedures and amount of loans for various purposes have been standardized. On account of the branch licensing policy adopted by the RBI.Fig 2.E. digging wells or boring wells. they are now actively involved in the disbursement of agricultural credit. drip irrigation. Among the various purposes "Crop loans" (Short-term loan) has the major share. Gram Vikas Kendras and Rural Service Centers were set up to cater exclusively to the needs of agriculture and the allied activities. In addition. 28 . The ‘Village Adoption Scheme’ was formulated by commercial banks to carry out leading operations in contributing significantly to the development of agriculture. installation of pipe lines. tractor and other machinery.
thereby affecting the viability and sustainability of formal institutions. The outreach and access to total bank credit has undoubtedly been improved by bank nationalization. poultry.planting fruit orchards.2) 2.1 TYPES OF CREDITS 29 . Structure of Agricultural Credit System in India (Fig 2. purchase of dairy animals and feeds/fodder for them. negating equitable and efficient distribution. the delivery of agricultural credit remains wrought with weaknesses. sheep/goat keeping and for many other allied enterprises. However.
Long. etc. This type of loan is mainly provided to marginal and small farmers who own small plots of land. Farmers need this type of loan to procure fertilizers. seeds. small equipments transportation and for the maintenance of the crop. And farmers turn towards professional money lenders (unorganized sector) for fulfilling their needs. pesticides.Term C. food. housing.Term (LT) A. But due to latest reforms in baking sector the share of the unorganized sector’s lending has declined over the years. And innovative types of financing are being introduced. And for needs like education. Rural households need access to financial institutions that can provide them with credit at lower rates and at reasonable terms than the traditional money-lender Types of Short Term Loans: i. iii. household functions.The Credit requirements of agriculture are of three types viz. A. Short -Term Credit: Short term credit is provided by the banks for a period of 12 months to 15 months. Short -Term B. ii. Kisan Credit Card (KCC) Produce Marketing Loan Agriculture Gold Loan 30 . This is because of the hectic paper involved in getting an institutional loan and the time involved in securing the funds. Medium . Short term finance is the most needed form finance by the farmers.
31 . Expenditure Loan c.50000/and permanent disability cover up to Rs.40000/.per acre and part thereof. i. Other type of Short-term Loans are a. PURPOSE To provide hassle free short-term credit to farmers on the basis of their land holdings for purchase of inputs and draw cash to meet their production needs.is available on request.(on pro rata basis) and farmers who own more than one acre with intensive farming of land be given at the rate of Rs. ATM facility and Personal Accident Insurance Scheme for life up to Rs. The scale of finance to farmers who own cultivated land below one acre will be at the rate of Rs.e.10000/-) of production credit.37500/.25000/. Consumption Loan b. KISAN CREDIT CARD SCHEME ELIGIBILITY All agriculturists who are in need of short term production requirements.iv. AMOUNT OF LOAN To be fixed on the basis of operational holdings and scale of finance with consumption component 15% (maximum Ra. Cultivation expenses including allied activities with a consumption component. Maintenance Loan i.
50% above BPLR for various limits.RATE OF INTEREST Interest rate ranges from 2. Tamilnadu & Kerala. PURPOSE 32 . Scheme will be operative in Karnataka. REPAYMENT Running Cash Credit account for 15 months subject to annual review and total annual credit should exceed annual debit ii. Farmers / traders depositing farm produce in the warehouses of the central / state warehousing corporations. PRODUCE MARKETING LOAN (Advance against Warehouse Receipt) ELIGIBILITY a. Andhra Pradesh.50% below to 1. b.
50% (Irrespective of the limit) REPAYMENT On demand / 6 months which can be extended up to 12 months subject to satisfactory shelf life / market condition.a.50% Traders 2. RATE OF INTEREST Farmers Up to Rs. To finance farmers and traders against warehouse receipt. To protect the farmers from the compulsion to sell their produce immediately after harvest of produce despite an adverse market. AMOUNT OF LOAN 70% of the value of the warehouse receipt. HO whichever is less. 33 . valued at the market value or 70% of the market price advised by Agri. AGRICULTURE GOLD LOAN ELIGIBILITY All individual farmers undertaking cultivation or other activities including allied activities are eligible for short-term finance.3 lakh . b. iii. Dept.3 lakh .50% below PLR 10.50% Above Rs.3.2.50% below PLR 9.50% below PLR 10.
crops(s) raised.3 lakh interest at the rate of 7% is extended as per RBI guidelines subject to the periods stipulated by RBI and beyond that normal rate will apply.Term 34 . AMOUNT OF LOAN The eligible loan amount should be assessed based on the area under cultivation. REPAYMENT As applicable to Agri. scale of finance and not in relation to the value of gold offered as security. The account has to be closed at the end of the repayment period B.50% above BPLR for various limits. Cash Credit accounts depending on the duration of crops raised and harvesting period and income generation.50% below to 1. repairing of equipments and consumption needs etc.PURPOSE To meet genuine credit requirements of farming including allied activities. For working capital loans like ACC/KCC/AGL up to Rs. RATE OF INTEREST Interest rate ranges from 2. subject to a maximum period of 12 months. Medium .
i. The scheme provides the farmers with sufficient working capital required for their homestead farming (Mixed cropping along with allied activities) by fixing 35 . PURPOSE: For development of agricultural marketing operations including strengthening of infrastructure. MARKETING INFRASTRUCTURE. SCHEME FOR DEVELOPMENT / STRENGTHENING OF AGRI. ELIGIBILITY Scheme shall be available to individuals. Cooperatives.Short term credit is provided by the banks for a period of 15 months to 36 months. SHG. NGO’s. partnership / partnership firms. Local Bodies etc. Companies. Corporations. techniques of preservation. Co-marketing Federations. ii. groups of farmers / growers / consumers. REPAYMENT Adequate medium-term repayment period according to the project. GRADING AND STANDARDISATION. storage etc. HOMESTEAD FARMING PURPOSE A scheme for financing farmers practicing mixed cropping / inter cropping along with allied activities to enable them to undertake cultivation of various crops in a more integrated way.
scale of finance based on land holding to meet the cost of entire farming activities. RATE OF INTEREST Interest rate ranges from 2. REPAYMENT The facility will be sanctioned as an Agriculture Cash Credit limit (In case of Kisan Credit Card running cash credit). SCHEME FOR CULTIVATION OF MEDICINAL PLANTS ELIGIBILITY 36 .50% below to 1.40000/.per acre and part thereof.37500/. iii. AMOUNT OF LOAN The farmers who own cultivated land below one acre be given the scale of finance on pro rata basis at the rate of Rs.and farmers who own more than one acre of land be given at the rate of Rs.50% above BPLR for various limits.
