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I here by declare that present report entitled “ROLE OF BANKING SECTOR

IN INDIAN AGRICULTURE” is based on my original work and indebtedness
to other publication have been duly acknowledge at relevant places.

Ms. Swati Bansal


To survive, thrive and beat the competition in today’s brutally competitive

world one has to manage the future. Managing the future means managing
information, this is what we have learned in Management of Business

In this regard I have undergone major research project entitled “role of banking
sector in Indian agriculture” to find out the role of banks for development in
Indian agriculture.

Agriculture has always been India’s most important economic sector. India has
one of the oldest agricultural systems in the world. Agriculture sector has a
vital place in the economic development of the country as it provides 26.7% of
GDP and provides livelihood to 110 million of the work fource.

The banking structure of India comprised both public and privet banks, both are
working and providing service to agriculture sector. The banks like NABARD
are the leading bank in which provide service to agriculture sector.

NABARD is established for providing and regulating credit and other facilities
for the promotion and development of agriculture and activities in rural areas
with a view to promoting integrated rural development.

Agriculture insurance has relevance for improving agriculture technology,

security to farmers and an efficient instrument and an institutionalized
mechanism for dealing with problems of natural calamities.

By knowing the importance of agriculture sector the banks are introducing

various schemes in this sector to provide help and credit facility to the farmers
with an aim for development of agri-sector which will lead to development of
Indian economic.

Behind every person’s fruitful lay the advice, guidance and inspiration from all
them possible success. This study owes its completion to the efforts of all those
who lent there help directly or indirectly.

I express my deep gratitude to Dr. K.C. Shringi (Director, OKIM&R) and my

guide Mrs Meenal Vasal for being steering force behind the progress of this
study. Her constant support, motivation and guidance have helped me to orient
my studies in the right direction.

My special thanks go to all my friends who have rendered their valuable

suggestion from time to time. Their constant support and inspiration has been a
major force in the completion of this study.

Agriculture is a way of life, a tradition, which, for centuries, has shaped the
thought, the outlook, the culture and the economic life of the people of India.
Agriculture, therefore, is and will continue to be central to all strategies for
planned socio-economic development of the country. Rapid growth of
agriculture is essential not only to achieve self-reliance at national level but also
for household food security and to bring about equity in distribution of income
and wealth resulting in rapid reduction in poverty levels.

India is a land of many climates and variety of soils, affording scope for
diversity of agriculture. Climate is the most important single factor in crop
production and determines the appropriate timing for important agriculture
operations like sowing, transplanting, irrigation, fertilizer application and use of
pesticides. That’s why agriculture in India is often called “gamble with

Agriculture as a profession is as old as civilization itself and it’s not merely an

occupation, but a way of life for the people of India, as nearly 3/4th of the
population lives in rural areas.

The Indian banking sector consists of commercial and cooperative banks. The
role of both type of banks is very significant in Indian agriculture cooperative
banks were considered as the major source of credit flow to agriculture, but
with the time, commercial banks too have come forward to extend credit to
agriculture on the other hand the number of banks branches at rural centers are
32,481 in 2002.

The role of the banking sector in agriculture is not limited to providing credit.
In a changing environment banks are diversifying their role in the agriculture
sector in order to get revenue from their significant contribution to agriculture.
Some of the new roles that banks have adopted are marketing, training and
consultancy, in structure via private- public participation. A changing
environment and government policies are forcing banks to lend more to the
agricultural sector. both private and public banks are now involving themselves
in a lot of agri-based lending activities , banks are also involved in training and
setting up consultancies, agri clinics, the export and marketing of agricultural
NABARD is established as a development Bank, in terms of the Preamble of
the Act, "for providing and regulating Credit and other facilities for the
promotion and development of agriculture, small scale industries, cottage and
village industries, handicrafts and other rural crafts and other allied economic
activities in rural areas with a view to promoting integrated rural development
and securing prosperity of rural areas and for matters connected therewith or
incidental thereto."

Indian agriculture depends heavily on the monsoon. Crops often get damaged
because of abrupt change in the weather. To overcome all these problems,
microfinance and general insurance companies have come up with crop and
weather policies which can be helpful to poor farmers.

Crop insurance is a means of “protecting the farmers against uncertainties of

crop yields arising out of practically all natural factors beyond their control”. It
is a financial mechanism in which the uncertainty of loss in crop yields is
minimized by pooling large number of uncertainties that impact on crop yields
so that the burden of loss can be distributed.


Chapter 1: India as a land of agriculture

Chapter 2: Introduction to Indian banking system

Chapter 3: Role of NABARD in Indian agriculture

Chapter 4: Crop insurance in India- past, present and future

Chapter 5: Research methodology

Chapter 6: Schemes in agriculture provided by various


Chapter 7: Finding and analysis

Chapter 8: Conclusion and suggestion


• As land of agriculture
• Highlights of Indian agriculture
• Agricultural output growth


sector. In the mid-1990s, it provides approximately one-third of the gross
domestic product and employs roughly two-thirds of the population. Since
independence in 1947, the share of agriculture in the GDP has declined in
comparison to the growth of the industrial and services sectors. However,
agriculture still provides the bulk of wage goods required by the nonagricultural
sector as well as numerous raw materials for industry. Moreover, the direct
share of agricultural and allied sectors in total exports is around 18 percent.
When the indirect share of agricultural products in total exports, such as cotton
textiles and jute goods, is taken into account, the percentage is much higher.

Dependence on 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. In
the 1980s, despite three years of meager rainfall and a drought in the middle of
the decade, India managed to get along with very few food imports because of
the growth in food-grain production and the development of a large buffer stock
against potential agricultural shortfalls. By the early 1990s, India was self-
sufficient in food-grain production. Agricultural production has kept pace with
the food needs of the growing population as the result of increased yields in
almost all crops, but especially in cereals. Food grains and pulses account for
two-thirds of agricultural production in the mid-1990s. 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.

Food-grain production increased from 50.8 million tons in fiscal year 1950 to
176.3 million tons in FY 1990. The compound growth rate from FY 1949 to FY
1987 was 2.7 percent per annum. Overall, wheat was the best performer, with
production increasing more than eightfold in forty years. Wheat was followed
by rice, which had a production increase of more than 350 percent. Coarse
grains had a poorer rate of increase but still doubled in output during those
years; production of pulses went up by less than 70 percent. The increase in
oilseed production, however, was not enough to fill consumer demands, and
India went from being an exporter of oilseeds in the 1950s to a major importer
in the 1970s and the early 1980s. The agricultural sector attempted to increase
oilseed production in the 1980s and early 1990s. These efforts were successful:
oilseed production doubled and the need for imports was reduced. In the early
1990s, India was on the verge of self-sufficiency in oilseed production. After
independence in 1947, the cropping pattern became more diversified, and
cultivation of commercial crops received a new impetus in line with domestic
demands and export requirements. Nontraditional crops, such as summer mung
(a variety of lentil, part of the pulse family), soybeans, peanuts, and sunflowers,
were gradually gaining importance.

The per capita availability of a number of food items increased significantly in

the post independence period despite a population increase from 361 million in
1951 to 846 million in 1991. Per capita availability of cereals went up from 334
grams per day in 1951 to 470 grams per day in 1990. Availability of edible oils
increased significantly, from 3.2 kilograms per year per capita in FY 1960 to
5.4 kilograms in FY 1990. Similarly, the availability of sugar per capita
increased from 4.7 to 12.5 kilograms per year during the same period. The one
area in which availability decreased was pulses, which went from 60.7 grams
per day to 39.4 grams per day. This shortfall presents a serious problem in a
country where a large part of the population is vegetarian and pulses are the
main source of protein.

There are large disparities among India's states and territories in agricultural
performance, only some of which can be attributed to differences in climate or
initial endowments of infrastructure such as irrigation. Realizing the importance
of agricultural production for economic development, the central government
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 agriculture is constitutionally the responsibility of
the states rather than the central government, the latter plays a key role in
formulating policy and providing financial resources for agriculture.
Data of total reported area, net sown area & gross sown area in India

Table 1.1

year total reported Net sown Gross sown Cropping

area(TRA) area(NSA) area(GSA) intensity
1950-51 284315 118746 131893 1.110715
1955-56 291917 129156 147311 1.140566
1960-61 298458 133199 152772 1.146946
1965-66 305335 136150 155276 1.140477
1970-71 303758 140784 165791 1.177627
1975-76 304339 142224 170995 1.202294
1980-81 304167 140270 173324 1.235646
1985-86 304664 140922 178831 1.269007
1990-91 305017 142234 185477 1.304027
1995-96 311175 148421 192884 1.299574

The percentage contribution of agriculture sector to the “net domestic product”

has decreased from 52.23% in 1960-61 to 29.68% in 1995-96. However, in real
term the NDP from agriculture has grown from approximately Rs. 7 billion to
Rs. 12.4 billion during this period, and agriculture sector is still the major
contributor in net domestic product, which has increased from Rs. 13.3 billion
in 1960-61 to Rs. 363.4 billion in 1995-9
Contribution of agriculture sector in net domestic product (in million Rs.)

