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AGRICULTURE FINANCE

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A mention in NAP on Ag credit

Agriculture policy talks about easy availability of credit

and other inputs

Progressive institutionalization of rural and farm credit

will be continued for providing timely and adequate

credit to farmers.

The rural credit institutions will be geared to promote

savings, investments and risk management.

Particular attention will be paid to removal of

distortions in the priority sector lending by commercial

banks for agriculture and rural sectors.

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Special measures will be taken for revamping of

cooperatives to remove institutional and financial

weaknesses and evolving simplified procedure for

sanction and disbursement of agriculture credit.

The endeavour will be to ensure distribution equity in

the disbursement of credit. Micro-credit will be

promoted as an effective tool for alleviating poverty.

Self Help GroupBank linkage system, suited to

Indian rural sector, will be developed as a

supplementary mechanism for bringing the rural poorinto the formal banking system, thereby improving

banks outreach and the credit flows to the poor in an

effective and sustainable manner

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Need for agriculture credit

Need for land and its improvements Need of agricultural implements, machines, and

livestock

Requisite inputs such as seed, irrigation facilities,

fertilisers, pesticides, oil, cement, etc.

Need of food, clothing, and shelter to maintain the

farmer and his family during the period of

production

To meet emergency needs

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Basis of credit requirement

Production and Equipment credit

Settlement and Development Credit

Credit for unforeseen circumstances

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Classification of agricultural credit Based on purpose

For agricultural purpose- for purchase of seeds,manure, fertilizer, irrigation, hire charges,purchase of livestock, repair of equipments

For non farm business purpose-purchase,construction , and repair of building

For meeting family expenditure- for purchasinghousehold goods, clothing, medicine

Other purpose- purchase of building and

ornaments, shares of cooperative societies,deposits with cooperative societies, privatemoney lenders and traders, and repayment ofold debts.

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Classification of agricultural credit

Duration based Short term credit-load needed normally for less than

15 months to meet current expenses of cultivation,

supporting family in those years when the crop have

not been good. These types of loans are normallyrepaid out of the sale proceeds of the crops.

Medium term credit- which are required for 15

months to 5 years for the purpose of making some

improvements on land, buying cattle, agriculturalimplements, fencing, plantation, pig breeding,

sheep rearing etc.

Long term credit-repayment in 5 years or more.

Permanent improvement on land

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Classification of agricultural credit Security based

Farm Mortagage credit: secured against land bymeans mortgage of land

Chattel and collateral credit: in the former , the loanis given on the security of farmers livestock, crops ,or warehouse receipts. In the latter case, on thesecurity of other kind of property, such as shares,bonds and insurance policies.

Personal credit: loan is advanced on promissory prpersoanl notes of the farmer with or withoutanothers security or gurantee

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Requisites of a good agricultural

credit system

Should be granted for a sufficient long time Must be available at rates comparable to those

paid by other industries

Must be available at short notice

Should help in the effective growth anddevelopment of beneficiaries

Should be managed by people who are specialtrained and have actual banking experience

Should be an effective alternative to privateagencies of credit

Must be adequate for the purpose

Should safeguard the interests of farmer

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NSSO 59th Round Survey

Results 51.4% of farmer households are financially excluded

from both formal/ informal sources.

Of the total farmer households, only 27% accessformal sources of credit; one third of this group alsoborrowed from non-formal sources.

Overall, 73% of farmer households have no access toformal sources of credit.

Across regions, financial exclusion is more acute inCentral, Eastern and North-Eastern regions. All three

regions together accounted for 64% of all financiallyexcluded farmer households in the country. Overallindebtedness to formal sources of finance of thesethree regions accounted for only 19.66%.

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World Bank Financial Access Survey From the table 1given below, it would be observed that in our

country, financial exclusion measured in terms of bank branch

density, ATM density, bank credit to GDP and bank deposits to GDPis quite low as compared with most of developing countries in theworld.
http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=862http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=862

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Due to RBIs concerted efforts since 2005, the number of branches of Scheduled

Commercial Banks increased manifold from 68,681 in March 2006 to 1,02,343 in

March 2013, spread across length and breadth of the country (Chart).

In rural areas, the number of branches increased from 30,572 to 37,953 duringMarch 2006 to March 2013. As compared with rural areas, number of branches in

semi-urban areas increased more rapidly.

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Villages Covered

The number of banking outlets in villages

with population more than 2000 as wellas less than 2000 increased consistently

since March 2010

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Total Bank Outlets (including

RRBs)

Total number of banking outlets in villagesincreased from 67,694 in March 2010 to 2,68,454

in March 2013 (increased around 4 times during

the period of three years). Of total branches,

banking outlets through BCs increased from34,174 to 2,21,341 during the same period

(increased around 6.5 times).

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Kisan Credit Cards (KCC)

Issued

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Agriculture Advances:

While the number of farmers accounts with SCBs

increased from just 63 lakh in March 2006 to 176

lakh in March 201017; in terms of credit, farmers

with land holdings above 5 acre accounted forlargest share of 44% of total bank credit. To

achieve meaningful financial inclusion, banks

should give priority for small farmers as compared

to large farmers while sanctioning credit

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Rural indebtedness- causesAncestral debt Fragmentation of holdings

Vagaries of the climate

Illiteracy of the cultivator

Low income of the cultivator

Vicious moneylender

High rates of interest

Impractical borrowings Litigation

Absence of marketing facilities

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Why commercial banks should

finance agri on priority

Adoption of new technology in agriculture

Rural development

Need for credit

Lending policies

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Weaknesses of commercial

banks

Branch expansion

Lending operations

Problem of recovery

Unskilled staff High cost

Value added services

Small size accounts

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References

http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/MFI101213FS.pdf

http://www.iba.org.in/events/flowofcreditcover.pdf

http://www.epw.in/system/files/pdf/2006_41/11/Ag

ricultural_Credit_in_India.pdf
http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/MFI101213FS.pdfhttp://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/MFI101213FS.pdfhttp://www.iba.org.in/events/flowofcreditcover.pdfhttp://www.iba.org.in/events/flowofcreditcover.pdfhttp://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/MFI101213FS.pdfhttp://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/MFI101213FS.pdf

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