agrifinance

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AN ASSIGNMENT ON-

FLOW OF CREDIT TO AGRICULTURALSECTOR IN INDIA

BY

ALINDA GEORGE (2008-05-107)

SUBMITTED AS PART OF PRACTICAL WORK OF-FINANCING OF AGRICULTURE AND AGRI BUSINESS

Under the supervision of-

Dr.M. A Lizy

Associate Professor

Dept of Rural Banking and Management


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College of Co-operation, Banking and Management.

Introduction

Agriculture plays a crucial role in the development of the Indian economy. It

accounts for about 19 per cent of GDP and about two thirds of the population is

dependent on the sector. Agricultural finance is a subset of rural finance dedicated

to financing agricultural related activities such as input supply, production,

distribution, wholesale, processing and marketing. The modern agriculture has

increased the use of inputs specially for seed, fertilizers, irrigational water,

machineries, implements etc. which has increased demand for agricultural credit.

The adoption of modern technology, which is capital intensive, has commercialized

agricultural production in India. Besides, the farmer's income is seasonal while his

working expenses are spread over time. In addition, farmer's inadequate savings

require the uses of more credit to meet the increasing capital requirements.

Furthermore, credit is a unique resource, since it provides the opportunity to use

additional inputs and capital items now and to pay for them.

The rural population in India suffers from a great deal of indebtedness and is

subject to exploitation in the credit market due to high interest rates and the lack of

convenient access to credit. Rural households need credit for investing in agriculture

and smoothening out seasonal fluctuations in earnings. Since cash flows and savings

in rural areas for the majority of households are small, rural households typically

tend to rely on credit for other consumption needs like education, food, housing,

household functions, etc. Rural households need access to financial institutions that

can provide them with credit at lower rates and at reasonable terms than the

traditional money-lender and thereby help them avoid debt-traps that are common

in rural India. Timely and adequate agricultural credit is important for increase in

fixed and working capital for farmers. In order to provide sufficient credit to the

farmers, many institutional and non-institutional agencies are working. Under

institutional agencies-cooperative, commercial, regional rural banks and different

Government organizations are supplying credit to the needy farmers on priority

basis.

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Chart 1.Classification of agricultural credit

Chart2.Institutional arrangements for rural credit in India

Period -wise

1. Short term

2. Medium

term

3. Long term

1

Purpose - wise

1. Farm

2. Non-farm

3. Family

expenditure

Security-wise

1. Secured

2. Unsecured

Creditor-wise

1. Institutional

2. Non-

institutional

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Agricultural credit is disbursed through a multiagency network consisting of

Commercial Banks (CBs), Regional Rural Banks (RRBs) and Cooperatives. There

are approximately 100,000 village-level Primary Agricultural Credit Societies

(PACS), 368 District Central Cooperative Banks (DCCBs) with 12,858branches and

30 State Cooperative Banks (SCBs) with 953 branches providing primarily short-

and medium-term agricultural credit in India. The long-term cooperative structure

consists of 19 State Cooperative Agricultural and Rural Development

Banks(SCARDBs), with 2609 operational units as on 31 March 2005 comprising 788

branches and 772 Primary Agricultural and Rural Development Banks (PCARDBs)

with 1049 branches.

As against the target of Rs 2,80,000 crore (provisional) for agricultural credit in

2008-09, the banking system disbursed credit of Rs 2,92,437crore to the agricultural

sector, thereby exceeding the target by around 4 per cent. Commercial banks and

regional rural ranks (RRBs) together extended credit to 81.02 lakh new farmers

during 2008-09. In addition to this, cooperative banks provided loans to13.88 lakh

new farmers during the period, thus taking the total number of farmers financed by

the banking system to 94.90 lakh.The total credit flow to agriculture during 2009-10

up to October 31, 2009 by commercial banks, cooperative banks and RRBs was of

the order of Rs1,65,439.37 crore, amounting to 51 per cent of the annual target of Rs

3,25,000 crore .

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Kisan Credit Card (KCC) scheme

Kisan Credit Card (KCC) scheme was introduced to provide adequate

and timely support from the banking system to the farmers for their cultivation

needs. This scheme has made rapid progress and more than645 lakh cards issued up

to October 2006.

The KCC scheme has become a widely accepted mechanism for delivery of credit to

farmers.The banking system has issued 878.30 lakh KCCs as of november0, 2009.

The scheme now also covers borrowers of the long-term cooperative credit structure

The KCC has thus become a single window for a comprehensive credit product. The

year-wise and agency-wise break up of the cards issued since inception.

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There is a tremendous growth in number of accounts in priority sector in these

years. Agriculture loans constitute major number of accounts and amount

outstanding. Number of accounts has been increased from 170 in 1969 to 29368 in

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2009.Amount outstanding is also showing an increasing trend. Of the 4.25%of loan

outstanding in priority sector, 17.6% is that of agriculture.

