On the basis

of time On the basis of

purpose
Short term Medium Long term
credit term credit credit
 Short term period
 Time period 15 months
 Purpose : purchase of seed, fertilizers, pesticides,
folder, wages of labour, land revenue
 Medium term period
 Time period 15 months to 5 years.
 Purpose : purchase of cattle and small agriculture
implements, repair and maintenance of farm
equipments, wells ..
 Long term credit
 Time period beyond 5 years
 Purpose : improvements on land, digging of tube
wells, buying additional land, tractors, repayments of
old debt.
productive consumption unproductive
 Credit require for purchase of fertilizers, pesticides,
farm equipment, digging and repairs of the wells,
permanent improvements in land, marketing of
agricultural product etc.
 These is a long interval between the sowing of seeds & marketing
of agricultural produce and most of the farmers do not have
sufficient income or saving to sustain themselves during this
period.

 In the event of crop failure due to floods or famines,

 Credit for unproductive purposes

 Social and religious functions, such as marriages, social
ceremonies on the birth or death of a family member, religious
functions etc.
 Private
Agencies

Institutional Government
Agencies Finance
 These agencies include professional money lenders,
agriculturist money lenders, shroffs, traders etc.
 The share of these agencies in total credit was
1951-52 84%
1960-61 78%
1970-71 70%
At present 35 to 40%
 Personal contacts often having hereditary relations
with the borrowers
 Simple, easy and elastic procedure of doing business
 Advancing of loans even without security
 Availability of credit even for unproductive purpose
like social and religious ceremonies.
 Very high rate of interest
 The farmer is under constant obligation to sell his
produce to the money lender for which he gets a very
low price.
 The money lender hardly gives any receipt for the
money received
 Accounts are not maintained properly
 The government loans are known as Taccavi loans.
 It is given for long period as also for short and medium
period.
 Under the land improvement Act of 1883, gov. gives long
term loans to farmers .
 Long term loans are given against the security of land.
 Time period of loan is 25 years.
 Gov. sanctions loans of these kinds to farmers in times of
natural calamities.
 Contribution of gov finance in 1951-52 3.3
1961-62 2.6
1970-71 3.3
 The procedure is very complicated for illiterate villages
farmers.
 Loans are given for specific purposes and against
securities. Only rich farmers could avail of them.
 Red-tapism and corruption also make this loan costly
and unattractive to farmers.
 The recovery of loans is also very harsh.
 Co-operative institutions
 Nationalised bank
 RBI
 Regional Rural Bank
 National bank for Agriculture and Rural Development
(NABARD)
 Cooperative credit institutions, by far, have been the most
important and oldest agencies working in the sphere of
agriculture finance since 1904 and in the recent years,
there has been substantial increase in their role in
providing farm finance.

 According to the All India Rural Credit Survey report

in1954, cooperative credit accounted for just 3.1% of the
total rural credit requirements in 1951-52, and it was this
meager (limited / insufficient) , share which led the
survey report to observe categorically that ‘cooperation
India has failed, but it must succeed,’
 Report also added that there was no suitable
alternative to cooperative credit society in the rural
areas of the country to meet the credit requirements
of a large section of the farming population.
 The report, therefore, had recommended an
‘integrated scheme of rural credit,’ included the
following :
i. State partnership in the cooperative credit
institutions at various levels
ii. Integration of credit with non-credit activities.
iii. Provision of cooperative training and education.
iv. Setting up of a State-sponsored and State-
controlled bank to provide banking and credit
facilities in rural areas.
 The Government had accepted most of the
recommendations and it appointed another committee
known as All Indian Rural Credit Review Committee in
1966, which submitted its report in July 1969.

 The committee had recommended the setting up of

certain special agencies like the Agricultural Credit
Board, Small Farmers’ Development Agencies (SFDA),
Rural Electrification Corporation (REC) etc.

 It had also recommended measures to increase the

resources of the primary credit societies, non-insistence
of land as security for credit, payment of part of the
credit sanctioned in kind, simplification of procedure,
measures to reduce over dues etc.
 And as a result, the relative share of cooperative credit
institutions in the agriculture finance had increased to
15.5% in 1960-61 to 405 in 2005-06.
 The end of March 2012,
 93,413 Primary Agriculture Credit Societies,
 370 District Central Cooperatives Banks,
 31 State Cooperatives Banks for providing short-term
and medium-term credit
 20 State Cooperatives Agriculture and Rural
Development Banks
 697 Primary Cooperatives Agriculture and Rural
Development Banks for providing long-term credit .
 Total agricultural credit (short-term, medium-term
and large-term)providing by the different
Cooperatives credit institutions was about
 1991-92, Rs. 5,800 crores
 2006-07, Rs. 42,480 crores
 March 2009 Rs. 2,46,555
Co-operative credit 20%
agencies
Commercial bank 70%

Regional bank 10%

 In recent years the share capital of the National bank
of Agriculture and Rural Development (NABARD) is
the apex institution in the sphere of rural credit has
been substantially increased.
 Since 1994 the RBI has deregulated the rate of interest
for cooperatives for cooperatives for leading
(minimum 12%) and raising deposits.
 Since 1995-96 Rural Infrastructural Development
Board has been set up with the NABARD for the
promotion of infrastructural facilities in rural areas
like roads, power, irrigation etc.
 Cooperative credit institutions in our country
comprise of primary cooperative credit societies
cooperative banks –working at the district and state
level and land development
 State
cooperative
banks [apex]