Table 1.2

year Net domestic Contribution of Percentage

product agriculture & contribution
allied activities
1960-61 13335 6965 52.23
1965-66 20801 10194 49.01
1970-71 36787 17250 46.89
1975-76 64878 27501 42.39
1980-81 110340 44091 39.96
1985-86 207562 72288 34.83
1990-91 420776 141388 33.60
1995-96 363411 124854 29.68

Production of major agriculture commodities in India (in million tonnes)

Table 1.3

crop 1950-51 1960-61 1970-71 1980-81 1990-91 1996-97

Rice 20.6 34.6 42.2 53.6 74.3 80.5
Wheat 6.4 11.0 23.8 36.3 55.1 68.7
Coarse 15.4 23.7 30.5 29.0 32.7 34.1
Total 42.4 69.3 96.6 119.0 162.1 183.3
Pulses 8.4 12.7 11.8 10.6 14.3 14.9
Total 50.8 82.0 108.4 129.6 176.4 198.2
Oilseeds 5.2 7.0 9.6 9.4 18.6 24.5
Cotton 3.0 5.6 4.8 7.0 9.8 14.5
sugarcane 57.1 110.0 126.4 154.3 241.0 271.0
Highlights of Indian agriculture

 One of the world's largest food producers (600 million tones).

 World's largest producer of milk, sugarcane and tea.
 Food grain production expected to reach 220 million tons in 2003-4. The
buffer stock of food grains had reached a record volume of 59 million
tones in December, 2001 and stood at 25 million tons in December 2003.

• One of the oldest agricultural systems in the world.

• Largest producer of fruits (41.5mt), coconut (13 billion nuts) & second
largest producer of vegetables (67.28 mt).

• Largest area in the world under pulse crops

• First to evolve a cotton hybrid (H-4, By Gujarat Agricultural University

in 1970).

• Second in production of rice (88.5 mt).

• Spectrum of climate from arid to cold.

• Largest producer of Sugarcane (295.73 mt).

• Maximum percentage of the geographical area is arable land.

• Possesses more than 56% of the buffaloes in the world (8.42 million) and
ranks first in respect of cattle & buffalo, 2nd in goats, 3rd in sheep and 7th
in poultry population.

• Largest producer of milk in the world.


Agricultural output growth registered a sharp increase in the immediate post-

green revolution phase largely due to a growth in yields. However, the growth
pattern has not been uniform with a tendency towards deceleration in the 1990s
evident from the figures in table given below:



ALL CROPS DURING 1970-71 TO 2000-01 IN %

Table 1.4


Period Area Production Yield Area Production Yield Area Production Yield
1970- 0.44 1.91 1.06 1.10 2.15 1.00 0.59 1.99 1.03
71 to
1980- -.22 2.81 2.71 1.11 3.70 2.28 0.09 3.13 2.52
81 to
1990- 0.07 1.98 1.30 1.29 2.77 1.08 0.41 2.30 1.19
91 to

Agricultural Sector has a vital place in the economic development of the

country as it provides 26.7 per cent of Gross Domestic Product and provides
livelihood to 110 million of the work force and accounts for 1/6th of the total
value of the county’s exports. India has achieved self-reliance in the foodgrain
production. Per capita availability of food went up to 484.1 gms per day in
1998-99 as compared to 395 gms in early Fifties. India has achieved this feat by
multipronged strategies and technologies such as Green revolution, Blue
revolution, white revolution and of course the latest yellow revolution and is
now poised for Rainbow revolution.

Indian agriculture is also on the threshold of becoming globally competitive

and is in a position to make major gains in the export market. The compound
growth rate in agricultural production is 2.7 per cent per annum since
independence. The diversified cropping pattern, cultivation of commercial
crops, crossbred milch and draught animals, fisheries development made a great
progress in the country’s development.

Self Reliance in Food Production; Green Revolution

Although the population has tripled since Independence, the country has
evolved from a net importer of food grains with domestic production of about
50 million tones (mt) in 1950-51 to a position of self-sufficiency of food grains.
The country has achieved a record foodgrain production of 203.04 mt in 1998-
99.Green revolution played a major role in India’s self-reliance in food
production. It is a combined work of fertilizers, irrigation, High yielding
varieties and proper plant protection management. The irrigation potential of
minor, medium and major projects combined together have reached 89 mha
from 23 mha in early 50s. Intensive Area Development Programme (IADP),
High Yielding variety programmes and multiple variety programmes and
multiple river valley projects played a key role in agricultural production.
HYVP started in 1966 covered 75 mha of land till 1998-99. The fertilizers and
manures consumption has gone up to 16.87 mt.

Crop Production

The production of foodgrain has increased from 50.8 million tonnes in 1950-51
to 203.04 million tonnes in 1998-99. The major food grains has higher growth
rate than the minor food grains. Against this remarkable achievement,
production of pulses remains stagnant at 14.81 million tonnes except for few
years. The oil seed technology mission has improved the oil seed production in
recent years reaching 25.2 million tonnes. During the fifty years wheat has
shown maximum improvement in the productivity followed by rice in the major
food grains. Minor food grains production and productivity did not show much
The productivity of food grains has jumped from 552 kg/ha in 1950-51 to 1620
kg/ha in 1998-99. Rice and wheat also reached from 668 kg/ha and 655 kg/ha to
l928 kg/ha and 2583 kg/ha respectively.

In the commercial crops in 1998-99, the production of Cotton, Jute, and

Sugarcane was 12.18 million bales (170 kg each), 9.70 million bales (180 kg
each) and 295.73 million tonnes respectively.

Land Use

In FY 1987, field crops were planted on about 45 percent of the total land mass
of India. Of this cultivated land, almost 37 million hectares were double-
cropped, making the gross sown area equivalent to almost 173 million hectares.
About 15 million hectares were permanent pastureland or were planted in
various tree crops and groves. Approximately 108 million hectares were
developed for nonagricultural uses, forested, or unsuited for agriculture because
of topography. About 29.6 million hectares of the remaining land were
classified as cultivable but fallow, and 15.6 million hectares were classified as
cultivable wasteland. These 45 million hectares constitute all the land left for
expanding the sown area; for various reasons, however, much of it is unsuited
for immediate cropping. Expansion in crop production, therefore, has to come
almost entirely from increasing yields on lands already in some kind of
agricultural use

Topography, soils, rainfall, and the availability of water for irrigation have been
major determinants of the crop and livestock patterns characteristic of the three
major geographic regions of India--the Himalayas, the Indo-Gangetic Plain, and
the Peninsula--and their agro-ecological subregions. Government policy as
regards irrigation, the introduction of new crops, research and education, and
incentives has had some impact on changing the traditional crop and livestock
patterns in these subregions. The monsoons, however, play a critical role in
determining whether the harvest will be bountiful, average, or poor in any given
year. One of the objectives of government policy in the early 1990s was to find
methods of reducing this dependence on the monsoons.

• Introduction
• History of Indian banking
• Two Phases of Indian banking
• Increasing risk in banking sector

In the context of increasing pressures on the individual banks, to survive,

perform and succeed, we take a look at the emergence of the Indian banking
system right from its early days till such time when its very survival has
become a challenging task.


The establishment of the general bank of Indian in the year 1786 marked the
development of a structured banking system in India. It was setup as a joint
stock company. Later the bank of Hindustan and Bengal come into existence.
The East India Company established three banks, the Bank of Bengal in the
year 1809, the Bank of Bombay in 1840 and Madras in 1843. These three banks
were amalgamated in the year 1920 to form the new Imperial Bank of India.
The imperial bank was nationalized and was renamed as the state bank of India
with the passing of the state bank of India act of 1955. The reserve bank of
India (RBI) was constituted as the shareholder’s bank in 1935 and is now the
central bank of the country. After independence, the reserve bank of India bill
was introduced in the parliament to give public ownership to the bank since 1st
January 1949 it has been operating as a state owned and state managed central
bank. It exercises the power to control the Indian baking industry.
At present, the banking system can be classified in to the following categories

1. Public sector banks

• Reserve bank of India
• State bank of India and its 7 associate banks
• Nationalized banks (20 in number)
• Regional rural banks sponsored by public sector banks
2. Private sector banks
• Old generation private banks
• New generation private banks
• Foreign banks in India
• Scheduled co-operative banks
• Non-scheduled banks
3. Co-operative sector banks
• State co-operative banks
• Central co-operative banks
• Primary agriculture credit societies
• Land development banks
• Urban co-operative banks
• State land development banks
• Primary agriculture development
• Primary land development

4. Development banks
• Industrial finance corporation of India (IFCI)
• Industrial development bank of India (IDBI)
• Industrial credit & investment corporation of India (ICICI)
• Industrial investment bank of India (IIBI)
• Small industries development bank of India (SIDBI)
• National bank for agriculture & rural development (NABARD)
• Export-import bank of India (Exim)
• Shipping credit & investment company of India limited,(SCICI)
• National housing bank.
The RBI has a centralized control over all these banks

The RBI performs a wide range of functions, to:

• Issue banks notes.
• Supervise and administer exchange control and banking
regulations and the government’s policy
• Grant licenses to new banks and new bank branches.
• Issue licenses to the foreign banks for operations in India.
• Approve the licenses of operation for the private banks.


The Indian banking system and its regulations can be better understood when
divided into the following two phases.

