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Growth and Development of Institutional Credit to Agriculture

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Introduction
Flow of Credit to Agriculture Growth of Institutional Credit Changes in the flow of Institutional Credit to Agriculture Reforms in institutional Credit to Agriculture Conclusion
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Agriculture plays a crucial role in the development of Indian economy

The Agricultural credit policy essentially lays emphasis on

augmenting credit flow at grass root level Farm credit is the essential input to the agriculture

Agricultural credit enhances productivity and promotes standard of living of small farmers.
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1904-1969

Pre-dominance of co-operatives Setting up of RBI

1969-1975
Nationalization of CBs Setting up of RRBs

1975-1990
Further CBs nationalization Setting up of NABARD

From 1991 onwards

Financial sector Reforms
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Year

Co ops

% Share

RRBs

% Share

CBs

% Share

Total

1998-99

15916

43

2538

18443

50

36897

1999-00 2000-01
2001-02 2002-03 2003-04
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18363 20801
23604 23716 26959

40 39
38 34 31

3172 4219
4854 6070 7581

7 8
8 9 9

24733 27807
33587 39774 52441

53 53
54 57 60

46268 52827
62045 69560 86981
8

Cntd.
year 2004-05 2005-06 2006-07 2007-08 2008-09 Co op 31424 39786 42480 48258 36762 32925
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% Share 25 22 18 19 13 20

RRBs 12404 15223 20435 25312 26724 20065

% Share 10 8 9 10 9 12

CBs 81481 125477 166486 181088 228951 112449

% Share 65 70 73 71 78 68

Total 125309 180486 229401 254658 292401 165439

9

2009-10

Source : NABARD (2011)

350000

Rs.Crore

300000

250000 Co op

200000

RRBs
150000 CBs Total 100000

50000

0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

YEARS
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Source: NABARD (2010)

10

Production V/S Investment Credit

25000

20000

15000 Production Credit Investment Credit

10000

5000

0
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1999-002000-012001-022002-032003-042004-052005-062006-072007-082008-09 Source: NABARD(2009)

11

Comparison of credit flow between two time periods

Flow of institutional credit (1998-99)

Flow of institutional credit (2009-10)

20% 43% 50%

Co-op RRBs CBs

68% 12%

Co-op RRBs CBs

7%

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Growth of Institutional credit

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Co-operative credit societies

Co-operatives were the major source of credit to agriculture

These are the first organizations to start agril. credit

Before establishing of co-operative credit societies money lenders were dominant players in agril. Credit sector Objectives: i. Providing credit facility to the farmers for purchasing of inputs ii. Purchase, storage and distribution of inputs iii. To pool the resources for better utilization iv. To bring changes to the rural economy

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Role of Co-operative credit in Indian economy

45% of agril. Credit disbursement 36% of fertilizer distribution 59% of Sugar production 32% of Wheat procurement 65% storage facilities

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Source : Economic survey(2010)

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Growth of co-operatives credit over years

Sl. No Year Amount (Rs. In Crores)

1
2 3 4 5 6

1970-71
1980-81 1990-91 2000-01 2004-05 2004-09

744
2029 4819 20801 31424 36762

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Source : Economic survey(2010)

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Growth of cooperative credit over years

Rs .crore
40000 35000 30000 25000 20000 15000 10000 5000 0 1970-71 1980-81 1990-91 2000-01 2004-05 2008-09 Co-operatives
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36762 31424

20801

4819 744 2029

Source : Economic survey(2010)

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Co-operative credit societies fails due to

Lack of infrastructure Lack of quality management Over dependence on government Lack of human resource policy Restricted coverage

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Commercial Banks

Initially the commercial banks were concentrating

only on the financing of the trade and industry.

During 1951 the advances by CBs to agriculture

was only 2.1%.

During 2010 it has been increased to 18%. Amount of credit advance is Rs. 1,12,449 Crores.

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Sl. no 1 2 3 4 5 6

Year 1970-71 1980-81 1990-91 2000-01 2004-05 2008-09

Amount (Rs. In Crores) 219 1263 4676 27807 81481 228951

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Source : Economic survey(2009-10)

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Rs .Crore
250000

228951

200000

150000

100000

81481

50000

27807 219
1970-71

1263
1980-81

4676
1990-91 2000-01 2004-05 2008-09

SCBs
3/10/2012 22 Source : Economic survey(2009-10)

Regional Rural Banks (RRBs)/ Grameena Banks

1975 :M Narasimham Committee

On oct 2nd 1975, 5 RRBs were established.