50 acre or more are eligible to be considered for finance under this scheme.75% below to 2. PURPOSE 37 . RATE OF INTEREST Interest rate ranges from 1. PURPOSE Scheme for financing cultivation of 22 medicinal plants cultivated extensively and also in great demand in the local as well as foreign market.00% above BPLR for various limits. iv. REPAYMENT Repayment should coincide with harvesting and marketing or at the time generation of income from the scheme.All agriculturists are eligible. RAIN WATER HARVESTING SCHEME ELIGIBILITY Farmers having land holding of 0.
by siphon arrangement.Scheme envisages construction of low cost tanks for collecting and storing rainwater and using it for irrigation. REPAYMENT Repayment based on the income generated from the crops raised and and cropping pattern. RATE OF INTEREST Interest rate ranges from 1. AMOUNT OF LOAN Maximum amount of finance will be Rs.00% above BPLR for various limits. Long Term Credit: The period of long-term credit is generally 5 to 20 years or even more in some special cases. to create permanent assets which give returns over a period of time. utilizing gravitation flow or by installing motor pump.88000/.75% below to 2. In any industry. Scheme can be adopted in smaller areas also by reducing the cost proportionately. The permanent 38 . long-term investment is necessary.per acre. C.
iii. All the long-term investments mentioned above require large amounts of funds. Therefore. land leveling. orange. establishment of fruit orchard of mango. sapota (chiku). iv. Fruit orchards particularly do not give any income in the first 4 . v. Land Development Loan Investment Loans Farm Mechanization Estate Purchase Loan Minor Irrigation I. This applies to agriculture also. pomegranate. Investment once made in the beginning continuous to give returns over a long period. cashew. coconut. LAND DEVELOPMENT LOAN Land development loans are provided by the banks mainly for the development of agricultural land i. guava. fig.investment is not only necessary for a particular industry but even for the country.e. fencing and permanent improvements on land purchase of big machinery like tractor with its attachments including trolleys. building of tanks in the agricultural land etc. Although they have good potential to give returns in future. individual farmers have no financial capacity to make such costly investments from their own funds because they have no savings or very little savings. 39 . There are many other items of long-term capital investment.5 years as in case of other seasonal crops. increasing the productivity of agricultural land using scientific. they have to resort to bank borrowing to meet their needs. Because for continuity of production and progress of the country. etc. The financial criteria terms and conditions procedures of granting Long Term loans are altogether different from short-term loans. long-term investment comprises of sinking well. In Agriculture. So the expenditure incurred in the first 4-5 years becomes a capital cost. ii. Types of Long Term Loans: i.
they visit places of the application and ascertain the purpose of borrowing.II. 40 . INVESTMENT LOANS: Investment loans are provided by the banks to make Long Term investments i. building of Cold Storages. Tractors with engine capacity up to 35 HP – The applicant should own / cultivate six acres of perennially irrigated land. Interest Rate: The rates of interest for Long Term Loans are generally low and within the paying capacity of farmers. etc. ELIGIBILITY a. Tractors with engine capacity above 35 HP – The applicant should own / cultivate eight acres of perennially irrigated land. b.e. FARM MECHANIZATION Loan for Farm Mechanization includes Purchase of tractors. verify the genuineness of the proposal and it economic viability. repaying ability of the farmers. After completing those formalities. building of Warehouses. Loan Procedure: The Branch offices receive applications from the prospective borrower. Then Agricultural Finance Officer or Inspector scrutinizes these applications. the loan is granted by the appropriate authority at appropriate level depending upon the delegation of powers by the Banks. III. They are around 11 to 12%. adequacy of security etc. These ‘Investment Loans’ are aimed at improving the capacity of the farmer in marketing his produce and get a fair value for his produce. Power Tillers.
c. ESTATE PURCHASE LOAN ELIGIBILITY: The estate should be either in yielding stage with the crops in its prime yield age or capable of being developed in to a viable unit. IV. REPAYMENT The period of repayment shall be 9 years for tractors and 7 years for power tillers. To encourage those who prefer to settle down in agriculture and are in the look out of good / viable estates for purchase and also to improve production in agriculture.00% above BPLR for various limits. RATE OF INTEREST Interest rate ranges from 1. Power Tillers – the applicant should own / cultivate four acres of perennially irrigated land. The yield / net income of the estate should be sufficient to liquidate the proposed loan and interest accrued with in a period of 7 to 10 years.75% below to 2. AMOUNT OF LOAN: 41 . The proposed estate should be free from encumbrance and entire property should be offered as security to the loan. PURPOSE: To purchase tractor/power tillers for agricultural activities. AMOUNT OF LOAN Amount of advance will be the investment cost of tractor / power tiller and implements less margin @15%.
REPAYMENT Repayment of loan will be in quarterly/half yearly / yearly installments depending on the harvest of the crops and the loan shall be repaid within a maximum period of 7 to 10 years. MINOR IRRIGATION Projects with cumulative command area of less than 2000 ha are called minor irrigation projects. in yearly installments. In exceptional cases 80% of the registered value or 50% of the market share whichever is low is also considered.00% above BPLR for various limits. Minor Irrigation. REPAYMENT The loan shall be repaid within a period of 9 years. v. Installation of Pump set Drip Irrigation etc.3) 42 .75% below to 2. The loan for the development of the estate like land development including working capital can also be sanctioned.The quantum of loan that will be considered for sanction will be 75% of the registered value or 50% of the market value whichever is low. Distribution of Credit Since 1951 to 2001(Fig 2. RATE OF INTEREST Interest rate ranges from 1. Scheme for developing irrigation potential.
Rural households needed credit for investing in agriculture 43 .80% 1991 30.40% 25.60% 0.40% 1981 36.30% 36.30% 35.30% 3.20% 2001 42.20% 18.70% 57.10% 63.60% Sources of Credit Non-Institutional Of which: • Money Lenders 1951 92.30% 1961 81.70% 7.60% 35.60% 19.60% 1971 68.60% 66.30% 31.80% 63. Societies / Banks • Commercial Bank 0.40% 57.10% 31.30% 2001 42.70% 22.70% 7.70% 69.50% 66.70% 1971 68.1) The rural population in India suffered from a great deal of indebtedness and was subject to exploitation in the credit market due to high interest rates and the lack of convenient access to credit.20% 35.00% 2.Sources of Credit NonInstitutional Institutional 1951 92.80% 16.30% 18.30% 1961 81.70% 2.20% 1991 30.30% 49.90% (Table 2.20% 29.60% 17.80% 28.60% Institutional Of which: • Co-op.70% 1981 36.