 Post-nationalization
 Post-liberalization

The era of nationalization commenced in 1969 when the country’s 14 major

commercial banks were nationalized. In continuation of this process,6 more
banks were nationalized in 1980. It was felt that banks, which play a vital role
in the economic growth mostly catered to the credit requirements of only the
large corporate house. Credit requirements of the small-scale, agriculture, and
export sectors were give little priority.

Accordingly, the banking companies (acquisition and transfer of undertakings)

act was enacted to provide for acquisition and transfer of 14 banks based on
their size, resources, coverage and organization. The major aim of
nationalization was to give priority to meet the credit requirements of the
neglected sectors as mentioned above. Further, this credit facility was supposed
to be extended at subsidized rates i.e., rates of interest were to be lower than
those charged to larger business units. Thus, nationalization was about
providing extensive credit facility at considerably low rates.

The impact on the banking structure in the process of meeting the objectives of
nationalization was tremendous. Wholesale banking paved the way for retail
banking resulting in an all-round growth in the branch network, deposit
mobilization, credit disbursals and of course employment. In the process,
profitability and competition took a back seat.

Table 2.1
A Chronology of nationalization of banks
1949 Enactment of banking regulation act
1955(phase I) Nationalization of state bank of India
1959(phase II) Nationalization of SBI subsidiaries
1961 Insurance cover extended to deposits
1969(phaseIII) Nationalization of 14 major banks
Creation of credit guarantee corporation
Creation of regional rural banks
1980(phaseIV) Nationalization of six banks with deposits over
200 crore.

In order to enhance their coverage geographically, the banks tremendously

increased their branch network. The widened branch network and better
techniques of deposit mobilization enhanced the number of deposit accounts
and the amount of deposits mobilized. The aggregate deposits of Scheduled
Commercial Banks (SCB, s) which stood at Rs.4669cr. during July 1969
touched Rs.2, 33,753 the end of March, 1992

During the first year after nationalization, total growth witnessed in agricultural
loans and loans made to SSIs was 87 percent and 48 percent respectively. The
overall growth in the deposits and the advances indicates the improvement in
the banking habits of the people in the rural and semi-urban areas where the
branch network has spread. While such credit extension did enable banks to
achieve the goals of nationalization, it was, however, achieved at the cost of
profitability of the banks.


The quality of credit assets deteriorated, as the process of sanctioning, loans

became more of a mechanical process rather than an absolute credit assessment
decision. Political interference also has been an additional problem. There was
very little appraisal involved in the process of giving loans. With such a process
of lending, obtaining credit seemed to have become the privilege of every
borrower. Added to this, were the credit seemed to have become the privilege of
every borrower. Added to this was the credit facilities extended to the priority
sector at concessional rates. Such credit disbursals that were done without
proper post-sanction supervision led to the deterioration in the quality of the
loan assets of banks. Further, the subsidized lending rates coupled with high
levels of low yielding SLR investments also adversely affected the profitability
of banks.

Yet another outcome of this rapid branch expansion has been the squeeze on
profitability of banks arising primarily due to an increase in the fixed costs.
With the proliferation of branches, there was also the resulting strain on the
managerial resources that resulted in enlarged manpower resources. The
operational costs of the banks enhanced on account of the continuous servicing
requirements of the extensive branch network of the banks.
While branch expansion was taken as a means to achieve the goals of
nationalization, the inherent evils of haphazard expansion of branches crept into
the banking system. The existence of branches with higher operating costs
resulted in profit erosion, since in most of the cases the branches added more
costs than returns.


The government of India framed its policies in the year 1991-92, keeping in
view the benefits of liberalization. It was expected that in the process of
opening its economy to the outside world, increased competition could turn
banks more efficient, bring about improvements and ultimately benefit the
Some of the root causes that were behind the dull performance of banks
prompted the initiation of the banking sector reforms. Some of these causes

• Greater emphasis on directed credit

• Regulated interest rate structure
• Lack of focus on profitability
• Lack of transparency in the banks’ balance sheets;
• Lack of competition
• Lack of grasp on the risks involved
• Excessive regulations on organization’s structure and managerial
• Excessive support from government

The reforms were initiated with an aim to bring about a paradigm shift in the
banking industry. The recommendations made by the high level committee on
the financial sector reforms, chaired by Mr.M Narasimham, laid the foundation
for the banking sector reforms. The committee, which was setup in 1991,
submitted its report in 1992. Another committee was constituted again under
the chairmanship of Mr. M Narasimham, which submitted its report in 1998.

These reforms tried to enhance the viability and efficiency of the banking
sector. To tackle the internal deficiencies of the sector, new norms relating to
accounting practices, prudential norms and capital adequacy requirements were
suggested. In order to improve the external environment, the reforms aimed at
transforming the highly regulated environment into a market-oriented one.
While most of the recommendations made by the committee in phase I have
been accepted for implementation, either in a single step or in phased manner,
some of them however are yet to be considered. The measures implemented so
far that have been give further, have revolutionized the structure and operations
of the banking industry.

The liberalization of the Indian banking system had led to the following

a) Lowered entry barriers: the Indian banking industry apparently lacked

a competitive environment, thereby affecting its efficiency. To induce
competitiveness in this sector, the industry was opened up to
participation by private sector banks and foreign banks. Apart from
allowing the Indian banks to enter into joint ventures with foreign banks
(20 percent of equity) the foreign bank were also permitted to set up
their shop in Indian either as branches or as subsidiaries. With this
lowering of entry barriers, many new players entered the market.

b) Deregulating the interest rates: one of the major reform measures

undertaken is the phased deregulation of interest rates. As against the
administered interest rate regime, the banking sector now operates in a
deregulated environment. Directives have been issued for total
deregulation of the interest rates on deposits and almost total
deregulation of the lending rates. With this deregulation of interest rates,
banks now have gained flexibility in there operations. Further, the
concessional rates of interest in priority sector lending have been
withdrawn for borrowers of higher credit amounts. The general rates of
interest will be applicable to these borrowers

c) Lowered regulations: branch licensing has been abolishes and branch

expansion norms have been relaxed enabling the banks to revamp their
organizational structures. Banks have been giving the freedom to open
or close branches as suitable to their operations/viability.

The onset of liberalization has brought about changes in the way the banks
operate. Terms like customer’s relationship and competition among the existing
players and the new banks have taken the front seat. The following are some of
the changes seen in the banking sector after liberalization.

a) Technological revolution: information technology has become an

integral part of the banks throughout the world. By leveraging this
technology, banks are able to develop the necessary management
information systems that would aid in taking scientific decisions.
Further, such information systems are also being used to analyze the
customer needs to innovate their product portfolio accordingly.
Most of the Indian banks have embarked upon the process of
computerizing their branches. Since the major part of the transactions
arise at the branches, data processing and transmission will become
comparatively easier if there transactions are computerized. Information
technology has smoothened back-office maintenance and improved the
customer service as well.

b) Better customer service: information technology in banking business

that is improving at a rapid pace has a more visible impact on the
customer service. It has not just resulted in product innovation, but is
also enabling banks to redesign their traditional services into more
sophisticated products

c) Automated teller machines: These self-service terminals, which are

popularly, know as ATMs, are cash dispenser, which enable the
customers to withdraw cash even if the banks are closed. Advanced
features of ATMs include withdrawals at other cities, use of credit on
ATMs, facilitating cheque and cash deposits and acceptance of requests
for chequebooks and account statements.

d) Plastic money: plastic money in the form of credit cards, debit cards
and SMART cards has also entered the Indian markets. While the credit
and the debit cards have been in the Indian markets for over a decade,
the SMART card is a relatively new concept and has superior features.
All the transactions taking place on the credit/ debit cards will be
recorded on the SMART card. The SMART card reader of the banks
will record the deposit amount available in the SMART account of the
customer’s SMART card. Based on this, withdrawal or deposit of funds
can be taken up at any branch by the SMART cardholder.

e) Telebanking: in telebanking, bankers, with the help of dedicated

telephone lines, will provide service to their customers. With a
telephone call, customers can get the information they need which may
relate to their statement of accounts, forex rates or any other
information relating to their transactions. Telebanking is also being
extended as a 24-hour service.

f) Electronic fund transfer (EFT): through this process, banks enable

their customers to remit funds using a computer terminal. Individuals
and corporatist can transfer funds without leaving their premises. This
facility not only reduces the time lag in funds transfer, but also
eliminates error prone paper work. The prerequisite for this facility is
that the concerned bank branch has the network connection to receive
and send the coded funds transfer messages.

g) Anywhere banking: this service, which is offered by few banks in

India, facilitates the customer to transact from any branch of the bank.
The details regarding the customer are available in a central computer
linked to various branches. All the information relating to the customer
can be accessed from this system. Banks are now looking forward to
relationship banking, which establishes a relationship with customer in
such a way that all the bank transactions of the customer-domestic or
international – and relating to the assets or liabilities of the customer
will be undertaking by a single bank.

Risks manifest themselves in many ways and the risks in banking are a result of
many diverse activities, executed from many locations and by numerous people.

