Role of financial institution

in rural marketing

Agriculture credit
1. The purpose of agriculture credit is to bridge the demand and supply gap to
provide the finance to small and marginal farmer.
2. Agriculture credit are used for agriculture inputs which include the fertilizer,
machinery agriculture tools etc.
3. Its is the challenge for our country right from pre independence era.
4. The Government of India has initiated several policy measures to improve
the accessibility of farmers to the institutional sources of credit.
5. The Policy lays emphasis on augmenting credit flow at the ground level
through credit planning, adoption of region-specific strategies and
rationalization of lending Policies and Procedures.
6. These policy measures have resulted in the increase in the share of
institutional credit of the rural households.

CREDIT NEEDS OF FARMERS

ON THE BASIS OF TIME
SHORT TERM- (less than 15 months) seeds, fertilizers, pesticides, marketing,
wage payment, consumption, productive purpose
MEDIUM TERM (15months 5yrs.) cattle, small implements, repair &
construction of wells
LONG TERM (more than 5 yrs) permanent land improvement, buying land,
repayment of old debts
ON THE BASIS OF PURPOSE
PRODUCTIVE agro production
CONSUMPTION for the period between Marketing & harvesting
UNPRODUCTIVE customs, traditions, rituals
ON THE BASIS OF SOURCES
INSTITUTIONAL
NON-INSTITUTIONAL

NON-INSTITUTIONAL FINANCE IN INDIAN AGRICULTURE

Money Lenders, Chit Funds, relatives, friends
Main source of Agricultural Finance at the beginning of the planning period
Share: 92% in 1951( money lenders 69.7%) to 25% 00-01

MERITS
EASY TO OBTAIN
SIMPLE PROCEDURES
EASY ACCESS
NO RESTRICTIONS
CONSUMPTION LOANS

DEMERITS
EXORBITANT RATES OF INTEREST
INDEBTEDNESS
LOSS OF LAND
MALPRACTICES
EXPLOITATION
BONDED LABOUR

INSTITUTIONAL CREDIT IN INDIAN AGRICULTURE

STRUCTURE OF INSTITUTIONAL CREDIT

FLOW OF INSTITUTIONAL CREDIT TO AGRICULTURE

PERCENTAGE SHARE
AGENCY

COOPERATIVES

COMMERCIAL BANKS

REGINAL RURAL
BANKS

1970s

77.0

1980s

2OOOO1

2009-10

55.9

39.0

20

21.O

38.9

53.0

68

2.0

5.2

8.0

12

Source: RBI bulletin, NOV 2004 & economic survey 2009-10

COOPERATIVES: RURAL CREDIT AT LOWER COST

Coverage: by 2005, 97% villages with almost 900 lakh members

STRUCTURE
SHORT & MEDIUM TERM

LONG TERM

IN 1971, LARGE SIZED ADIVASI MULTI PURPOSE COOPERATIVE SOC. LAMPS

PROBLEMS: 1) LOW PROFITABILITY
2) POOR RECOVERY
3) LACK OF PROFESSIONAL MANAGEMENT

COMMERCIAL BANKS
GROWTH IN RURAL CREDIT AFTER NATIONALIZATION.
18% net bank credit is for priority Sector
Short term finance
Medium & long term finance
Direct finance: for expenditure of land development
10%
Indirect Finance: finance to coop.s,to FCI (4%)
Lead Bank Scheme: individual commercial bank responsible for development of
Individual district

LIMITATIONS:
1. LOW QUALITY OF LENDING
2. TIME CONSUMING AND COSTLY OPERATION DUE TO SMALL SIZE OF LOANS
3. LOW LEVEL RECOVERY
4. MORE BRANCHES WITH LESS GROWTH POTENTIAL
5. REGIONAL IMBALANCE
6. LACK OF COORDINATION

REGIONAL RURAL BANKS

1. WERE ESTABLISHED IN 1975 ON THE RECOMMENDATIONS OF
M.NARSIMHA COMMITTEE
1. regionally based, rurally oriented and generally sposored by scheduled
commercial banks and in some cases by private and state cooperative
banks.
2. MAIN OBJECTIVE IS TO SUPPLY CREDIT TO THE AREAS IN WHICH
OTHER FINANCIAL INSTITUTES ARE NOT ACTIVE.