2. etc. household functions. Since cash flows and savings in rural areas for the majority of households was small.and smoothening out seasonal fluctuations in earnings. food. rural households typically tend to rely on credit for other consumption needs like education. housing. Debt profile of rural households (in %) (Fig. Rural households needed access to financial institutions that can provide them with credit at lower rates and at reasonable terms than the traditional money-lender and thereby help them avoid debt-traps that are common in rural India.4) 44 .
2 Measures Taken to Improve Institutional Credit Flow to Agriculture • Procedural simplification for credit delivery through rationalization of internal returns of banks. 45 . But because of the banking sector reforms and with the help Five Years plans which gave priority to agricultural sector the trend has shifted from unorganized sector to organized sector. has been informal sector loans like money-lenders. 2. particularly poor income working households. which are usually at very high rates of interest. the debt profile of rural households indicates that the major source of credit to rural households. The terms and conditions attached to these loans impact the poor adversely.5) Even though institutional lending has over taken the non-institutional lending.(Fig 2. Government has taken adequate measure to see that the agriculturists get their requirements of funds are fulfilled by giving additional subsidies on the funds provided by the financial institution.
Banks provide these term loans on the following criteria: • • • A good repayment track record A satisfactory opinion by local enquiries in case of “New Customer” Know Your Customer (KYC) 46 .• Delegation of more powers to branch managers. l Introduction of cash credit facility. Term loans which are provided by the banks are well known and easily understood by farmers and may be used to finance a range of purposes by adjusting loan sizes and disbursement and repayment schedules. • • Hassle-free settlement of disputed cases of over dues. • Issue of Kisan Credit Cards to farmers to draw cash for their production needs on the basis of the model scheme prepared by NABARD. Rural banking in India started since the establishment of banking sector in India.000. 10. Rural Banks in those days mainly focused upon the agro sector. dispensation of ‘no due certificate’ and discretion to banks on matters relating to margin security requirements for agricultural loans above Rs. commercial banks and Regional rural banks in India are penetrating every corner of the country are extending a helping hand in the growth process of the rural sector in the country. Augmenting Rural Infrastructure Development Fund (RIDF) with a corpus of Rs. l Introduction of composite cash credit limit to farmers. 2. introduction of new loan products with saving components.3 Criteria& Documents for financing: Indian banking sector has undergone numerous reforms and changes over the past decades to enhance its performance to the international level. 10. • Introduction of at least one specialized agricultural bank in each state to cater to the needs of high tech agriculture.000 crore with NABARD to finance rural infrastructure development projects by States. cash disbursement of loans. Today.
There are two methods in which the bank will assess the amount of loan that can be given on the collateral security provided by the applicant they are: 47 . The above criteria’s are periodically revised in order to keep track of the changes that are taking place. Apart from the above criteria the agricultural officer has to go through records that certify the ownership or the title of the land and the records which are to be kept as collateral security against the loan. Documents which the agricultural officer goes through when he receives an application for the loan are: Record of Tax Coffee registration certificate (CRC) Land holding certificate Revenue records Ration cards Sale deed of the land When the bank is satisfied by the collateral security provided by the applicant then bank will sanction the loan.• • • • • Agriculturist should have Savings Bank Account He/she has to prove that he/she is an agriculturist Repayment ability of the customer Cost of cultivation Economic and Technical feasibility When a bank receives the application for a loan the agricultural officer in the banks goes through the above criteria and if the agriculturist meets all the criteria then loan will be sanctioned.
Repaying capacity. it will generate and 48 . A district level meeting is held and the scale of finance is fixed by taking the average of the cost that will accrue in the due course of raising the crop. Bonding System: In this system as a first step the property on which the applicant wishes to borrow the loan is pledged in the name of the bank and is registered in the Office of the Sub-registrar of the district. The loan was based on the value of collateral security provided. which must be taken into account before a lending agency decides to agency decides to advance a loan and the borrower decides to borrow: Returns from the Proposed Investment. This type of financing is also called as “Seed to Seed” financing.4 Three ‘R’s Of Credit There are three basic considerations. Scale of Finance: In this system scale of finance for each of the crops are fixed on the basis of the cost that is involved in raising the crop and marketing it. The applicant is eligible to get 90% of the scale of finance and the rest 10% he has to bear himself. as the cost from buying the seed till harvesting the crop is taken into consideration while fixing the scale of finance. Bonding System Scale of Finance 1. The member who attend this meeting are DC of the district. 2. All the representatives of Co-operative banks and farmers representative. 2. Lead bank Manager. And then Lean marking is be made of the documents so as to restrict the applicant from selling/transferring the property to other person until the repayment of the loan was made fully.
2.The Risk bearing ability of the borrower.1 Returns: The First Test Emphasis here should be on additional returns and additional costs involved in utilizing the borrowed funds. it is not sufficient to only analyse the productivity or the additional returns that will accrue due to the borrowed funds.2 Repaying Capacity-The Second Test Although necessary. At the same time. The following points • Estimates of returns should be made on the basis of resources including borrowed funds. Funds should. • • Estimates of returns and costs should be made at the margin. • Money needed for consumption purposes should also be considered for their marginal value to the farm-family satisfaction against the marginal productivity of the production loans. These are known as the Three R’s of credit. but just the amount that can be profitably used. • Due care should be taken that more than the required amount of money is not advanced or obtained. A loan may be productive 49 . resulting from the additional availability of resources made possible through borrowed funds.4. an inadequate amount of funds would not serve the purpose. not on an average. 2. It involves working out the optimum combination of farm enterprises and the returns thereof. therefore. The possibilities of enhancing the level of other most limiting resources to farm production should also be examined. • The level of other resources should be considered before deciding upon the amount of working capital tobe used. Not only the MR=MC principles be kept in view while deciding the amount of credit but the law of equi-marginal returns must be fully exploited.4. be advanced neither inadequately or excessively.