Central
cooperative banks
[district level]
Primary agriculture credit
societies
[a village or a cluster of
villages]
1)Inadequate ( insufficient) Credit :
 Inspite of a substantial expansion of cooperative
credit, it still falls far short of the ever growing
requirements of agricultural sector.
 At present is estimated at about 38% of the total
farm credit requirements. This implies a
predominant role of the private agencies in the field
of agricultural credit.
 A lot more still needs to be done by the cooperative
agencies in this direction.
 It has been found that the main beneficiaries of the cooperative credit have

been, by and large, the rich farmers, while on the other hand, the small and
marginal farmers have not derived adequate benefits.

 Ex. Recent estimates, farmers with less than two hectares of land account

about 33% of the total credit (loan) advanced by the primary credit societies
while the owners of more than two hectares of land received 65.4%.

 The main reason for such a state of affairs is that the criterion of credit

worthiness is mainly the farmer’s tangible security in one form or the other
which the small and poor farmers cannot offer in adequate measure.
 To remove this, the following suggestions may be
offered :
a) Extension of the crop loan system.
b) Criteria for advancing loans should be “production-
oriented” rather than “security-oriented”.
c) Apart from credit, the cooperative institutions
should also arrange for the supply of improved
agricultural inputs like better quality of seeds,
fertilizers, pesticides, farm equipment etc.
 It has been observed that in the absence of any effective
arrangement for the supervision as to the use of credit,
there has been a diversion of credit from productive
purposes to unproductive purposes.
 It has been estimated that about 20% of the short-term
loans and 30% of the medium term loans are diverted to
other uses than productive ones.
 Therefore essential that suitable means have to be devised
for an effective supervision of the end-use of the credit
provided by the cooperative institutions.
 For this, it has been suggested that:
a) The amount of loan sanctioned should be released in
installment.
b) Part of the loan may be given in the form of inputs
like seeds, fertilizers, pesticides, small farm
equipments etc.
 This is the major problem of all the cooperative credit
institutions and has been inhibiting the growth of
credit expansion and the economic viability of the
lending institutions.
 The waving of agricultural loans in 1990 severely
worsened the problem of recovery.
 At the end of June 2012, the percentage of overdues to
demand was estimated at about 40%.
 A high percentage of overdues implies locking up of
huge loanable funds which ultimately tends to weaken
the lending capacity of these institutions.
 It has been found that the proportion of the borrowed
funds in the structure of cooperative credit institutions
is fairly high
 About 50% of the funds of these institutions in some
cases more than that come from borrowing from
NABARD, State Governments and other agencies.
 In other words cooperative structure is more
dependent on ‘borrowed resources’ than its ‘owned
funds’ like share capital and reserve funds. This is not
consistent with the basic principles of cooperation.
 There has been considerable regional disparities in
the growth and development of cooperative credit
institutions in India.
 The progress of these institutions is confined mainly
to a few states like Gujarat, Maharashtra, Punjab,
Andhra Pradesh, Karnakataka, Tamilnadu etc. which
account for about 60% of the total short term and
medium term advances.
 Cooperative credit institutions have made little
progress in states like Utter Pradesh, MP, Bihar,
Orissa, Assam and other eastern parts of the country.
 There appears to be a lack of coordination between the
activities of cooperative credit institutions and other
institutional financial agencies engaged in the same
task with the result that many a times there is
unnecessary duplication and over lapping of work.
 Ex.
a) Non-performing assets of the state co-operative
banks were of the order of Rs. 5,700 crores which
were 8.9% of their advances.
b) The non-performing assets of district central co-
operative banks were Rs. 15,300 crores which were
11.6% of their advances.
c) The non-performing assets of the state co-operative
agriculture and rural development banks and
primary co-operative agriculture and rural
development banks were of the order of 34.3% and
41.7% respectively of their advances.
 For ex. As at the end of March 2011:
a) One out of thirty one state co-operative banks were
running in losses.
b) 52 out of 370 district central co-operative banks had
incurred losses.
c) 38,065 out of 93,413 primary agriculture credit co-
operative societies were running in losses.
d) 368 out of 697 primary co-operative credit and rural
development banks had incurred losses.
 Primary co-operative agricultural credit societies are
an important link in the entire co-operative credit
structure in providing short-term credit.
 Many of these societies are too small in size to become
economically viable.
 Some of the societies have been found to be dormant
and defunct.
 In recent years, a large scale politicisation of the
cooperative credit institutions.
 There appears to be a domination of one political party
or the other in running the affairs of these institutions.
 many a time, it so happens that to avail of the loan
facility it is not considered enough to be supporter of a
particular political party, but the group to which one
belongs within that party is an important consideration.
 Thus, those who have right political connections and
backing can get the loans very easily, while others, how
so ever acute their need be are unable to get it.
 A number of financial and administrative irregulaties
have often been noticed in their working
 There have also been cases of misappropriation
( illegal use of the property or funds of another person
for one's own use or other unauthorized purpose )of
funds apart from indulgence(satisfying) of various
types of unfair practices.
 These institutions also suffer from lack of trained,
experienced and competent staff.