Paddy and rice constitute almost 32% of total agricultural advancesoutstanding. Loans outstanding towards some crops like wheat, pulses, rapeseed

etc.declined in 2009.But towards paddy and some other crops are increasing.

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This table shows rapid expansion of branches of all banks except non-scheduled

commercial banks. Non-scheduled commercial banks have not expanded branches

since 2007.Nationalised banks showed more branch expansion in this period than

any other banks.RRBs and foreign banks are showing low rate of growth. Of the

total rural branches, RRBs constitute the major share.SBI& its associates have more

percentage of rural branches than nationalised banks. Percentage of rural branches

in non-scheduled banks is less when compared to scheduled banks. Percentage of

rural branches of foreign banks is very low when compared to others.

Major findings

Some of the major discernible trends are as follows:

Over time the public sector banks have made commendable progress in

terms of putting in place a wide banking network, particularly in the

aftermath of nationalisation of banks. The number of offices of public sector

banks increased rapidly from8,262 in June 1969 to 711966 by March 2005.

One of the major achievements in the post-independent India has been

widening the spread of institutional machinery for credit and decline in the

role of non-institutional sources, notwithstanding some reversal in the trendobserved particularly in the 1990s.

The share of institutional credit, which was little over 7 per cent in 1951,

increased manifold to over 66 per cent in 1991, reflecting concomitantly a

remarkable decline in the share of noninstitutional credit from around 93

per cent to about 31 percent during the same period .

Notwithstanding their wide network, co-operative banks, particularly since

the 1990s have lost their dominant position to commercial banks. The shareof co-operative banks (33 per cent)during 2009 was less than half of what it

was in 1992-93 (62per cent), while the share of commercial banks (68

percent) cent) and RRBs (9per cent) almost doubled during the above period

The efforts to increase the flow of credit to agriculture seems to have yielded

better results in the recent period as the total institutional credit to

agriculture recorded a growth of around 180.5 in 2005-06 from 69.6 12in

2002-03.

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In terms of total credit to agriculture, the commercial banks recorded a

considerable growth (from 65 to 68%while cooperative banks registered a

fall (over 25 per cent to over 20percent) during 2004-2010.

However, the growth of direct finance to agriculture and allied activitieswitnessed a decline in the 1990s1 (12 per cent) as compared to the 1980s (14

per cent) and 1970s (around 16 per cent).

Furthermore, a comparative analysis of direct credit to agriculture

and allied activities during 1980s and since 1990s reveals the fact that the

average share of long-term credit in the total direct finance has not only been

much lower but has also decelerated (from over 38 per cent to around 36 per

cent), which could have dampening effect on the agricultural investment for

future growth.

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Conclusion

Credit in conjunction with modern agricultural technologies has ushered

agricultural development across Indian regions. The liberal credit supply by the

lending institutions enabled rapid infrastructural growth across Indian regions and

thereby improved the farm level credit absorption capacity. Although credit has

played vital role in agricultural development yet regional and farm-category wise

disparity has also taken place. Infact, some of the states with better natural resource

base have progressed well while some others lagged far behind. Like wise, some

farmers with better resource endowments and access to financial and otherinstitutions have marched faster while others could not do so. Furthermore,

multiplicity of lending institutions together with the liberal deployment of credit

through various on going schemes including micro-financing saved rural dwellers

from the clutches of money lenders. Yet, non-institutional credit agents still survive

as they follow the canons of financing.All the existing agencies e.g. money lenders,

commercial banks, cooperatives and the State have to be integrated and harnessed

to a common purpose. Such a comprehensive approach is essential for ensuring the

best use of all the available resources of the nation.

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Bibliography

1. http://agricoop.nic.in/AnnualReport06-07/AGRICULTURAL%20CREDIT.pdf

2. http://pib.nic.in/archieve/esurvey/esurvey2007/es2007_1.pdf

3. http://indiabudget.nic.in

4. RBI Bulletin November 2004

5. http://www.indiaagronet.com/indiaagronet/Indian%20Agriculture/mainagri.htm

6. Dr.Murosu, Siva sankar (2008), Rural Financial Institutional in India (Study on

agriculture sector), banking & Finance Vol XXI No.11 November 2008

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http://pib.nic.in/archieve/esurvey/esurvey2007/es2007_1.pdfhttp://www.indiaagronet.com/indiaagronet/Indian%20Agriculture/mainagri.htmhttp://pib.nic.in/archieve/esurvey/esurvey2007/es2007_1.pdfhttp://www.indiaagronet.com/indiaagronet/Indian%20Agriculture/mainagri.htm

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