The number of RRB in the country, as on 31 March stood at 82, with a network of 15,444 branches

2010,

RRBs have formed 121 lakh SHGs and issued 40 lakh Kisan credit cards.

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Schemes under RRBs

VIKAS RAITA MITRA TRACTOR YOJANA - for Purchase of Tractor / Trailor/Power tiller / Other Farm Equipments VIKAS BHOOMI - for Purchase of Agri. Land VIKAS JALAVARDHINI" - for Rain water Harvesting VIKAS KISAN SAMRUDHI CREDIT CARD - for Credit Card for all Agriculturists "VIKAS GRIHA" - for Hosing Loan & Farm House "VIKAS GENERAL CREDIT CARD" A rural credit card Scheme "VIKAS BAHUMUKHA" - Loan for any Needs "VIKAS AGRI-CLINIC / AGRI-BUSINESS" - for Establishment of Agri - Clinic / Agri - Business Centers

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Amalgamation of RRBs
GoI initiated the process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same bank within a State. As per the recommendations of the Vyas Committee (2004) To provide better customer service due to Better infrastructure Computerization of branches Pooling of experienced work force Common publicity / marketing efforts

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Growth of RRBs
Parameter No. Of RRBs

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

196
Capital Deposit

196 1959 32226

196 2049 39294

196 2143 44539

196 2141 49582

196 2221 56295

196 25354 69719

96 48488 83143

86 58990

86 67855

83 76392

1380 27059

99093 120184 124296

Investment

6680
Advance Total Assets

7760 12427

8800 15050

9471 17710

17138 20934

21286 25038

33486 32692

45666 40345

48559 43456

62629 46678

96699 51283

10559

35820
Interest Earned

42236

49596

56802

62500

70195 436805 803416 844982 898760 984364

3281

3938

4619

5191

5391

5535

6041

6547

7729

7586
26

8786

Total Income3/10/2012

3432

4145

4859

5561

5821

6231

6784

7337

7602

8421

9809

Deposit growth in RRBs

Deposit chart
140000

(Rs. In crores)

120000

100000

Axis Title

80000

60000

40000

20000

0 Series1

1 27059

2 32226

3 39294

4 44539

5 49582

6 56295

7 69719

8 83143

9 99093

10 120184

11 124296

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Source : Economic survey(2010)

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Rs. Crore
30000

26724
25000

Growth rate 21.50%

20000

15000

12404

10000

5000

4219 0
1970-71

202
1980-81

335
1990-91 2000-01 2004-05 2008-09

RRBs

Source : Economic survey(2010)

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Reforms in RRBs
Recapitalising of capital structure. Extant lending restrictions were removed

Human resource development and organisational development initiatives

computerization and use of IT, system development, etc.

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Changes in the flow of institutional credit to agriculture

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 Micro-finance (1992) Rural Infrastructure Development Fund Scheme (1995) KISAN credit card scheme (1998) Special rehabilitation package scheme (2005) Scheme for financing farmers for purchase Of second hand tractors Scheme for financing combine harvesters Scheme for financing farmers for purchase of trucks and other transport vehicles Scheme for financing minor irrigation

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Launched in 1992

Micro-finance is a novel approach to "banking with poor as they attempt to combine lower transaction costs and high degree of repayments. The major thrust of these micro-finance initiatives is through the setting up of Self Help Groups (SHGs), Non-Governmental organizations (NGOs), Credit Unions etc.

Advantages:
o Timely repayment of loans to banks. o Reduction in transaction costs both to poor & to the banks. o Door step Saving and Credit facility for poor.

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Rural Infrastructure Development fund (RIDF)

Established on 1, April 1995 Fund is maintained by NABARD RIDF was created with an initial allocation of Rs.2,000 crores. with the objective of providing term loans at concessional rates to state governments for financing rural infrastructure projects.