. i. the resources acquired with the funds are not directly consumer or are consumed over a number of years. which shall be available for the repayment of the loan. estimated production. It is also essential that the borrower should be able to withstand the shocks of probable financial losses. For non-liquidating or partially liquidating loans. Repaying capacity. debts and repayments.4. This is known as the risk-bearing ability of the borrower. In case of non-liquidating or partially liquidating loans. The repaying capacity should be determined separately for self-liquidating and nonliquidating loans. diseases and price fluctuations. Agricultural business is subject to the vagaries of nature ad is exposed to many other hazards such as pest attacks.but still it may not generate sufficient income to leave funds sufficient enough to repay the loan. It should be based on an estimate of anticipated income from all sources of the borrower during the year.[Living expenses+Working expenses (not including loan) + taxes + other loans and payments]. Non-liquidating or partially self-liquidating loans. They do not become completely a part of the first year’s costs and the returns from the investment are spread over a period of several years.e. In case of the self-liquidating loans the amount gets absorbed in the production process in one year or production period and the formula here is: Repaying capacity= Gross Income. but these averages seldom hold true.3 Risk Bearing Ability-The Third Test It is necessary but again not sufficient that the credit should be productive and generate sufficient repaying capacity. the repaying capacity is worked out as Repaying capacity= gross cash income.(all working expenses+ other loans+taxes and payments due). Assessment of risk-bearing ability is necessary because the returns and repaying capacity analysis are made on the basis of averages. worked out as a residual after meeting the requirements of the family consumption and payment of other dues. is therefore. prices and costs etc. Variations in income occur as a rule rather 50 . Repaying capacity is the portion of the amount that a farm family will earn from a year’s operation. 2. There can be two types of loans • • Self liquidating.
At present the quantum of finance is arrived at on the basis of the scale of finance or on the basis of collateral security provided by the applicant. 2.000 2009-10 325. The target and achievement of agricultural credit flow during 2004-2010 is indicated below. The amount of loan that is fixed on the basis of the requirements and can also be customized to an extent. The overall variability in returns has been estimated to be 21% in Ludhiana district. The variability in income has. 2004 had announced a package for doubling the flow of credit to agriculture and allied activities in a period of three years commencing from 2004-05 over the amount disbursed during the year 2003-04. The gross income should be deflated by this coefficient and the analysis should the follow the same pattern as for repaying capacity. package of incentives and policy measures. which the RBI and the Centre formulate and implement.000 2007-08 225. to be counted for in order to arrive at a fairly stable and reliable estimate of the repaying capacity. 2. Such variability coefficients are needed especially by the financial organizations in all parts of the country where they wish to operate. Year Target 2004-05 105.than an exception.000 2006-07 175. The progress of agricultural credit in India has depended crucially on government intervention over the years i.000 2008-09 250.000 2005-06 141.5 Quantum of Finance: The Quantum of finance that was available for the agriculturists was very less in the earlier days. The Government on June 18.000 51 . The quantum of finance now a day is fairly high. In earlier days the amount of loan was fixed. therefore.e. A better growth in the loans is observed.6 Response of the Agriculturists: Response of the agriculturists for the loans provided by the banks is good.
Achievement Table 2.2
*Amounts in crores
(Fig 2.6) It can be seen from the chart that the amount of the agricultural loan in 2008-09 raised to Rs.2,87,147 crores from Rs. 1,25,309 in 2004-05. Farmers are responing to the new innovative types of laons that the commercial banks are inroducing year after. There is a steep growth in the agricultural loans. The target for the 2009-10 has be set to Rs. 3,25,000. The increase in bank credit in the last few years has been a heartening phenomenon in India’s banking sector which reflects the economic reform policies followed since 1990’s. The financial sector reform measures have yielded desired results and strengthened financial positions of the banks.
2.7 Repayment period:
The Repayment period on agricultural loans are fixed by taking into consideration the following aspect that effect the earnings of the borrower. Cropping pattern 52
Duration of the crop Farming system Crop harvesting Frequency of income generation The repayments on the agricultural advances are affected by a number of factors in India. Banks take into consideration of all the possible conditions that affect the repayment by agriculturists. They are: Weather factor affecting the yield of the crop Price fluctuation International demand Expecting relief from the government Diseases to the crops Even after considering all the factors that affect repayment of the repayment of the loans lent there will be default by the borrowers. 1. Default in case of Natural calamities: Whenever a natural calamity occurs the banks seek permission of the higher authorities for the extension of the repayment period or the banks restructure the loan as per the Norms set by the RBI. 2. Default in case of Fraud: Fraud in agricultural loans means using the agricultural loans given by the banks to other purpose than agriculture. Whenever bank comes across this case bank authorities take legal actions against the borrower. 3. Default in Normal course: Default in the normal course is handled by issuing notices to the borrower. 3 notices are sent to the borrower. If the borrower does not respond to the notices the banks will deal the case through court. 53
2.8 Interest Rates on the Loans:
Because of the high risk inherent in traditional farming activity, the prevalence of high interest rates was the norm rather than an exception, and the concomitant exploitation and misery that often resulted. Development of rural credit systems has therefore, been found to be intrinsically very difficult. Interest rate is the main factor which affects the borrowings of the loan. Before 1991 banks used to charge different rates of interest according to their level of business. After 1991 when financial reforms took place in India RBI took over control on interest rates on agricultural loans. From 1991 the interest rates on agriculture advances have been more or less stable.
2.8.1Changes in Interest Rates:
Usually floating rate of interest system is followed as per the RBI norms. But in case of Crop Loans 7% rate of interest if fixed up to 3 lakhs. Interest rates on these agricultural loans are linked to Prime Lending Rate fixed by the RBI. The interest rates are also fixed on the basis of lead bank’s interest rates. Lead bank is a bank which NABARD fixes as leader for each district. It is fixed by taking into consideration the following: Seniority Customer Base Infrastructure of the bank Areas of service etc. 54
Each of the districts will have different lead banks on the basis of the above criteria.
2.9 Growth in Agricultural Finance over the years:
(Table 2.3) Year 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Amount of Credit 6805 7711 8471 8853 12328 10368 11506 13800 16500 21113 24849 28653 34274 38054 Growth Rate 0% 13% 10% 5% 39% -16% 11% 20% 20% 28% 18% 15% 20% 11%
*Source Agriculture and co-operative department of India (www.in) (Fig 2.1 Different kinds of Loan to same Borrower: After 1991 financial reforms an individual borrower is entitled to different kinds of loans according to his needs.co.9. This provision has enabled the borrower to borrow loans for different purposes like Building tanks.7) Agricultural finance has grown enormously over the years.agricoop. Agricultural credit which was are around 6805 crores in 1985-86 increased to 11506 crores in 1991-92 and it has further increased to 38054 crores by the end of 1998-99. 2. 56 (Fig 2.8) . land development loan. But before 1991 an individual was restricted to borrow only one type of loan at a time. It can be seen from the above chart agriculture credit has received good response by the borrowers. This is the main reason for the improvement in the borrowings of agricultural credit. farm mechanization loans with traditional crop loans. And he was not permitted to borrow another loan until he repays the borrowed loan.