Table 2.2
Based on their origin and nature, risks are classified into various categories.
the most prominent financial risks to which the banks are exposed are:
Interest rate risk: risk that arises when the interest income/ market valve of
the banks is sensitive to the interest rate fluctuations.
Foreign exchange/currency risk: risk that arises due to unanticipated
changes in exchange rates and become relevant due to the presence of multi-
currency assets and/or liabilities in the bank’s balance sheet.
Liquidity risk: risk that arises due to the mismatch in the assets and
liabilities. This mismatch may lead to a situation where the banks are not in
a position to impart the required liquidity into its system- surplus/deficit cash
situation. In the case of surplus situation this risk arises due to the interest
cost on the ideal funds. Thus idle funds deployed at low rates contribute to
negative returns.
Credit risk: risk that arises due to the possibility of a default/delay in the
repayment obligation by the borrowers of funds.
Contingency risk: risk that arises due to the presence of off-balance sheet
items such as guarantees, letters of credit, underwriting commitments, etc.

As a financial intermediary, banks borrow funds and lend them as a part of their
primary activity. This intermediation activity of banks exposes them to a host of
risk. The volatility I the operating environment of banks will aggravate the
effect of the various risk. The case discusses the various risks that arise due to
financial intermediation and by highlighting the need for assets liability
management it discusses the gap model for risk management.

• Genesis of NABARD
• Interest rate of NABARD for various banks
• Highlights of 2004-05
Genesis of NABARD

• Reserve Bank of India (RBI) established in 1935

interalia, with a mandate to set up a special Agricultural
Credit Department (ACD) with expert staff.
• ACD (RBI) interalia, initiated different measures to
develop a healthy rural credit structure and provided
guidance to State Governments and Cooperative Credit
• Agricultural Refinance Corporation (ARC) was established in 1963 to
support investment credit needs for agricultural development.
• Consequent to undertaking of development and promotional functions,
ARC was renamed as Agricultural Refinance and Development
Corporation (ARDC) in 1972.
• RBI, at the instance of Government of India (GOI) appointed a
Committee to Review Arrangements for Institutional Credit for
Agriculture and Rural Development (CRAFICARD) in 1979.
• The CRAFICARD reviewed the need of integrating short-term, medium-
term and long-term agriculture credit structure.
• The CRAFICARD recommended the establishment of National Bank for
Agriculture and Rural Development (NABARD).
• National Bank for Agriculture and Rural Development Act, 1981 was
passed by the Indian Parliament and NABARD was established on 12
July 1982 with an initial capital of Rs. 100 crore. The capital is enhanced
to Rs.2000 crore subscribed by Govt. of India and Reserve Bank of India.

NABARD is an apex institution, accredited with all matters

concerning policy, planning and operations in the field of credit
for agriculture and other economic activities in rural areas in

The Committee to Review Arrangements for Institutional Credit for Agriculture

and Rural Development (CRAFICARD), set up by the Reserve Bank of India
(RBI) under the Chairmanship of Shri B. Sivaraman, conceived and
recommended the establishment of the National Bank for Agriculture and Rural
Development (NABARD). The Indian Parliament through the Act 61 of 1981
approved the setting up of NABARD. The Bank which came into existence on
12 July, 1982, was dedicated to the service of the Nation by the Hon’ble Prime
Minister, Smt Indira Gandhi on 5 November, 1982.

NABARD is established as a development Bank, in terms of the Preamble

of the Act, "for providing and regulating Credit and other facilities for the
promotion and development of agriculture, small scale industries, cottage
and village industries, handicrafts and other rural crafts and other allied
economic activities in rural areas with a view to promoting integrated rural
development and securing prosperity of rural areas and for matters
connected therewith or incidental thereto."

NABARD took over the functions of the erstwhile Agricultural Credit

Department (ACD) and Rural Planning and Credit Cell (RPCC) of RBI and
Agricultural Refinance and Development Corporation (ARDC). It’s subscribed
and paid-up Capital was Rs.100 crore which was enhanced to Rs. 500 crore,
contributed by the Government Of India (GOI) and RBI in equal proportions.
Currently it is Rs. 2000 crore, contibuted by GoI (Rs.550 crore) and RBI
(Rs.1450 crore).

NABARD: (i) serves as an apex financing agency for the institutions providing
investment and production credit for promoting the various developmental
activities in rural areas; (ii) takes measures towards institution building for
improving absorptive capacity of the credit delivery system, including
monitoring, formulation of rehabilitation schemes, restructuring of credit
institutions, training of personnel, etc. ; (iii) co-ordinates the rural financing
activities of all institutions engaged in developmental work at the field level and
maintains liaison with Government of India, State Governments, Reserve Bank
of India (RBI) and other national level institutions concerned with policy
formulation; and (iv) undertakes monitoring and evaluation of projects
refinanced by it.

NABARD’s refinance is available to State Co-operative Agriculture and Rural

Development Banks (SCARDBs), State Co-operative Banks (SCBs), Regional
Rural Banks (RRBs), Commercial Banks (CBs) and other financial institutions
approved by RBI. While the ultimate beneficiaries of investment credit can be
individuals, partnership concerns, companies, State-owned corporations or co-
operative societies, production credit is generally given to individuals.

NABARD operates throughout the country through its 28 Regional Offices and
one Sub-office, located in the capitals of all the states/union territories.It has
336 District Offices across the country, one Sub-office at Port Blair and one
special Cell at Srinagar. It also has 6 training establishments.


• NABARD is an apex institution accredited with all

matters concerning policy, planning and operations in the
field of credit for agriculture and other economic
activities in rural areas.
• It is an apex refinancing agency for the institutions
providing investment and production credit for promoting the various
developmental activities in rural areas
• It takes measures towards institution building for improving absorptive
capacity of the credit delivery system, including monitoring, formulation
of rehabilitation schemes, restructuring of credit institutions, training of
personnel, etc.
• It co-ordinates the rural financing activities of all the institutions engaged
in developmental work at the field level and maintains liaison with
Government of India, State Governments, Reserve Bank of India and
other national level institutions concerned with policy formulation.
• It prepares, on annual basis, rural credit plans for all districts in the
country; these plans form the base for annual credit plans of all rural
financial institutions
• It undertakes monitoring and evaluation of projects refinanced by it.
• It promotes research in the fields of rural banking, agriculture and rural
Types of Refinance Facilities

Agency Credit Facilities

Commercial Banks • Long-term credit for investment

• Financing the working capital

requirements of Weavers' Co-
operative Societies (WCS) & State
Handloom Development Corporations
Short-term Co-operative Structure • Short-term (crop and other loans)
(State Co-operative Banks, District • Medium-term (conversion) loans
Central Co-operative Banks, • Term loans for investment purposes
Primary Agricultural Credit • Financing WCS for production and
Societies) marketing purposes

• Financing State Handloom

Development Corporations for
working capital by State Co-operative
Long-term Co-operative Structure • Term loans for investment purposes
(State Co-operative Agriculture and
Rural Development Banks, Primary
Co-operative Agriculture and Rural
Development Banks)
Regional Rural Banks (RRBs) • Short-term (crop and other loans)

• Term loans for investment purposes

State Governments • Long-term loans for equity
participation in co-operatives

• Rural Infrastructure Development

Fund (RIDF) loans for infrastructure
Non-Governmental Organizations • Revolving Fund Assistance for
(NGOs) - Informal Credit Delivery various micro-credit delivery
System innovations and promotional projects
under 'Credit and Financial Services
Fund' (CFSF) and 'Rural Promotion
Corpus Fund' (RPCF) respectively

A. Interest Rates on Schematic Refinance for

Farm / Non-Farm Sectors for all agencies

(CBs / PCBs / RRBs / SCARDBs / ADFCs)

Effective from 16 March 2005 { % p.a.}

Sl Name of the Slabs/ loan size (Amount in Rs.)

No. activity/region
Upto From Above

Rs.50,000/- Rs. 50,000/- Rs.2,00,000/-

1 All activities in North 6.00 6.00 6.00
Eastern Region including
Sikkim and A&N Islands
2 Agriclinics & Agribusiness 6.00 6.00 6.00
Centres in all regions
3 MI, DLF, LD, WLD, 6.00 6.25 6.25
Action Plan, OF, Contract
Farming under AEZ*,
A&M, RH and FM in
regions other than those
mentioned at 1 above
4 NFS in regions other than 6.00 6.25 6.50
those mentioned in 1 above
5 Cold Storage / Rural 6.00 6.25 6.75
Godowns and other
activities in regions other
than those mentioned at (1)

Abbreviations :-

MI Minor Irrigation

DLF Dryland Farming

LD Land development

WLD Wasteland Development

SGSY Swarnajayanti Gram Swarozgar Yojana

SHG Self Help Group

OF Organic Farming

AEZ Agri Export Zone

A&M Aromatic and Medicinal Plants

RH Rural Housing

NFS Non-farm Sector

FM Farm Mechanisation


S.No. Purpose Present rates Revised

of interest (% ROI (%
p.a) Per p.a.)
annum w.e.f.
1 Financing of Working capital requirements 6.50 6.25
of Primary Handloom Weavers
Cooperative Societies (PHWCS)
2 Financing of Working capital requirements 6.50 6.25
of State Handloom Development
Corporations (SHDCs)
3 Financing of Working capital requirements 6.50 6.25
of State Handicrafts Development
Corporations (SHnDCs)

The revised interest rates will be effective from 13 February 2004 on the
outstanding balances, if any, under the ST credit limits from NABARD as well
as on the drawls availed of by the banks on or after 13 February 2004. The
relevant clause/s in the letters issued by us communicating sanction of credit
limits for the above purposes and other relative documents will stand modified

Revised rates of interest on ST(SAO), ST(OSAO) refinance available from


S.No. Purpose Present Revised RoI

rates of (% p.a.)
interest w.e.f. 13.2
(% p.a.) 2004
1 ST (SAO) 6.00 5.75
2 ST(OSAO) 6.50 6.25
3 Financing Pisiculture 6.00 5.75
4 Marketing of crops 6.25 6.00
5 Medium term (Non-Schematic) credit limits for 6.00 5.75
financing approved agricultural purposes

The revised interest rates will be effective from 13 February 2004 on the
outstanding balances, if any, under the ST credit limits from NABARD as well
as on the drawls availed of by the banks on or after 13 February 2004.

