DESIGN OF THE STUDY FOR MAJOR PROJECT WORK

IMPACT OF FINANCIAL INCLUSION IN AGRICULTURE IN

PALAKKAD DISTRICT
INTRODUCTION
Access to finance by the poor and vulnerable groups is a prerequisite for
employment generation, economic growth, poverty reduction and social cohesion. It will
empower the marginalized groups by giving them an opportunity to have a bank account,
to save and invest, to insure their homes or to partake credit, thereby facilitating them to
break the chain of poverty. A well functioning financial system empowers individuals,
facilitates better integration with the economy, actively contributes to development and
affords protection against economic shocks. Till 1960s, Indian banks were more
conservative and inward looking, concerned with their profits and banking services were
greatly used by a segment of the people. Class banking was prevalent during those days
as majority of the banks were private commercial banks, local oriented and primarily
serving the business community. Further banks had limited range of activities,
competition did not exist and basically concentrated on selling their loans to those who
are financially sound and are capable of providing security for their borrowings.

However, after the nationalization of 14 major commercial banks in 1969,

Indian banks woke up from their isolation, and evaluated the rapidly changing
environment. The slogan during the bank nationalization was ‘transformation from class
banking to mass banking’. Social control and nationalization has brought about
revolutionary changes in the approach of banks and a plethora of schemes were
introduced to bring the rural masses under the service umbrella of banks. The massive
branch expansion, priority sector credit, purposive lending, district credit plans, service
area approach etc were all made possible under public ownership of banks.
 Inspite of the efforts taken by the Government and Reserve Bank of India, a sizeable
majority of the population, particularly vulnerable groups, continue to remain excluded
from the opportunities and services provided by the financial sector. The Financial
exclusion is the lack of access by certain consumers to appropriate, low cost, fair and safe
financial products and services from mainstream providers. It is of more concern in the
community when it applies to lower income consumers and/or those in financial
hardship. In the absence of finance, people who are not connected with formal financial
system lack opportunities to grow, the country's growth retard, business loss to banks ,
loss of opportunities to thrift and borrow and employment barriers. The main reason for
financial exclusion is the lack of a regular or substantial income to the households and in
most of the cases people with low income do not qualify for a loan.

The proximity of the financial service is another constraint and most of the
financially excluded consumers are not aware of the bank’s products, which are
beneficial for them and they find that getting money from a local money lender is easier
than getting a loan from the bank. Further most of the banks insist on collateral for their
loans, which is very difficult for a low income individual to provide security for a bank
loan. Moreover, banks in their urge to maximize profit give more importance to meeting
their financial targets and hence they focus on larger accounts. With a view to correct this
situation and extend the reach of the financial sector to such groups by minimizing the
barriers to access as encountered by them, on 22 nd June 2006 the Government of India
constituted a “Committee on Financial Inclusion” headed by Dr. C. Rangarajan,
Chairman, Economic Advisory Council to the Prime Minister. The objective of this
committee was to suggest a strategy to extend financial services to small and marginal
farmers and other vulnerable groups, including measures to streamline and simplify
procedures, reduce transaction costs and make the operations transparent and to look into
the issues involved and suggest measures for bringing the excluded population into the
ambit of financial system.
 Financial inclusion may be defined as “the process of ensuring access to financial
services and timely and adequate credit where needed by vulnerable groups such as
weaker sections and low income groups at an affordable cost”. The financial services
include the entire gamut - savings, loans, insurance, credit, payments etc and the essence
of financial inclusion is in trying to ensure that a range of appropriate financial services is
available to every individual and enabling them to understand and access those services.
Apart from the regular form of financial intermediation, it may include a basic no frills
banking account for making and receiving payments, a savings product suited to the
pattern of cash flows of a poor household, money transfer facilities, small loans and
overdrafts for productive, personal and other purposes, insurance (life and non-life), etc.
Inclusive finance is expected to remove poverty from the Indian context, everybody gets
an opportunity to access formal financial services, provide banking related financial
transactions in an easy and speedy way and safe savings along with financial services. 

STATEMENT OF THE PROBLEM

Recognising the importance of agriculture sector in India’s development, the
Government and the Reserve Bank of India (RBI) have played a vital role in creating a
broad-based institutional framework for catering to the increasing credit requirements to
this sector. NSSO (National Sample Survey Organization) data reveal that 45.9 million
farmer households in the country (51.4%), out of a total of 89.3 million households do
not access credit, either from institutional or no institutional sources. Further, despite the
vast network of bank branches, only 27% of total farm households are indebted to formal
sources (of which one-third also borrow from informal sources). Nevertheless, data do
show that there is exclusion and that poorer sections of the society have not been able to
access adequately financial services from the organized financial system. There is an
imperative need to modify the credit and financial services delivery system to achieve
greater inclusion.
Financial inclusion brings several reforms in agriculture and allied sectors, as it
provides business opportunity for the financial institutions at the bottom of the pyramid
to expand the volume of business, and profitability can be increased by finding newer
avenues for deployment of funds. It leads to economic and social empowerment of poor
and low income people, leading to overall development of the households, villages, states
and finally the nation.

