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Overdues in Agriculture


the small and marginal farmers whose repaying capacity is obviously low is indeed a formidable task in India. The institutional agencies like the co-operatives are required to face this challenge if they have to prove their worth. Since many years the cooperatives for financing agriculture in India have been facing the problem of overdues. Besides they have not successfully accomplished the task of linking credit with marketing. The problem of overdues in the co-operative credit sector is the result of a variety of causes some of which may be attributed to the structural constraints which Indian agriculture is experiencing.

Causes and impacts
Causes :
Rapid Expansion and Diversification. The fast increase of commercial banks has created strains in the system. Due to this there has been deterioration in quality of scheme preparation. Decreasing quality of lending is also due to heavy workload of day to day house keeping without increase in supporting staff. Large no. of small advances. The commercial banks have found sanctioning and monitoring of large no. of small advances in their rural branches, time consuming and manpower intensive and high cost proposition. Because of this banks have been found reluctant in posting sufficient supervisory and other staff in rural branches. Reduction of margin available. Opening large no. of branches in rural area which do not have adequate business potential, raise in establishment expenses, increasing nonperforming advances affected profitability of banks adversely reducing margin available to company. Bad recovery position. The recovery position of banks is bad. The level of Overdues has been 30% or even more. Therefore banking system is unable to provide more credit to meet the growing needs of the farmers. Multi-alternative credit system.

Commercial bank failed to serve those areas which are not covered by Co-operatives.5% of total institutional credit to agriculture.58% to 0. The central government and state govt. Thus there is multiagency control. The intention of having new banks that there should be an device which combined the local feel and familiarity with the rural problems which the cooperatives possessed and he degree of business organization and modernized look which commercial banks have. Rural credit deposit ratio has declined from 1. The growth rate of direct finance to small farmers is declined from 15.8. Evaluation: Organizational Problem. RRBs provided 15. . rural India is financing the other sectors of the economy. This has contributed to .0%. Each RRB is sponsored by Commercial bank. Loan disbursal to small and marginal farmers has decelerated sharply in the 90s. The staff of RRBs was to be recruited from the neighboring area and such would have a better understanding of local problems and local people their needs and their constraints. The option of investing in rural infrastructure fund and in SIDBI has reduced rate of growth of direct finance to small farmers. The rural poor needed low cost low profile institution into which they should walk freely. They tend to serve those areas which are served by cooperatives.223 crore as credit to Agriculture sector. States with deficient rural credit system have not benefitted much. In other words. also contribute to its capital. The real need was to make available only one alternative source of credit whereas in reality the multiagency system has tended to become multi alternative credit system. Also the rural credit is to be provided at lower cost.73% which shows that deposits mobilized from rural India to elsewhere.1% to 11. Reduction of loan to small farmers. It is important indicator of degree of involvement of banks in lending. Decline in credit deposit ratio. The working group on rural banks recommended establishment of Regional Rural Banks to supplement the efforts of the commercial banks and cooperatives in extending their credit to weaker sections of rural community.

This is indeed unsustainable situation. of official members does not show much interest in the working of banks. Also lack of proper monitoring of by sponsor bank. Infuse fresh capital in them. Meeting of board of directors are not held regularly and large no. Non availability of competent staff. Placing RRBs at par with commercial banks. Low margins coupled with high cost of service. There recovery varied between 51% to 61%. Since RRBs are district level small institution. Thus Overdues varied from 39% to 49%. and improve their viability. Problems of recovery Recovery position of RRBs is bad. Such staff finds it difficult to take decision in new environment. willful default etc. Allowance to target only 40% to advances to priority sector. Mounting losses leading to Non-Viability. the sponsor banks have been deputing only middle management staff to run them. apathy towards recovering. Management Problems. RRBs serve those sections where the interest earned is lowest. Reforms To solve problems of RRBs. Organizational problems compounded by unplanned and unwieldy growth of banks and branches opened under pressure from Govt. specific area of operation. lack of proper system and procedures within banks.lack of conformity of its functions. political interference. lack of adequate staff. Many had completely wiped out there equity and reserves. efforts have been made in recent years such as v v v v v Efforts have been made to restructure the operations of RRBs. Reduction of RRBs from 196 to 96 to get advantage of economies of scale. Greater flexibility in their operations. Opening of too much RRBs added high overhead costs without increase in income. This is due to defective loaning policy. 150 out of 196 RRBs had shown losses in 2005-06. Impact : . Multiagency control creates many problems.