The rates of interest on ST/MT refinance have been reduced by NABARD

mainly to enable the RRBs to augment their disbursements and to facilitate
reduction in their ground level interest rates. It may therefore be ensured that
the benefit of the reduction in the refinance rates percolates to the ultimate

The relevant clause/s in the letters issued by us communicating sanction of

credit limits for the purposes indicated in the Annexure and other relative
documents will stand modified accordingly.

Keeping in view the downward trend in interest rates on deposits and advances
in the banking sector, additional interest levied by NABARD on excess
borrowings by RRBs has also been reduced to 2% p.a. from 6% p.a. charged
hitherto. The revised rate of interest will apply to the cases of excess
borrowings observed during the year 2003-04.


1. Rates of interest on Short Term refinance for Seasonal Agricultural

Operations (SAO)

S.No. Percentage of SCB's average borrowings Revised rate of

from NABARD under SAO to DCCBs' interest on SAO
average loans outstanding against PACS refinance (%

w.e.f 13.2.2004
1 Less than 35 5.25
2 35 and above, but below 40 5.50
3 40 and above 5.75

RoI for banks in NER will be 5.25% p.a. and for banks under motivational
refinance norms, the RoI will be 5.50% p.a.

2. Rates of interest on Short Term refinance for Purposes Other than

Seasonal Agricultural Operations (OSAO)

S.No Purpose Present rates Revised ROI

of interest (% (% p.a) w.e.f
p.a) Per 13.2.2004
1 Financing Marketing of Crops 6.25 6.00
2 Financing procurement and marketing of 6.50 6.25
cloth and Trading in Yarn by apex/regional
Cooperative weavers societies
3 Financing production and marketing 6.25 6.00
activities of Primary Weavers cooperative
4 Financing procurement and marketing of 6.00 5.75
cloth and Trading in Yarn by apex/regional
Cooperative weavers societies and
Financing production and marketing
activities of Primary Weavers cooperative
societies in NER, J&K, Sikkim and H.P.
5 Financing working capital requirements of Apex Societies- Apex
Industrial Cooperative Societies (other than 6.50 Primary
weavers) Societies- 6.25 societies -


6 Financing working capital requirements of 6.25 6.00
Rural Artisans
7 Financing collection and marketing of Apex Societies- Apex
minor forest produce 6.50 Primary
Societies-6.25 societies -


8 Financing Pisciculture 6.00 5.75
9 Financing procurement, storage and Wholesale-6.75 Wholesale -
distribution of chemical fertilisers Retail - 6.50 6.50 Retail -
10 Working Capital requirements of SHDCs 6.50 6.25
and SHnDCs
11 ST credit limits for SAO against pledge of 6.25 6.00
3. Rates of interest on short term agricultural/allied and marketing
activities (Coop. banks)

Purpose Present Revised

rates of ROI (%
interest (% p.a) w.e.f
p.a) Per 13.2.2004
Financing approved short term agricultural/ allied and 6.00 5.75
marketing activities to Cooperative.

4. Rates of interest on Medium Term (Non-Schematic) refinance facilities

S.No. Purpose Present rates of Revised ROI

interest (% p.a) (% p.a) w.e.f
Per annum 13.2.2004
1 Medium term (Non-Schematic) credit 6.00 5.75
limits for financing approved
agricultural purposes
2 Medium Term credit limits for 6.00 5.75
financing purchase of shares in
cooperative processing societies
HIGHLIGHTS 2004-2005

Credit Operations

• Short-term credit limits sanctioned during 2004 - 05

o For SCBs, RRBs - seasonal agricultural operations - Rs.10185.06
o For RRBs - other than seasonal agricultural operations - Rs.216.83
o For SCBs - financing Weavers' Cooperative Societies- Rs.349.89
• Long term loans sanctioned to 7 State Governments for contribution to
the share capital of co-operative credit institutions aggregated Rs.32.98
• Liquidity support to SCBs - Rs.1914.24 crore
• Liquidity support to RRBs - 158.78 crore
• Investment Credit to CBs, SCARDBs, SCBs, RRBs and other eligible
institutions - Rs. 7605.29 crore.

Kisan Credit Card Scheme

• During the year ( upto Feb’ 2005), 70.43 lakh cards issued by co-
operative banks, RRBs and commercial banks.
• Since inception in 1998-99, 4.84 crore cards issued.

Rural Infrastructure Development Fund

• GoI announced Rs. 8000 Crore for RIDF XI ( 2005-06 )

• As at the end of March 2005, RIDF sanctions under all the branches of
RIDF amounted to Rs. 42948.51 crore against which the disbursements
were Rs. 25384.02 crore.

SHG bank linkage programme - Highlights- 2004-05

• During the period April 2004 to March 2005 - 5, 39,385 new SHGs were
financed by banks to a tune of Rs 29.94 billion by way of loans.
• Cumulatively, banks have lent Rs 68.98 billion to 1,618,476 SHGs.
35,294 branches of 560 banks (Commercial banks- 48; Regional Rural
banks-196; & Cooperative banks - 316) situated in 563 districts in the 30
states of the country are participating in the programme.( Data-
• About 24.25 million poor households have gained access to formal
banking system through SHG bank linkage programme.
• Nearly 90% of the groups are women only groups.

Promotional grant assistance

Grant assistance extended by NABARD to various agencies/ institutions for

promotion & linkage of self-help groups during the year as well as cumulatively
is given below;

Agency During 2004-05 Cumulative as on 31.3.2005

Number Number

Amount (Rs million) Amount (Rs million)

For promotion & linkage of For promotion & linkage of SHGs


NGOs 263 42.66 24234 1048 193.87 139513

RRBs 12 2.97 3890 93 30.55 38935

DCCBs 26 10.63 12560 55 23.03 28110

RRB- Regional Rural Bank; DCCB- District Central Cooperative Bank;

Capacity building initiatives

Around 42,812 bank officials, 4,246 NGO staff, 7,063 government officials and
2,07,916 self help group members trained with grant support from NABARD.
In addition, about 161 faculty members of various banks' training
establishments were also trained. Cumulatively 1,016,600 persons trained
through various SHG related capacity building programmes.
Financial Highlights

NABARD was set up under an Act of Parliament, NABARD Act, 1981 and has
a capital base of Rs.2000 crore contributed by RBI and Government of India.
As on 31 March 2004, the highlights are as under:

• Total Assets of Rs.55889 crore of which owned funds are Rs.22660

• Net profit before tax stood at Rs.1460 crore.
• A high Capital Adequacy Ratio of 39.41% as against a minimum of 9%
stipulated by RBI.
• NPA as low as 0.0014% of advances as on 31 March 2004.

• Role of crop insurance

• Background and earlier attempts at crop insurance
• Crop insurance benefits
• Adequacy and short comings of crop insurance
• Crop insurance in future
Role of agriculture in Indian economy

India is a land of many climates and variety of soils, affording scope for
diversity of agriculture. Climate is the most important single factore in crop
production and determines the appropriate timing for important agriculture
operations like sowing, transplanting, irrigation, fertilizer application and use of
pesticides. That’s why agriculture in India is often called “gamble with

Agriculture as a profession is as old as civilization itself and it’s not merely an

occupation, but a way of life for the people of India, as nearly 3/4th of the
population lives in rural areas.

Role of agriculture/ crop insurance

Agriculture insurance in which crop insurance is the most dominant, has many
advantages. First, as the agriculture sector is not well organized on institutional
lines, it can help agriculture to develop through institutionalized channels and
assist in speeding up the process of commercialization of the sector. Second, it
can play a distinct role in securing credit from institutional sources as it
provides security to the lending institutions. Third, it provides strength to
farmers for a better deal in respect of interest rates in a liberalized interest rate
regime. Four, it can ensure better recovery of loans as the credit agency would
receive the payment from the insurance company in the event of production
risk. Five, agriculture insurance has relevance for improving agriculture
technology as with the security of insurance; farmers might be more willing to
experiment with new technology. Six crop insurance is an efficient instrument
and an institutionalized mechanism for dealing with problems of natural
calamities like drought, food, etc., rather than providing ad hoc or relief

Crop insurance

Crop insurance is a means of “protecting the farmers against uncertainties of

crop yields arising out of practically all natural factors beyond their control”. It
is a financial mechanism in which the uncertainty of loss in crop yields is
minimized by pooling large number of uncertainties that impact on crop yields
so that the burden of loss can be distributed.