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Year-wise Disbursement under RIDF I to XV (As on 31 March 2010)

disbursment
Rs. crore
12387.54

10458.64

8033.64

5953.32

6222.58

3790.37 3176.85 2277.87 1087.08 1009.03 1313.12

4103.42 3922.09 4316.85

1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 200997 98 99 00 01 02 03 04 05 06 07 08 09 10

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Source: NABARD Annual report (2010)

34

Power Sector. 2%

Others. 9%

Irrigation. 32% Social Sector. 13%

Rural roads. 33%

Rural Bridges . 11%

Source: Nabard annual report 2009-10

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Kisan Credit Card (KCC)

1998 KCC Scheme was launched by NABARD

Objectives:

To provide adequate & timely support from banking system for crop production To simplify the procedure of farm credit delivery system Status of KCCS :

90.64 million credit cards issued as at end of February 2010, 39.80 million cards (43.9 percent) were issued by commercial banks, followed by 37.76 million cards (41.7 per cent) by co-operative banks and 13.08 million cards (14.4 per cent) by regional rural banks
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SALIENT FEATURES OF KCCS

Farmers eligible for production credit of Rs. 5000 or more are eligible for issue of KCC. Eligible farmer will be provided a Kisan credit card and a pass book or a card cum pass book.

Limit to be fixed on the basis of operational landholding, cropping pattern

and scales of finance. Limit valid for 3 years subject to annual review. As incentive for good performance, credit limits could be enhanced to take

care of increase in costs, changing in cropping pattern etc.

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(million)

year
1998-99 1999-00 2000-01

co-op
0.16 (20.5) 3.6 (70.2) 5.61 (64.9)

RRBs
0.01 (1.3) 0.17 (3.3) 0.65 (7.5)

CBs
0.62 (78.2) 1.37 (26.7) 2.39 (27.6)

Total
0.78 5.13 8.65

2001-02
2002-03 2003-04 2004-05

5.44 (58.2)
4.58 (55.6) 4.88 (52.8) 3.56 (36.8)

0.83 (8.9)
0.96 (11.7) 1.27 (13.7) 1.73 (17.9)

3.07 (32.9)
2.70 (32.8) 3.09 (33.4) 4.40 (45.5)

9.34
8.24 9.25 9.68

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year 2005-06 2006-07 2007-08 2008-09 2009-10

co-op 2.60 (32.5) 2.30 (27) 2.09 (24.7) 1.34 (15.6) 1.61 (27)

RRBs 1.25 (15.6) 1.41 (16.5) 1.77 (20.9) 1.41 (16.4) 1.61 (27)

CBs 4.16 (51.9) 4.81 (56.5) 4.61 (54.4) 5.83 (67.9) 2.75 (46.1)

Total 8.01 8.52 8.47 8.58 5.97

Source; NABARD (2011)

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Agency-wise & Year-wise Kisan Credit Cards Issued

7
6 5 4 co-op 3 2 1 0 CBs

RRBs

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Years

Source: NABARD (2010)

40

Special Rehabilitation Scheme

This scheme launched by GOI for preventing of suicide by the
farmers. The Government has approved rehabilitation package for the identified districts in the States of Andhra Pradesh, Karnataka, Kerala, and Maharashtra.

The rehabilitation package for the four States involves a total

amount of Rs.16,978 crores consisting of Rs.10,579 crores as subsidy/grants and Rs.6,399 crores as loan.
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Source: RBI (2009)

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Reforms in Institutional credit to Agriculture

Adoption of model co-operative act Setting up of co-operative rehabilitation fund Mutual assistance fund at state level (Vyas committee 2001)

Restoration of health of PACs

Deregulation of interest rates of co-operative societies & RRBs (Chalapathi Rao committee 2002) Re-capitalization of capital structure of CBs
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Emerging opportunities and trends in Agril. credit sector

Contract forming Marketing infrastructure Agro-processing Hi-tech Agriculture

Organic farming
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Limitations
It is difficult to estimate correctly the credit needs in advance as is possible in the case of non-agricultural industries.
Only tangible asset that agriculturists can offer as security against loan is land itself. Land holdings are small Most of the cultivation area is dry land Farmers are being remain default Profitability is very low
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CONCLUSION
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 Agriculture has set to play more dynamic in the economy.

Adequate institutional credit is a requisite for higher

production and to realize the benefits of various Agridevelopment programmes. There is a need to create awareness programmes of credit facilities to the farmers.

Lacking of reforms in the credit schemes.

Rural infrastructure development is poor.

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