The commercial banks are slowly coming to appreciate the business potential
in financial inclusion and also the need for better involvement. The commercial banks
have been cognizant of their social responsibility in regard to small farmers, their focus
on marginal and sub marginal farmers, tenants, share croppers, oral lessees and non-
cultivator households, viz., the very poor and disadvantaged sectors. The implementation
of the recommendations made by “Committee on Financial Inclusion” could go a long
way to modify particularly the credit delivery system of the banks and other related
institutions to meet the credit requirements of marginal and sub-marginal farmers in the
rural areas in a fuller measure. The need of credit to be supplemented by efforts to
improve the productivity of small and marginal farmers and other entrepreneurs so that
the credit made available can be productively employed. While banks and other financial
institutions can also take some efforts on their own to improve the absorptive capacity of
the clients, it is equally important for Government at various levels to initiate actions to
enhance the earnings capacity of the poorer sections of the society. The two together can
bring about the desired change of greater inclusion quickly.
Dhanlaxmi Bank Limited is an 81 years old private sector bank with great focus
on rural sector funding incorporated in November 1927 at its corporate headquarter in
Thrissur, Kerala, with the mission of becoming a strong and innovative bank with
integrity and social responsibility and to maximize customer satisfaction and the
satisfaction of its employees, shareholders and the community. In the year 1977; bank
achieved a status of the Scheduled Commercial Bank, besides, on 28 th September 2009, it
received an award for the best bank in the private sector.
With a view to addressing the issue of financial inclusion the bank focus attention
on the requirement of each segment of society and from time to time the bank has taken
several initiatives which comprises of providing credit, counseling services in rural and
urban areas, SHG workshops are conducted in association with NGOs to address the
issue of financial inclusion for empowerment of women folk, Zero balance, no frill SB
accounts viz. Dhanam Simple are targeted at the common folk. The Bank’s agriculture
portfolio (retail) covers crop loans, farm equipments loans, commodity finance, working
capital loans to traders, microfinance and jewel loans. On this context the present study
examine the role of Dhanlaxmi Bank in promoting financial inclusion and to review the
progress of the scheme. On this background the present study will analyze the impact of
financial inclusion activities in Palakkad district of Kerala state.

OBJECTIVES OF THE STUDY

The study has the following specific objectives:

 To study the extent of financial inclusion by the sample banks and

 To analyze the impact of financial inclusion among the sample respondents

SCOPE AND SIGNIFICANCE OF THE STUDY

The study will examine the recent financial inclusion drives in Palakkad district, in
order to assess to what extent the goals of this drive have been fulfilled. It is expected to
bring out the relevance of rural lending and to analyze the performance of financial
products in agriculture and allied sector. It facilitates to understand, the farmer’s behavior
towards the Kisan Credit Card scheme, DIR, “No Frills account” holders and the role of
SHG (Self Help Group) in agricultural lending, implemented by the Dhanlaxmi Bank. It
may be of much help in framing the future plan in related areas and highlights the
rigorous impact evaluation of the drive for financial inclusion.

METHODOLOGY

The study will cover Palakkad District was deliberately selected for the study because
it is one of the district was identified by SLBC Trivandrum, to implement the “pilot
project on 100 per cent financial inclusion” by opening `no frills' account or zero balance
accounts especially for the poor. The district has covered 100% of households by 30 th
September 2006 and to become the first district in the country to have achieved 100%
financial inclusion.
Palakkad District is one of the agricultural oriented area to the state and accounts
for about 38% of paddy area and about 34% of the rice production in the state and is
considered to be the “Granary” of the state. Out of total of 845181 workers 348299 i.e.
41% are agricultural labourers, so it is relevant to study the impact of the financial
inclusion on agriculture in Palakkad district.
In accordance with the number of branches in rural areas of Palakkad district
Dhanlaxmi Bank holds first position by establishing 14 branches among the all private
sector banks. Banking Statistics of Palakkad District as on 31-03-2010 reveals that
Dhanlaxmi Bank is in the first position by providing 66% to the total advances in the
Priority Sector lending. Data of five consecutive years (2006-2010) shows that
Dhanlaxmi bank has dominant position in priority sector lending. Also bank opened
19326 A/Cs in agricultural advances with 137% of target achievement in agricultural
lending. Dhanlaxmi bank dominates other private sector banks in the formation of Self
Help Group and issuing of kisan credit card. They are at 1 st position and 2nd position
respectively. During the campaign of 100% financial inclusion, the Dhanlaxmi Bank has
achieved 57593 new accounts out of 67 wards in the district.

SAMPLE TECHNIQUES
Both primary and secondary data were required for the study. The primary data
will collected from records of bank, selected SHG and farmers with the help of a pre-
tested structured interview schedule. Based on the distributing branches 3 blocks have
selected and 5 branches identified, 20 respondents from each branch including SHG
members, KCC and DIR and new No Frills account holders will selected for the study. It
will analyze behavior of farmers towards the Kisan Credit Card scheme and agricultural
credit through Self Help Group. Secondary data were collected from, published reports
and websites. The collected data were analyzed using appropriate statistical tools and
techniques.

LIMITATIONS OF THE STUDY

Owing to time constraint, a large sample couldn’t be selected for the study. The small
sample size, limited geographical location and personal bias of the respondents will be
affecting the validity of the generalizations.

OBSERVATIONS BASED ON

 Duration of a/c
 Frequency of transactions
 Savings/deposit level
 Loans utilized
 Other serviced advanced
 Awareness about services and bank product
 Changes in the perception/attitude of customers