Background and earlier attempts at crop insurance

In a country like India, where crop production has been subjected to vagaries of
weather and large-scale damages due to attack of pests and diseases, crop
insurance has to assume the role of a very vital institution for he stable growth
of the sector. India introduced an all-risk Comprehensive Crop Insurance
Scheme (CCIS) for major in 1985, coinciding with the introduction of the VII-
five-year plan and subsequently the National Agriculture Insurance Scheme
(NASI) 1999-2000. These schemes have been preceded by years of preparation,
studies, planning, experiments and trials on a pilot basis.

Pilot crop insurance scheme (PCIS)-1979

In the back ground and experience of the aforesaid experimental schemes for
crop insurance, a study was commissioned by GIC and entrusted to eminent
agriculture economist, prof. V.M.Dandekar, a pilot crop insurance scheme was
introduce by GIC from 1979. The scheme was based on “area approach” and
covered cereals, millets, oilseeds, cotton, potato and gram. It was confined to
loanee farmers only on a voluntary basis. The risk was shared between GIC and
the state in the ratio of 2:1 the maximum sum insured was 100% of the crop
loan, which was later increased to 150%. Small/ marginal farmers were give
50% subsidy in premium. PCIS was implemented in 13 states till 1984-85 and
covered 6.27 lakh farmers for a premium of Rs 196.95 lakhs against claims of
157.05 lakhs.

Comprehensive crop insurance scheme (CCIS)

The comprehensive crop insurance scheme (CCIS) was introduced with effect
from 1st April 1985 by the government of India with the active participation of
state governments. The scheme was optional for the state government. The
scheme was linked to short term crop credit and implemented on ‘homogeneous
area’ approach. It was compulsory for loanee farmers and the coverage was
restricted to a maximum of Rs 10,000 per season. The premium rates were 2%
for cereals and millets and 1% for pulses and oil seeds. 50% of the premium
payable by small/ marginal farmers was subsidized. Centre & states shared
premium & claims in 2:1 ratio. 15 states and 2 UTs implemented the scheme
until kharif 1999 these were:

1. Andhra Pradesh
2. Assam
3. Bihar
4. Goa
5. Gujrat
6. Himachal Pradesh
7. Karnataka
8. Kerala
9. Madhya Pradesh
15.west Bengal
16.Andaman & Nicobar island
18.The states of Rajasthan, Uttar Pradesh, Jammu& Kashmir, Manipur and
Delhi had
19.Initially joined the scheme but subsequently opted out after a few years.

The summary of coverage particulars until its withdrawn (kharif 1999) is

as follows:

Total number of farmers covered : 7, 62, 65,438

Total area covered (hectares) : 12,75,70282
Total sum-insured (Rs. crores) : 24975
Total insurance charges (Rs. crores) : 403.55
Total claim (Rs. Crores) : 2319.10
Claim ratio : 1: 5.75

Majority of the claims were paid in the states of Gujrat- Rs1086 crores (47%),
Andhra Pradesh-Rs 482 crores (21%), maharashtra-Rs 213 crores (9%) and
orissa-Rs 181 crores (8%). Among causes, drough was the chief cause,
acconting for nearly 75% of claims, followed by floods with nearly 20%.

National agriculture insurance scheme (NAIS)

Keeping in mind the demands of states for improving the scope and content of
CCIS a broad- based “national agriculture insurance scheme (NGIS) was
introduce in the country Rabi 1999-2000 season. Besides food crops & oilseeds,
the scheme also covers annual commercial/ horticultural crops. under annual
commercial/ horticultural crops, cotton, sugarcane and potato were covered in
the 1st year; onion, chillies, turmeric & ginger were added in the 2nd year and
jute, tapioca, annual banana & pineapple were included in the 3rd year. The
scheme is based on ‘homogenous are’ approach and is available to all
states/UTs and covers all farmers, loanees on compulsory basis and non-loanees
on voluntary basis.

Status of implementation of NAIS

During Rabi 1999-2000 season, nine states/UTs implemented the scheme, viz.
Assam, goa, Gujrat, himachal Pradesh, kerala, Madhya Pradesh, maharashtra,
orissa and pondicherry. By kharif 2000 season, seven more states/UTs joined
the scheme, viz. Andhra Pradesh, and Bihar, Karnataka, meghalaya, tamilnadu,
Uttar Pradesh, and A&N islands. The newly carved states of chhattisgarh,
jharkhand have joined the scheme from Rabi 2000-01 season, beside west
Bengal. The states of Sikkim and tripura joined the scheme during kharif 2001
and Rabi 2001-02, repectively, taking the number of present implementing
states/ UTs to 21.

Farmers Area(hectares) Sum premium Claims

covered insured
Rabi1999- 5,79,940 7,80,569 35640.71 542.48 769.26
Kharif 84,09,419 129,52,196 690346.74 20650.56 118142.86
Rabi2000- 20,79,109 30,91,884 152510.64 2778.81 4717.48
Kharif 85,66,424 127,61,194 729862.14 25685.36 Claims
2001 under

Horticulture & plantation insurance schemes

The scheme discussed so far are either initiated or actively supported by the
government. But, then there are horticulture insurance schemes which are
implemented by public sector general insurance companies without government
support. These schemes started in the early 1990s. the schemes cover fruits &
plantation crops and floriculture and are covered against fire & allied perils.
Wild animal attack, frost and un-seasonal rains are also covered in some cases.
The sum insured is fixed on the basis of cost of inputs. The crops are covered
for one season or until harvesting from the data of inception. Premium rates
range from 5% for fruit crops and 1.25% to 2% for others.

The major crops covered under the plantation and horticultural crops are
banana, grapes, rubber and sugarcane. During the period from 1993-94 to 1998-
99 the premium collected under horticultural and plantation insurance schemes
amounted to Rs 18.18 crores as against which claims paid was Rs 18.34 crores.

Seed insurance

In order to cover the production and quality losses in seed production, a pilot
scheme on seed crop insurance (PSSCI) was introduced for the first time. Rabi
1999-2000 seasons. The crops covered are paddy, wheat, maize, jowar, ragi,
bajra, soya bean, gram, green gram, black gram, red gram, pea, sunflower,
castor, mustard, groundnut, cotton, jute and potato
The scheme covers breeder, foundation & certified seeds against all non-
preventable natural risk at field stage (failure of seed crop, loss in expected raw
seed yield & loss of seed crop after harvest ) and certification stage
(germination failure). Presently the scheme is implemented in the states of
Andhra Pradesh, Gujarat, Haryana, Karnataka, Madhya Pradesh, maharashtra,
orissa, Punjab, Rajasthan and Uttar Pradesh.
Crop insurance benefits

In all fairness, the CCIS implemented till kharif 1999 season and NAIS, which
is introduce in rabi 1999-2000, replacing CCIS has been a good attempt in the
given circumstances. Though, CCIS was criticized for coverage of fewer crops
and only loanee farmers, there is no denial of the fact that the scheme achieved
to a large extent what many social oriented scheme include:

a) considerable stability of yield in implementing states.

b) Significant pay-off in terms of maintaining production and employment,
corresponding generation of market fees, taxes etc and consequent net
accretion to economic growth.
c) Adoption of improved technology by the farmers, as risks attendant on
advanced production methods and higher investments are being
d) Protection to financial institution that gave crop loans to farmers and
also improved overall recoveries and maintained flow of credit.
e) Strengthened crop cutting machinery and developed a huge database of
crop yields, which is being made use of in macro level planning.

Adequacy and shortcomings of crop insurance

Crop insurance schemes all over the world, more so in developing countries are
dependent on government’s support. This support includes administrative
expenses, subsidy in premium rates and reinsurance facilities for losses beyond
a certain point. The future of crop insurance cannot be viewed in isolation as it
is usually intermingled with other aspects of national policy such as promotion
of agricultural production, stability in supply of agricultural products etc. crop
insurance itself cannot increase productivity or be a source of financing, but it
can play a role in enhancing both. Crop insurance is thus to be regarded as a
“support measure” in which the government play an important role, because of
the benefit it provides not merely to the insured farmers, but to the entire
community directly and indirectly through spillover and multiplier effects.
• Insurance cannot prevent economic loss: at best it can only prevent
financial loss to an individual.
• Too much of reliance on insurance not only discourages entrepreneurial
attitude, but forces one o think that it is a panacea for all the ills in
• Insurance is only one tool in the entire realm of risk management.
• Crop insurance cannot increase productivity and is not a substitute for
effective network of extension services, supply of inputs, provision of
storage and marketing facilities (UNCTAD).
• Crop insurance needs to be considered as only one among the various
alternatives available for reducing the difficulties of the farming

Crop insurance in future

The NAIS is an improved version of CCIS in both scope and content. NAIS
contains many features, which are comparable to some of the well- designed
comprehensive schemes in the world. However, this is not to say that the
scheme has no scope for further improvement. Some of the areas of further
improvements may include:
1. Revenue coverage: it is a sophisticated cover much in demand of late,
the world over. It is presently available in the U.S. market. Its evolution
was preceded by nearly 40 to 50 years of experience with yield
guarantee scheme. Some of the popular revenue covers in the U.S.A are
(a) crop revenue overage-CRC (b) income protection-IP (C) revenue
assurance-RA. Since India has had a sufficiently long experience with
the yield guarantee scheme, next logical step in NAIS is to introduce
revenue coverage.