Agriculture advances are expected to grow at 15% to 20% in the present fiscal year of 2010-11. But in 1990-91 it registered a negative growth of -16%. After 1991 financial reforms agricultural credit has grown at rate of 14% whereas it was growing at 13% before 1991.Agriculture credit has been growing since the independence of the country. 12328 crores. Agricultural credit registered the growth of 39% in the year 1989-90 where the amount of loan provided was Rs. Agriculture is given more importance now a day to attain the self sufficiency in food production. So government of India is planning to deploy new schemes of financing for agriculture which enables the agriculturists to raise the crops without any fear of losing the money which they have invested in the crops. It can be seen from the above data that agricultural credit is growing at a rate of 14% at an average over the years. Especially after green revolution need for finance increased and the banks have come up with the new 57 . Agriculture has undergone lot of changes in the past few decades.
type of financing for agriculturists. The reason behind this are: Poor management of co-operative societies Mismanagement of funds Frauds 58 . The new types of agriculture finance which came up after the green revolution and white revolution are: Union Green Cards Union White Cards Agriculture/weather insurance scheme 2. It can be seen from the below chart that share of commercial banks has increased by 35% to 68% in 2007 which was at 33% during 1992-93. The share of co-operative banks has declined by 40% to 22% in 2007 against 62% in 1992-93. Commercial banks 3. This is because of the attractive schemes introduced by the banks during the decade. Co-operative banks 2. Regional Rural banks These three institutions play a very important role in providing agricultural finance to the farmers.10 Share of Institutional Financing: The institutional finance market for agriculture is generally shared by three institutions they are: 1.
The share of regional rural banks’ increased marginally by 5% to 10% in 2007 against 5% in 1992-93. Since the announcement of financial reforms the role of agriculture officer has become an important one.11 Agriculture Officer is a officer who is responsible for all the loans and advances which are provided by the banks. (Fig 2. He plays a very key role in providing assistance to the agriculturists with regards to following: Sanction of loans Recovery of loans Providing information about various schemes The role of agricultural officer was restricted to above function before the financial reforms were announced. 59 .9) Agriculture Officer: 2.
New age agriculture officers roles are more demanding.an Alternative Rural Credit Delivery Mechanism Concentration of monopolistic power. who are too 60 . 2. higher interest rates on loans. His role has changed from just providing loans to the agriculturists to “Rural developer”.12 Micro-Finance . The microcredit program was initiated with the objective of providing poor people with credit removed collaterals. micro credit has been defined as the extension of small loans to be given in multiple doses based on the absorption capacity of the needy beneficiaries. Thus.Now the role of the agriculture officer is not just confined to the above said functions. The inherent limitations of the formal and informal financial sectors in providing financial services to the needy and poor have led to the emergence and extension of micro-credit programs in the developing world. insistence on collaterals and exploitation through under-valuation of collaterals has been the trademarks of the informal financial sector. His increased role has helped the growth of innovative techniques of financing the agriculture. They are: Financial education Timely delivery of credit Technological education Debt Restructuring Cropping education About Debt Relief o Removing the wrong notion o Regenerating income to the bank Agriculture officer has become the bridge between the banks and agriculturists.
Out of these. Government. Non Bank Financial Intermediaries (NBFIs) and Co-operative Societies. 2. wherein SHGs are financed directly with the facilitation extended by formal or informal agencies Self-Help Promoting Institutions8 (SHPIs) viz.poor to qualify for formal bank loans. know what benefit they would attain from the group through micro-credit. group effort and team-work help them in achieving their goals 2. Unity. Here. the members.. Since the SHG is a small group of 10 to 20 persons drawn from relatively homogenous backgrounds. 61 . the members through participative decision-making process prioritize their goals in terms of their urgency.12.12. All the members are aware of their individual needs so as to converge their needs with the group objective. Commercial Banks and Micro Finance Institutions (MFIs) like NGOs. 2. as they have no assets to offer as collateral security against loans. Model II. Model I where SHGs are financed directly without the intervention/facilitation of any Non-Government Organization (NGO). They can utilize team effort in addressing their problems and issues while approaching their target. Micro-credit has to be utilized in such a way that it benefits the SHGs to improve the quality of life of their members and their productivity to earn a sustainable income. who join the group.2 Models of Micro-Finance There are several models of micro-finance prevalent in India. 1 Self Help Group (SHG) and Micro-credit: Micro-credit has worked largely through SHGs in general and women groups in particular. The borrowing member chooses economic activities for income-generation purposes and knows clearly the goals or objectives he has to attain for his own sustenance and stability of the group which he/she belongs to. the most important ones are – 1. The SHGs need to firm up their financial and economic norms meant for selection of appropriate beneficiaries and subsequent disbursement of credit to the needy.
In India. the group enhances its income. repays the loan amount to the bank and spends on basic health. the NGOs and Banks supply credit as per the needs of the group. The linkage is vital for securing the SHGs timely micro-finance. loans Agriculture The following chart indicates that micro-credit adds to the group corpus and is sourced from Government. NGOs. Banks etc. education etc so as to drive himself out of the poverty trap. Model II of micro-finance constitutes as much as three-fourths of the total micro-financing where SHGs are formed and nurtured by facilitating agencies like the Government and NGOs and are linked directly with banks for the purpose of receiving credit. The SGSY of delivering micro-finance is based on this linkage approach which is quite unique to India. The Mechanism of Credit provided by Self Help Groups (Fig 2. The group is then involved in inter-loaning activities for consumption and production purposes. By pursuing productive economic activities. While funds from the Government enrich the group corpus by way of subsidy. 4. Model IV is the Grameen Bank Model. Model III financing takes place through NGOs and MFIs as facilitators and financing agencies.10) 62 .3. similar to the model followed in Bangladesh.
1999 in all the rural areas of the country. SGSY being a micro-finance driven rural employment generation program seeks to bring the needy rural poor families above the poverty line through an integrated action of various district and village level agencies – District Rural Development Agencies (DRDAs). Rural Branches of Commercial Banks. private 63 . Panchayati Raj Institutions. This led to the introduction of a micro-finance driven self-employment program called Swarnjayanti Gram Swarozgar Yojana (SGSY) on April 1. banks and other Self-Help Promoting Institutions (SHPI) like Non Government Organizations (NGOs).SGSY Model of Micro-finance: A Committee of the Planning Commission on poverty alleviation and employment generation programs of the GOVERNMENT OF INDIA recommended to restructure the earlier self-employment programs and redesign the credit delivery system in the rural areas. Corporate bodies. Co-operatives. Regional Rural Banks.