LIMITATIONS: POLITICAL INTERFERENCE, LOW RECOVERY

NAME OF RRB

SPONSORED BY:

CHAITANYA GODAVARI GR BK

ANDHRA BANK

SAPTAGIRI GRAMEENA BANK

DECCAN GRAMEENA BANK

INDIAN BANK
STATE BANK OF HYDERABAD

ANDHRA PRADESH GR.VIKAS BANK

ANDHRA PRAGATHI GRAMEENA BANK

STATE BANK OF INDIA

SYNDICATE BANK

NABARD
1982
1. NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

APEX BANK FOR RURAL CREDIT AND DEVELOPMENT.

SHARE CAPITAL CONTRIBUTED BY GOI & RBI
HEAD OFFICE AT MUMBAI, 16 REGIONAL OFFICES

FUNCTIONS
APEX BODY FOR RURAL CREDIT
SUPERVISING CO-OPS
SHORT TERM CREDIT TO STATE CO-OPS
MEDIUM & LONG TERM TO STATE CO-OPS AND RRB
SUGGESTIONS TO GOVT.
R & D

CONTRIBUTION OF NABARD TO AGRICULTURAL FINANCE

2003-04 7626 schemes sanctioned of 7605/

Refinance to state government & co-op. banks

Development of Rural Infrastructure Development Fund
Promotion of Micro-finance
Bulk Lending Support to NGOs
Tribal Development Project in Gujarat (wadi project)
Kisan Credit Card Scheme
Gender Development through Credit: Assistance to Rural Women
in Non-Farm Activities (ARWIND)
Refinance under Swarnajayanti Gram Swarojgar Yojna
Supervising body
Farm Income Insurance Scheme ( FIIS) 2003-04
Differntial Rate of Interest (DRI) 1972

KISAN CREDIT CARD

It was started by theGovernment of India,RBI,
andNABARD
In year1998-99
Flexible and simplified procedure, adopting whole
farm approach
Provide affordable credit for farmers in India.
Including the short-term credit, medium term and
long term credit
Source-NABARD

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Need of kcc

Exploitations of farmers by local money lenders

To remove local money lenders (Saahukars,
Mahajans )
Banks does not gives loans without any security
or guarantee
Banks takes too much time to grant loans for
agriculture.
Too much documentation is required for
agriculture loans
High interest rates on agricultural loans

15

Offering by kcc
Government gives 50% subsidy on interest for one
year.
Charges only 3% interest rate on loans for 6 months.
Provide health insurance up to 1 lakhs for farmers for
three years in just Rs. 45 in which banks pay Rs. 30 on
behalf of card holder.
Crop insurance only on 3 % of total loan
A local committee are formed who decided the per
hectare amount of loan
Local committee consist of officials form agriculture
department , various banks , local government bodies.

16

Advantages of kcc
No need to apply for a loan for every crop
Assured availability of credit at any time
Helps buy seeds, fertilizers at farmers convenience and
choice
Helps buy on cash-avail discount from dealers Credit facility
for 3 years no need for seasonal appraisal
Maximum credit limit based on agriculture income
Any number of withdrawals subject to credit limit
Repayment only after harvest

Source-NABARD

17

State Cooperative Agriculture and

Rural Development Banks
1. State Cooperative Agriculture and Rural Development Banks
(SCARDB) is a Central Sector Scheme of India which aims at
raising resources of SLDBs(State Land Development Banks )
for long term lending to cultivators by way of floatation of
debentures in vital areas such as Minor Irrigation, Farm
Mechanization, Land Development, Horticulture, etc.
2. Under this scheme the SLDBs/SCARDBs raise resources for
long term lending to cultivators by floatation of debentures in
vital areas like Farm Mechanization, Land Development etc.
3. The debentures floated by the Banks are subscribed by
NABARD, the concerned State Governments, Government of
India and other financial institutions.