2. Package policy: package policies have become popular not only in

agriculture insurance, but also in general insurance. There has been a
demand to cover a farmer and all his assets, inputs and agricultural
produce stored etc. Under one policy.

3. Post- harvest losses: there has been a demand, especially from areas
prone to cyclone and floods, however, the demand could be effectively
met when the scheme is implemented on individual basis.

• Objectives of the study

• Source of data collection
• Sample size
• Limitation of study

The methodology section is the blue print for researcher activity and
specifies how the investigator intents to study the “subject matter” In other
words, the methodology section make explicit the study desire and
constitutes the “how to do it” phase.


• To find out various schemes provided by banks in agriculture sector.

• To find out how much part of there activities in covered by agriculture
• To find out the percentage of private and public banks in agriculture.
• To find out there numbers of collect deposits from form agri-people
with the objective of improving their savings habit.
• Organize provision of credit for credit worthy farmers (in private
• Role of NABARD in agricultural sector.


Primary sources
• Information from various banks.
• Discussion with staff members of various banks.
• Questionnaire
Secondary sources
• Manuals of various banks.
• Internet (various related websites)
• Related topics in different journals and magazines.
Various branches of bank in Kota city, dealing in agriculture sector

• Various banks are not dealing in agriculture sector
• Some banks not have there branch of agriculture in Kota city
• Managers of banks not have time to response.
• Limited time for data collection.
• Not able to get response of farmers about bank in agriculture sector
• Problem in data collection.


• Kisan credit card
• Agriculture term loans
• Land development scheme
• Kisan gold card scheme
• Training and consultancy
• Warehousing by banks
Kisan Credit Card

Provision of timely and adequate credit has been one of the major challenges
for banks in India in dispensation of agricultural and rural credit to the farmers.
Constant innovation is required in order to achieve the aim. Agricultural credit
cards are not a new concept in the field of agricultural banking in India. The
scheme had already been introduced in a number of public sector banks in a few
states much earlier. These schemes were niche-marketed and were exclusively
preserved for the privileged class of farmers and the small and marginal farmers
did not have much access to them. Similarly cash credit facilities were being
extended by several public sector banks and cooperative banks to farmers with
the view to improving their access to credit. Again this scheme was used only
selectively. The KCC scheme was started by the Government of India (GOI) in
consultation with the RBI (Reserve Bank of India) and NABARD (National
Bank for Agricultural and Rural Development) 1998-99 to join the features of
both these schemes and to overcome their shortcomings.

The features of the scheme at a glance are:

• Type of revolving cash credit facility with unlimited withdrawals and

• Meet the production credit need, cultivation expenses, and contingency
expenses of the farmers.
• Limits based on the basis of operational land holding, cropping pattern
and scale of finance. This limit is inclusive of 20% of production credit.
• Each withdrawal to be paid within 12 months.
• Card valid for 3 years subject to annual renewals.
• Credit limits can be enhanced depending on performance and needs.
• Rescheduling is also possible depending upon the situation. If for
example the crops fail due to a natural calamity and the farmer is not able
to repay his loan, then he could get an extension of up to four years.
• Cash withdrawals through slips accompanied by card and passbook.

• A credit cum passbook would be issued.

• All branches engaged in agricultural lending could issue Kisan Credit


Borrowers with good track record over the past 2 years would be the prime
customers. New borrowers could also be included if they could get proof of
operational land holding from the Patwari.

Target group

Short-term crop loans required by existing/new borrowers

Selection methodology

The farmer would be evaluated by the bank, on financial grounds by looking at

his past record with the bank, and on personal grounds by looking at his
reputation in the village.

Fixation of credit limit

The credit limit under the card may be fixed on the basis of the operational land
holding, cropping pattern and the scale of finance by the District Level
Technical Committee (DLTC) and SLTC. If the limit has not been fixed by the
DLTC/SLTC or the limit in the opinion of the bank is low, appropriate scale of
finance for the crop may be fixed by the bank.
Validity and repayment schedule

A card once issued would be valid for a period of 3 years. The facility may be
extended, the amount enhanced or cancelled, depending on the performance of
the farmer. Repayments are to be made within 12 months of taking the credit.


• For loan amount up to Rs. 10,000: NIL

• For amount over Rs. 25,000: 15% to 25%


• Loan Amount security to be furnished

• Upto Rs. 10,000 DPN (demand promissory note) / loan agreement is

needed only

• Rs. 10000 and upto Rs. 25,000 Hypothecation of crops is required.

• Above Rs. 25,000 Hypothecation of crops and mortgage of land (or) third
party guarantee is needed


This is subject to change.

Amount of Interest for Repayment period:

Upto one year Exceeding one year

• Upto Rs. 25,000 11 % 11 %

• Above Rs. 25,000-Rs. 2,00,000 12 % 12 %

• Above Rs. 2,00,000-Rs. 25,00,000 13.5% 13.5%

• Rs. 25,00,000 and above

(Depending on Credit Risk Rating) 13.25% to 15.5% 13.25% to 15.5%

By March 20, 2001, around 1,32,44,397 cards had been issued by agencies all
over the country, with the amount sanctioned close to Rs. 24615.17 crore.
Contributions of cooperative banks, RRB’s and commercial banks have been
67.35%, 5.7%, and 27% respectively.


Agricultural term loans are provided for the purchase of assets (farm machinery
Bullocks , sheep etc. / creation of assets (orchard development,poultry,dairy
development etc.) connected with rural activities under agriculture,horticulture,
plantation, sericulture, animal husbandry,fisheries etc., where the loan amount
is repayable over a period of time exceeding 3 years.

Who are eligible for Term Loans

All categories of farmers and agricultural labourers are eligible.

Loan amount
Upto Rs.50,000/- 100 % of the cost of the asset / project cost is provided as
loan. Above Rs.50,000/- upto 85 % of the cost of the asset/project is given as

Documents you need to provide

For activities like purchase of bullocks etc there is no need for any documents.
For larger amounts of loan,estimate/quotation/project report will be called for .
For land based activities you need to produce the land records . For loans above
Rs. 25,000 no dues certificate from the banks operating in the area will be
Disbursement of loans
Generally disbursements are made directly to the suppliers as per the schedule
set in your proposal.

Amount of Loan Security to be furnished

A. Where movable assets are
not created(eg.Dugwells,development
of land etc.

a) Upto Rs. 10,000/-

a) Personal Guarantee

b) Above Rs.10,000/-
b)i. Personal Guarantee
ii Mortgage of land

B. Where movable assets are created (pumpset,

pipeline etc.)

a) Upto Rs.50,000/- a) Hypothecation of the asset


b) Above Rs.50,000/- to Rs. 1 lac b) i. Hypothecation of the

assets created
ii. Mortgage of land or third
party guarantee
c) Above Rs. 1 lac c) i. Hypothecation of the
assets created
ii. Mortgage of land

How do you Repay

Repayment is linked to the income generation of the activity undertaken and
varies from 5 to 15 years.


Credit solutions for land development projects in the form of direct finance to
cultivators for better productivity.
Loans under this head cover various activities like land clearance(removal
bushes, trees, etc.), land leveling and shaping, contour/graded bunding,bench
terracing for hilly areas, contour stone walls, staggered contour
trenches,disposal drains, reclamation of saline/alkaline soils and fencing etc.

Who are eligible for Term Loans Security to be furnished

All farmers owning agricultural land are eligible.

Loan amount
Upto Rs. 50,000/- 100 % of the cost of the asset /
project cost is provided as loan. Above Rs.
50,000/- upto 85 % of the cost of the asset /
project is given as loan.

Documents you need to provide

You have to submit a report on the estimated
cost, supported by estimates of a civil engineer.
Amount of Loan
a) Upto Rs. 10,000/- a) Personal Guarantee

b) Above Rs.10,000/- & upto Rs. 1 lac b)i. Personal Guarantee

ii Mortgage of land or third

party guarantee at the
discretion of the Bank

c) Above Rs. 1 lac-

c) i. Hypothecation of the
assets created if any.

ii. Mortgage of land

How do you Repay

Repayment of loan will be in quarterly/half yearly / yearly instalments
depending on the harvest of the crops or the liquidity created by the agriculture
activity undertaken.

To sanction hassle free term loans to farmers having excellent repayment
record. Investment credit for which term loans are ordinarily sanctioned are
covered. Consumption loan to meet domestic expenses like children's
education, marriage, medical expenses etc. are also be included to the extent of
20 % of limit.

Who are eligible for Term Loans

Farmers with excellent repayment record for at least past 2 years. New farmers
with sizeable deposits with our branches for 3 to 4 years. Good borrowers with
other Banks. Farmers who have defaulted in repayment but have liquidated the
outstandings. Farmers who have closed accounts without any default in the last
three years but are not our current borrowers.

Loan amount
Loan amount is fixed on the basis of 5 times annual farm income or 50% of the
value of the land mortgaged as collateral security minus term loan outstandings
whichever is more subject to a maximum of Rs.5 lacs.

Documents you need to provide

Land records other than that is already given to the Bank viz. like record of
rights / encumbrance if required.