The SGSY envisages increasing outreach of micro-finance through small and informal SHGs formed with the support of 5 to 20 persons from relatively homogenous economic backgrounds. The program design of SGSY emphasizes the linkage between banks and SHG and envisages enhancement of self-employment avenues for rural poor. The group is then involved in interloaning activities for consumption and production purposes. the group enhances its income. so as to drive itself out of the poverty trap. regularity and participation in meetings. subsidy is treated as an enabling element. Micro-finance is extended under the program to only those SHGs which have passed a subjective grading test and are involved in regular thrift and credit activities for not less than six months. These activities are mandatory for inculcating banking habits in unaccustomed members of the SHGs.sector companies and individuals. business services and technical support. regularity and quantum of savings. the members are expected to prioritize their goals in terms of their urgency through participative decision-making process. insurance. By pursuing productive economic activities. education etc. interest on loans. inclusive of savings. the program tries to firm up the financial and economic norms meant for selection of appropriate beneficiaries and subsequent disbursement of credit to them. the NGOs and Banks supply credit as per the needs of the group. The corpus of a group consists of its cash balances. 64 . Individual needs of all the members of an SHG are expected to converge with the objectives of their group. credit. grading tests are done in phases considering the maturity of the groups. While provision of credit at multiple doses is an important focus of the program. etc. member composition. To improve the productivity of the SHGs. Here. The micro-finance component of the program is referred to as a small-scale financial intermediation. all outstanding loans. its savings with the bank and interest on balance in the savings bank account. While funds from the Government enrich the group corpus by way of subsidy. utilization of loans. repays the loan amount to the bank and spends on basic health. To assess whether SHGs can be considered for financial assistance. The borrowing member under SGSY chooses economic activities for income-generation purposes which are already notified by the State Governments concerned to be considered for finance by the formal banking institution.
11) 65 . However. from being merely 5.12.1 per cent in 2001-02.691).25% (Fig 2.317 in 2001-02 to 128. the number of SHGs assisted as a percentage of number of SHGs formed increased to about 56.4) SHG Formed SHG Assisted % SHG Assisted to Formed 2001-02 2006-07 2001-02 2006-07 2001-02 2006-07 515691 228290 26317 128417 5.10% 56.3 SGSY in India: Performance and Outreach An analysis of the trend of SHG formation under SGSY between 2000-01 and 2006-07 in the country indicates that the number of SHGs formed in 2006-07 (228.15. Accordingly.25 per cent during 2006-07.417 during 2006-07.2. the number of SHGs assisted increased more than four-fold from 26. (Table 2.290) was only about 44 per cent that of the number of SHGs formed during 2001-02 (5.
13 Debt Waiver & Relief Scheme: The Finance Minister. The number of SHGs formed during the two financial years.The distribution of SHGs formed and assisted under the programme across the various States of the country. in his Budget Speech for 2008-2009. however. 2001-02 and 2006-07. Kerala. The decline is quite conceivably due to the setting up of alternate micro-finance bodies run by steadily evolving NGOs and NBFIs which stress on financing credit to the poor without any subsidy component attached to it. 2. announced a Debt Waiver and Debt Relief Scheme for farmers. 66 . Regional Rural Banks. provided banks maintain disaggregated data of the loan extended to each farmer belonging to that group. Orissa and Madhya Pradesh recorded substantial decline in the number of SHGs formed between 2001-02 and 2006-07. the emergence of alternate micro-finance delivery models may have overshadowed the importance of the subsidy-led credit supply model under SGSY. in States like Orissa. The Scheme covered direct agricultural loans extended to ‘marginal and small farmers’ and ‘other farmers’ by Scheduled Commercial Banks. ‘Direct Agricultural Loans’ means Short Term Production Loans and Investment Loans provided directly to farmers for agricultural purposes. Contrary to this. NGOs are yet to (Fig 2. declined in 13 out of 18 States which are under review. Cooperative Credit Institutions (including Urban Cooperative Banks) and Local Area Banks.12) become vibrant and as of now. This also included such loans provided directly to groups of individual farmers (for example Self Help Groups and Joint Liability Groups). Maharashtra. is quite uneven. SGSY has no alternatives. Uttar Pradesh. The States of Andhra Pradesh. Indeed.
sinking of new wells. and (b) Investment credit for allied activities extended for acquiring assets in respect of activities allied to agriculture e. 3. The financial institutions are facing liquidity crunch in short term as the advances they made are not repaid by the farmers. fisheries. These schemes relieved many of the farmers from the loans that they were unable to pay back. It will change the thinking process of the prompt borrowers. piggery. e. beekeeping. These debt waiver and relief scheme was extensively appraised by the farmers who were in trouble because of the unfavorable monsoon and crop failure etc. purchase of tractor / pair of bullocks. Even a borrower with excess of income is not willing to repay the debt he has borrowed from the financial institution. 2. 4. However these debt relief schemes have some adverse effect on the agriculture lending from the financial institutions and on the farmers also. sheep rearing. 67 . goatery. green houses and biogas. poultry farming.‘Short Term Production Loan’ means a loan given in connection with the raising of crops which is to be repaid within 18 months.g. land development and term loan for traditional and non-traditional plantations and horticulture.g. They are: 1. The average repayment on agricultural advances has fallen down on an average by 10% to 15%. deepening of wells. dairy. ‘Investment Loan’ means (a) investment credit for direct agricultural activities extended for meeting outlays relating to the replacement and maintenance of wasting assets and for capital investment designed to increase the output from the land. And in future they also tend to default in expectation of such schemes. installation of pump sets. The mindset of the farmers has completely changed.