Amount of Loan Security to be furnished

A. Where movable assets are not created (eg.
Dugwells,development of land etc.)

a) Upto Rs. 10,000/-

b) Above Rs.10,000/- a) Personal Guarantee

b)i. Personal Guarantee

B. Where movable assets are created ii Mortgage of land
(pumpset, pipeline etc.)

a) Upto Rs.50,000/-

a) Hypothecation of the assets

b) Above Rs.50,000/- to Rs. 1 lac

b) i. Hypothecation of the assets

ii. Mortgage of land / other
property or third party guarantee

c) Above Rs. 1 lac

c) i. Hypothecation of the assets
ii. Mortgage of land or other

How do you Repay

Repayment of loan will be in quarterly/half yearly / yearly instalments
depending on the harvest of the crops or the liquidity created by the agriculture
activity undertaken.


The ratio of extension worker:farmers is very less i.e., 1:1000. in this case, it is
very difficult for the government to provide timely information to farmers. It is
praiseworthy that many banks have volunteered to train their officers regarding
farm practices, which in turn help farmers. For example, SBI Rural
Development, Hyderabad. Other banks which are Canara Bank and Indian
Overseas Bank (IOB).IBO provides consultancy services for agro-entrepreneurs
and Canara Bank provides consultancy for high value project like medicinal
plant farming.


Vegetables, fruits and flowers are perishable in nature and these need the best
environment, so that their life can be increased. To make these perishable goods
available throughout the year, it is important to have the required environment.
To cater to such needs, banks like Rabo Bank(India) Limited and National
Housing Bank are actively involved in financing the construction of cold
storage. National Housing Bank has financed such projects mostly in Tamil


The government of India has formulated a scheme to help agriculture graduates

establish “agri-clinics” to provide assistance to farmers regarding soil testing,
post harvest management and technology. NABARD has come forward in this
regard and will facilitate bank credit on priority sector lending terms. NABARD
acts as the facilitator in providing the loans based on the appraisal of the
projects the loan based on the appraisal of the projects. The loan amount varies
from Rs. 5 lakhs (incase of individual) to Rs. 50 lakhs (in case of group
projects) AS per RBI guidelines, there will not be any collateral security on the
loan amount of Rs. 5 lakhs.

Several banks, like Indian Bank, have come up with a scheme to provide loans
for establishing agri-clinics and agribusiness centers. The loan amount varies
from the interest rate of 9.5% to 11%. However, the rate of interest is so hige
that it makes farmers think twice before availing the loan facility. This high rate
of interest must be reduced. However, the agri-clinic model attempts to involve
agriculture graduates and it is a win- win situation for everyone: the
government of India, the agriculture graduates and the farmers.


Schemes→ Kisan Kisan insurance Artisan Micro Kisan Land & Agri-
banks credit credit credit financing club infrastructure clinic
↓ card card card to SHGs
Bank of # # X # X X X X
Allah bad # X X X # X X X
Oriental # X X # # X # X
bank of
NABARD # # # # # # # #
State bank # # X # X X # X
of India
bank of # X # X X X # #
ICICI # X # X # X X X
Dana bank # X # X # X X X
H.S.G # # # # # # # #

# Banks having that scheme

X Banks not having that scheme

 Private Banks is in agriculture sector but they are not providing all the
schemes to farmers as compare to rural bank.

 Kisan credit card (KCC) is provided by all the banks.

 Farmers are not aware about those private banks are also dealing in
agriculture sector.

 Short-term schemes of loans are generally liked by farmers.

 Farmers till have the hesitation to take a loan from banks because of
complexity of paper work they use to take loan from local money

 Banks like NABARD they are taking help of village panchayat to create

 Privet banks are not organizing any kind of kisan loan male and kisan
gatherings to create awareness in rural sector.
 Farmers come for loan in the time of may to June and October to

 Interest rate on loan various from 10% to 12%

 Some schemes like kisan club and agri-clinic are not developed till yet.

 When we visit the internet site of NABARD all information are available
in Hindi also but information of ICICI, state bank of India, bank of
Baroda etc. are available on English only.



HDFC bank and national agriculture cooperative marketing federation of India

ltd. (NAFED) have entered into an agreement to provide finance to
cooperatives associated with the Agri Marketing Federation. The scheme will
be formally launched during the Rabi season of the current year 2005-06. in this
case, HDFC bank will provide loan while NAFED will act as a facilitator.
Under the funding scheme, immediate financing to the extent of a maximum of
70% of the requirement will be extended to the farmers against the deposit of
agriculture stock.


On February 10,2005, the government of India announced the setting up of the

national spot exchange for agriculture produce (NSEAP) which will link all agri
produce marketing committees with consumers and producers. The electronic
exchange will enable agro-based industries to sell farm produce more
effectively. This will help farmers sell their produce at better rates and directly
to corporate.


At present, Cargill India is engaged in the procurement, processing and storage
of wheat in Uttar Pradesh, soyabean in Madhya Pradesh and mustard in
Rajasthan. Cargill India is spread in northern India through its network of
franchisees. Cargill India has tied up with SBI, whereby SBI will finance its
franchisee, agri- clinic and agri-business centers of Cargill. SBI will also
finance farmers against warehouse receipts and farmers who are under contract
farming. The MOU between Cargill India and SBI will applicable to cover the
entire operational area of the Delhi circle- Rajasthan, western Uttar Pradesh ,
Uttaranchal and three districts of Haryana


According to the confederation of Indian industry agriculture suffers mainly

because of expensive credit, a distorted market, intermediaries (who increase
cost rather than add value), and poor infrastructure. It has also suffered because
of poor irrigation facilities, use of traditional technology and practices, farmer’s
poor economic status. Banks should consider these facts to invest more in
infrastructure facilities like irrigation facilities, processing storage and
marketing activities. Such agricultural infrastructure can be improved by banks,
as there are ample prospects for banks to invest in the above activities.

The need of hour is to leverage the existing resources and make banks more
participative through policy implementation and create a conductive
environment so that the agriculture sector can be cared for like any other sector.
Even the existing and conductive policies are enough if they are properly
implemented. Both private and public sector are contributing to agriculture in a
big way. However, there are many things that have to be implemented,
especially financing aspects.

 There is a possibility for private banks to expend there business in

agriculture sector.

 Need to create awareness among farmers towards banks for taking

finance inspire taking loan from local money lenders.

 Banks should try to increase in the number of branches in rural area.

 Short-term schemes are liked by farmers so new schemes should

introduce by banks.

 Financing to SHGs will help to improve in the condition of farmers.

 Help of village panchayat and organizing kisan loan male and kisan
gathering will improve the awareness towards banking structure in
rural people.
 New modules of banking like marketing, consultancy and agri-clinic
should have to introduce by banks to provide help regarding there
crops to farmers.

 Information provided by banks on internet regarding schemes should

be provided in Hindi also.

 The key is information, if farmers can be educated about the loan

facility available with banks, agriculture credit will pick up.

 If middlemen are removed, farmers can have no objection to

borrowing at 10 to 11 percent special attention must be paid towards
implementation of schemes for this sector.

 Personnel should be selected carefully to drive the rural credit

scheme. The kisan credit cards are a scheme that has met with success
in the past few years. More such schemes will help banks improve
credit, particularly in the farm sector it is an area that must be tapped.

 Need to provide capital inflow and assured markets for crop


 Setting up of agri processing units and creation of off- farm

employment in rural areas.

 Private sector investments in agricultural will also like agricultural

research, human resource development and marketing.

 Introduction of call centers for farmers will help farmers to solve there
various problems.
Name :

Bank :

Designation :

Q1 Are you dealing in agriculture sector?


Q2 What type of schemes provided by your bank in this sector?

(a) Insurance (b) loan (c) Kisan credit card

(d) Micro financing (e) Consultancy (f) All of the above

Q3 How much percentage of your whole activity covered by this


(a) Below 30% (b) 30%-60%

(c) 60%-90% (d) 90% above

Q4 What is the reason behind the change of perception

regarding agriculture scheme?

(a) Education (b) Awareness

(c) Advertisement (d) Any other

Q5 Which schemes are generally liked by the farmers and the

rural people?

(a) Short-term (b) mid-term (c) long term

Q6 Do the rural people/farmers have the hesitation for banking



If yes, what may be the reason for that?

(a) Illiteracy (b) unawareness

(c) Reliability on village money lenders (d) complexity of

Paper work

Q7 How do you promote your schemes and awareness to the


(a) Through radio (b) T.V.

(c) News papers (d) village panchayat

Q8 Do you organize any sort of kisan loan mela and other

Kisan gatherings for promoting your schemes?

Q9 Do you think post office deposit schemes are more popular
among farmers?


Q10 What is the time of the year when farmers come for lones?

Q11 Do you feel any competition with NABARD or any other

Pvt. bank?


Q12 Your future plans for development in agriculture sector?

Q13 Your banks policies and schemes for farmers?

Q14 Interest rate for lone of your bank is ----------

Q15 Do panchayat play any role in your banking?


Q16 Do you issue kisan credit card for farmers?

Yes/ No

Q17 From how many years you are in agriculture sector?




The ICFAI University book, Indian banking system- the changing scence
By board of editors, p.1-15

Kothari, C.R, “Research Methodology” Methods and Techniques, New Age

International Publishers, New Delhi, Second Edition


VISION-The journal of business prospective ANMDI publication, july-

december 2002

VIKALPA-The journal for decision makers, IIM, april- june 2005

ANNUAL REPORT of Punjab National Bank, 2004-2005