573 15.746 2002-03 7.428 24.585 18.757 43. Farmers have come to conclusion that they should have some amount of debt in the bank and if they default the government will waive their loans.996 24.231 12.778 28.882 1991-92 6.928 1983-84 11.346 22.340 22.650 21.193 1988-89 9.962 2003-04 9.535 24. Rs.333 1993-94 8.949 1995-96 8.580 38. 7.440 28.215 26.5. in Crores Year Public Sector 1980-81 12.823 35.155 2001-02 8.14 Capital formation in Private Sector Total (Table 2.078 1982-83 11. Even though the demands for agricultural advances increase banks will face shortage of funds to lend.556 15.132 38.758 45.893 14.324 26. 6.697 21.473 31.367 23. The amount debt waived or relieved will be paid by the government to the banks but these payments take a long duration.5) 14.377 15.469 17.043 38.339 22.023 15.521 1981-82 12.187 16.153 23.897 27.159 12.968 1990-91 7.366 35.450 11.926 1999-2000 7.998 1992-93 7.309 48.855 12.096 1994-95 8.338 21.374 2004-05 10.854 24.691 35.576 Agriculture: 68 .716 2000-01 7.373 1997-98 6.267 2.929 23.562 1985-86 10.861 46.944 1984-85 11.700 26.488 1989-90 7.848 1987-88 10.509 1986-87 9.924 14.735 38.731 1996-97 8.929 27.872 1998-99 6.297 47.136 28.929 12.460 25.
public investment is a vital input into agricultural production. i.Capital formation in Indian agriculture is undertaken by both government and the private sector. it is non-excludable. Recognition of its importance had made it central to planning for agricultural growth in the past.. 69 (Fig 2. and for that reason unlikely to be undertaken by the private sector.13) . Including roads. there is an economic distinction between these. embankments and irrigation networks. However.e. Almost all of the public investment is in the nature of a public good.
The Reserve Bank of India as the Central bank of the country took lead in making credit available to agriculture through these banks by laying down suitable policies. FINDINGS: Both the commercial banks and co-operative banks advance credit to agriculture. 70 . However the public investment in the agriculture is more volatile compare to the public investment. This is because private capital formation can be surmised from the very fact that it is undertaken by profit-oriented agents. After the financial reforms took place the amount of capital formation took place in the private sector is very large compared to public capital formation. 3.The capital formation in agriculture has gained importance after nationalization of the banks. First bank advances short-term and medium term loans while the second bank advances long-term loans.
Agricultural financing is under priority sector for lending purpose. The changes we can find are as follows: Types of Loans available: In olden days agriculture credit of loan meant only traditional crop loans and short term loans but the concept of loan has changed to advances. By the study of “Emerging Trends in Agricultural Finance” we can find the agriculture advances or credit has come a long way from independence. 71 .Agriculture advances have improved over the years by the effort of Government and the by Innovative credit facilities given the banks. Loans or advances available now days are as follows: Traditional crop loans Term loans Project appraisal loans (long term) Lift Irrigation Schemes Warehouse financing Finance for building Cold Storages Rural Electrification Floriculture Ornamental Plant loans Agri-clinics Self Help Groups Organic Farming Precession Farming Drip Irrigation Land Development loans These are the various schemes available for agriculture now.
Role of Agriculture Officer: 72 .New Plans for agriculture advances: Even though the overall share of institutional finance has increased more than the non-institutional finance. By this way banks are aiming to reduce the unorganized sectors share in the debt profile of rural population. In this type of loan banks provide loan to applicants at a lower rate than professional money lenders to pay off the loan which the applicant has borrowed from money lender. Banks have a new plan to reduce the dependence of rural population on unorganized sector by providing loans to agriculturists. And banks provide more time duration to pay back that loan. Now banks are following Scale of Finance as a criterion for financing which takes into account the cost of cultivation to decide the amount of loan to be given. the debt profile of rural population indicates that even today unorganized sector is their main source of finance. But this loan depends upon the credit worthiness and the track record of the applicant. So banks are now aiming at reducing the share of unorganized sector in the rural population’s debt profile. 90% of the cost is given as loan to the applicant. Criteria for Financing: Banks used to follow Bonding system for providing the loans in the amount of loan to be given was decided on the value of collateral security provided by the applicant. Multiple loans: Banks provide multiple loans to the same borrower for different purposes.
sanctioning of agriculture loans and recovering those loans. especially of oilseeds. 73 . cotton and horticultural crops. capital inflow and an assured market for crop production." Contract farming is defined as a system for producing and supplying agricultural/horticultural produce under forward contract between producers/suppliers and buyers. From mere sanctioning of loan his role has been changed to “Rural Developer”. Agriculture officer role was limited in the olden days to just processing of application for loans. His modern roles are as follows: Educating the applicants about Technological advancement New cropping techniques New schemes of finance Debt restructuring in case of natural calamities Timely delivery of credit The introduction of debt waiver schemes has also changed his role. at a time and price and in the quantity required by a known and committed buyer.The role of agriculture officer has changed a lot. But now a day the role has evolved into a more complex one. Now he has to: Remove the wrong notion about these schemes Regenerate repayments See that eligible borrowers get the advantage of the scheme Corporate farming: The national agricultural policy envisages that "private sector participation will be promoted through contract farming and land leasing arrangements to allow accelerated technology transfer. The essence of such an arrangement is the commitment of the producer/seller to provide an agricultural commodity of a certain type.
1 SUGGESTIONS: Though the outreach and the amount of agricultural credit have increased over the years. Even though the demands for agricultural and other advances increase banks will face shortage of funds to lend. This scheme was introduced for helping poor but this scheme has adversely effected the financial institutions in the following ways: Repayment of agricultural loans has fallen down by 10%-15%. 4. The amount debt waived or relieved will be paid by the government to the banks but these payments take a long duration. This is a healthy sign for the economy of India because in India about 50% to 60% of the population depends upon agriculture for their livelihood. several weaknesses have crept in which have affected the viability and 74 .Debt Waiver/Relief Schemes: Debt Waiver/Relief Schemes was introduced by the Government of India to help the poor Farmers who were unable to the loan that they borrowed because of failure of the monsoon and in turn failure the crops. Especially private sector banks will turn away from agricultural lending. Agriculture finance in India is growing at an average of 14% per year. Banks may not be willing to lend to agriculture as they are not so attractive. SUGGESTIONS AND CONCLUSION: 4. In the fiscal year 2010-11 the agricultural advances are expected to grow by 15% to 20%. It will change the mindset of the prompt payers also further resulting in the fall of repayment.
there are several gaps in the system like inadequate provision of credit to small and marginal farmers. supply chain and processing. So non-crops and other high value activities are not taken care of. paucity of medium and long-term lending and limited deposit mobilization and heavy dependence on borrowed funds by major agricultural credit purveyors. antiquated legal framework and the outdated tenancy laws have hampered flow of credit and development of strong and efficient agricultural credit institutions. controlled prices and poor infrastructure. Furthermore. cooperative banks. it is equally critical to develop suitable institutional arrangements for their delivery. use of traditional technology and practices. Indian agriculture suffers mainly because of: • • • • • • • expensive credit. poor irrigation facilities.sustainability of these institutions. Although investments in rural infrastructure and other key public services are crucial. and their credit policy is too crop centric. most banks give out only 15% or less of their total portfolio to the Agri-sector as against the mandatory 18%. According to the Confederation of Indian Industry. farmers’ poor economic status. 75 . Extension. intermediaries (who increase cost rather than add value). and of private sector suppliers in all these activities. Rural financial institutions are not well integrated with agriculture support systems like R&D. the new private sector banks and micro-credit suppliers. Efforts are therefore required to address and rectify these issues. These have major implications for agricultural development as also the well being of the farming community. and credit suppliers ranging from public sector banks. a distorted market. Only traditional crops have credit access. A key difference in approach would have to be the much greater involvement of region specific market participants. specially self help groups. A study of performance of agricultural credit in India reveals that though the overall flow of institutional credit has increased over the years.
The banks should try and increase the efficiency of the employees as still some of customers are not happy with the efficiency of the banks. Apart from the traditional investments such as land development and irrigation. lack of post harvest infrastructure and lack of farm extension The following are the list of suggestion to improve the credit flow to the agriculture and in turn improve the condition of Indian agriculture: The banks are very old organizations they do not require much of advertisement but the banks should think to improve the customer relationship. Banks and Government need to re-evaluate their pre-conceived notions about the commercial opportunities in serving the rural and agricultural sector. finance and banking systems are very strong. reforms in agricultural marketing. reform of agriculture markets and public management in agricultural infrastructure. State Governments need to lay emphasis on legal provisions/computerization of land records. 76 . hence the bank may be a bit lenient towards who are genuinely facing losses and are unable to pay back the loan amount by reducing the amount or reducing the interest on the amount etc. there is need for a shift in the thrust areas for investment credit to agriculture.• • • fragmented landholdings. It is time to focus on people at the bottom of the pyramid and align all sections with the systems that have been put in place. Banks must also strengthen their credit delivery systems for Rural India. which will help them to retain old customers and build some good customers in the future. legal support for recovery. increased focus needs to be accorded to the entire supply chain management of agriculture products. improving credit absorptive capacity through supporting infrastructure. In view of various changes in the Indian rural canvas over the past few years. Today. The bank has got good set customers as they are doing good in their businesses and does not face any problem in the repayment of loan.
One other important area is the strengthening of the network of support services for small farmers related to information. Financial restructuring & assistance. The highest number of sale in the lending sector are of short term. and extension. Water management policies and investment in water conservation be designed jointly by the State Governments and banks for improving productivity in agriculture. and attract new customers. promote supplementary credit delivery channels. the banks should try and make it more simple and attractive. Since cooperative banks play a very crucial role in delivering farm credit. outsource monitoring services. This move would make the old customers happy. The State Governments and NABARD should make investments in participatory community projects and in soil treatment to make wasteland and fallow land cultivable. The instant financing service needs more attention from the banks as it’s not been satisfying customers as it should. With a view to strengthening the institutional credit mechanism. The banks have the rates of interest which are acceptable by the customers but the banks can be more competitive in this case. Government of India/State Governments and organizations engaged in agricultural research and development (R&D) to reorient R&D activities. short-term credit should be integrated with term credit and efforts be made to reach the ‘unreached’ areas. and provide loan support for diversified agriculture. credit.strengthening infrastructure. the health of these institutions is very important to be able to reach out to the needy farmers. Reforms needed in co-operative societies Revival and restructure of CCS. 77 . To make co-operatives truly democratic & member driven. improving extension network and developing marketing links.
2 CONCLUSION: The study made on “Emerging Trend in Agricultural Finance has shown that there is an upward trend in Indian agricultural scenario.4. After the nationalization of banks the agricultural finance gained importance. Agricultural finance was suffering in India in the pre-nationalization era. And the change made by 78 . Reserve Bank of India brought agricultural finance under priority sector lending to improve the condition of agriculturists.
The Green Revolution characterized by a greater use of inputs like fertilizers. 79 . Agricultural credit has played a vital role in supporting agricultural production in India. Many allied activities which are related to agriculture and are necessary for agriculture have also been brought under the scope of agriculture credit. Agriculture credit has much more wide scope now than the pre-nationalization era. seeds and other inputs. These reforms in 1991 helped agriculture in getting funds from foreign countries and they also helped in exporting of the agricultural produce to other countries enabling them get good returns on the investment. For example. These reforms helped agriculture to get the advantage of new technology. Most agricultural products can be freely imported and exported. increased credit requirements which were provided by the agricultural financial institutions. Agriculture now includes Floriculture Horticulture Medical Plants Animal Husbandry.the Reserve Bank of India has yielded return in terms of increased agricultural lending and assistance. innovative type of financing and scientific methods of cropping. including used ones in food processing. Land development etc. except for a limited list of items falling under the negative list and free import of capital goods. Lift irrigation schemes Building of Warehouses Building of Cold storages. Agriculture finance gained more attention after financial reforms that took place in 1991.
viz. by and large. 80 . In India micro finance linked with the both Self Help Groups and with financial institutions. profitability. Another important aspect of the micro credit is Self Help Groups. These groups are formed by people with the same interest and similar background. Adequate attention to revamping urgently the operations and financial position of these institutions is critical. Micro finance: Micro finance is the latest trend in agricultural finance. the financial viability of their rural branches and also the rural operations of RRBs and rural cooperative banks are weak. Micro finance has enabled many of the agriculturists to make us of new technology for the sowing and harvesting of the crops. Micro-finance and the Kisan Credit Card (KCC) Scheme have emerged as the major policy tools in addressing the problems associated with the distributional aspects of rural credit in recent years. While commercial banks’ overall financial position is. Systematic and drastic changes in the way RFIs are operating need to be made urgently if these institutions are to play an effective role in the provision of rural finance services. These groups involve in collecting deposits from the members and internal loaning of those deposit with a very marginal rate of interest. Given the large physical branch presence of RRBs and cooperative banks in rural India.Two innovations. Micro finance has helped small and marginal farmers to full fill their needs of micro credit. which need for different purposes. This has enabled the farmers to raise money for their needs at a very little cost. their poor performance on capital adequacy. We can also conclude that there are a lot of untouched and unexplored areas for fulfilling social and professional commitments.. sound. These groups can also obtain group loan from commercial banks. and asset quality indicate serious issues across critical financial parameters.
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