Description
Describes sources of rural finance, credit delivery mechanism in rural finance, the role of commercial bank, regional rural banks (RRBS), service area approach (SAA) and national bank for agriculture and rural development (NABARD)
?
Credit sources available to the farmers are institutional and private
Institutional sources:Co-operatives and commercial banks including Regional Rural Banks (RRBs) Non-institutional or private sources: moneylenders, traders, commission agents and landlords
?
?
?
Since Independence, a multi-agency approach consisting of co-operatives, commercial banks and Regional Rural Banks (RRBs) has been adopted to provide timely, adequate and relatively cheap credit to farmers
Institutional Sources of Finance The Primary Agricultural Credit Societies (PACSs) provide mainly short-term loans, and Land Development Banks (LDBs) – these are now called Cooperative Agricultural and Rural Development Banks (CARDBs) – provide long-term and medium-term loans to the agricultural sector. Agricultural credit to farmers and refinancing to above-mentioned banks is provided by the National Bank for Agricultural and Rural Development (NABARD),
?
?
Evolution of Multi-Agency Approach in India
?
?
?
?
A survey for the year 1950-51 shows that the co-operatives met only 3.3 percent of the total requirement of the farmers. Then, State Bank of India (SBI) was set-up in 1955 after taking over the Imperial Bank of India to show special concern for agricultural credit The All-India Rural Credit Review Committee (1969) recommended that the adoption of “Multi-Agency Approach” was necessary to the rural sector.This is one of the main reasons for the nationalization of the 14 top commercial banks in 1969 in 1976, the commercial banks were asked to set-up RRBs to help the small and marginal farmers and the rural artisans Thus the multi-agency approach to institutional credit to agriculture – cooperative societies and co-operative banks, commercial banks and RRBs – evolved over a number of years
Problems of Multi-agency Approach
?
There was multiple financing, over-financing in some areas and under financing due to lack of co-ordination between the agencies in the same area. Despite the adoption of lead bank scheme and district credit plans, the different agencies often failed to formulate and develop meaningful agricultural programs in given blocks and districts.
?
?
Despite guidelines issued by RBI, different agencies adopted different procedures and policies in the matter of providing loans and their recovery.
When different agencies had lent loans to the same persons there were some practical problems in the recovery of loans.
?
Role of RBI in Rural Credit
?
?
?
?
The RBI has been taking keen interest in expanding rural credit. It has been taking a series of steps for providing timely and adequate credit through NABARD Scheduled commercial banks excluding foreign banks have been forced to supplement NABARD?s efforts- through the stipulation that 40 percent of the net bank credit should go to the priority sector, out of which at least 18 percent should flow to agriculture It is mandatory that any shortfall in fulfilling the 40 percent target or the 18 percent sub-target would have to go to the corpus of Rural Infrastructure Development Fund (RIDF) RBI has also taken steps to strengthen institutional mechanisms such as recapitalization of RRBs and setting up of Local Area Banks (LABs)
?
?
?
Micro-Finance Micro-finance is a novel approach to “banking with poor” as they attempt to combine lower transaction costs and high degree of repayments Micro-finance initiatives is through the setting up of Self-Help Groups (SHGs), Non-Governmental Organizations (NGOs), and Credit Unions etc Through providing refinance, revolving fund assistance and grants of NABARD has actively promoted these initiatives
As on March 31, 2007, 2.89 million SHGs were bank linked with outstanding bank loans of Rs.12,366 crore. While commercial banks accounted for 71 per cent of the outstanding loans, RRBs and cooperative banks accounted for 23 per cent and 6 per cent, respectively
?
?
?
?
?
Kisan Credit Cards Another notable development in recent years is the introduction of Kisan Credit Cards (KCCs) in 1998-99. The Kisan Credit Card (KCC) Scheme was introduced in 1998-99 to enable farmers to purchase agricultural inputs and draw cash for their production needs in a hassle free and cost effective manner. The scheme has gained popularity and 27 commercial banks, 187 RRBs and 334 Central Co-operative Banks have taken up its implementation. During 2007-08 public sector banks issued 4.6 million KCCs covering limits aggregating Rs.59,582 crore (provisional). The cumulative number of KCCs issued by public sector banks aggregated 31.22 million (provisional) up to March 31, 2008 involving an amount of Rs.1,54,294 crore.
Agricultural Insurance
?
?
?
The government of India introduced a comprehensive crop insurance scheme throughout the country in 1985 covering major cereal crops, oilseeds and pulses. The Government of India has also introduced seed crop insurance and livestock insurance for the benefit of farmers. Farmers availing of crop loans from co-operative credit institutions and commercial banks including RRBs were covered under this scheme. The sum insured was equal to crop loan disbursed subject to a maximum of Rs.10,000 per farmer. This scheme was terminated and replaced by the National Agricultural Insurance Scheme (NAIS) from Rabi 1999–2000
Commercial banks first took interest in rural finance when the State Bank of India was created in 1955 to provide, among others, credit facilities for co-operative processing and marketing societies
?
Direct Financing by Commercial Banks: Term loans for varying periods are given for purchasing pump-sets, tractors and other agricultural machinery, for construction of wells and tube wells, for development of fruit and garden crops, for leveling and development of land, for the purchase of ploughs, animals etc Commercial Banks and Small Farmers : Nearly 70 percent of farmers owning less than two hectares of land could not get bank credit.So,under the direction of the Planning Commission, Small Farmers Development Assc.(SFDA) have been set-up in certain districts in identifying small farmers and working out economically viable schemes
?
?
IRDP and Commercial Banks: Since October 1980, the Integrated Rural Development Programme (IRDP) has been extended to all the blocks in the country and the commercial banks have been asked by the government of India to finance IRDP
Indirect Financing by Commercial Banks : Commercial banks provide finance increasingly to co-operatives engaged in the marketing and processing of agricultural produce or in activities ancillary to agriculture such as dairy, poultry, etc They extend credit to manufacturing or distribution firms and agencies and co-operatives engaged in the supply of pump-sets and other agricultural machinery on a hire-purchase basis or otherwise They finance the operations of the Food Corporation of India, the state governments and others in the procurement, storage, and distribution of food grains
?
?
?
?
Problems of Commercial Banks in Rural Credit: In the field of financing agriculture, the problems concern quantitative and coverage aspects. The RRBs have been under severe financial strain on account of higher transaction costs involved in handling of a large number of small-sized loan accounts; and somewhat lower interest income as a result of concessional rates of interest on small-sized loans.
The lower proportion of current deposits in total deposits of rural branches has also placed them at a disadvantage with regard to cost of resources
?
?
?
?
Main objective of RRBs is to provide credit and other facilities particularly to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs and develop agriculture, trade, commerce, industry and other productive activities in the rural areas Sponsor banks provide managerial and financial assistance and refinance facilities to RRBs Weaknesses of RRBs:quality of lending was poor, and proper procedure, follow-up and supervision were lacking. There were cases of misuse and diversion of loan amounts into unproductive activities, resulting in largescale willful default. Frequent natural calamities like droughts and floods, resulted in increasing over dues in several banks, increase in salary structure of RRBs also contributed to the higher establishment costs
?
?
?
?
Introduced towards the end of 1969, envisages assignment of lead roles to individual banks for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of a given district and endowed with adequate financial and manpower resources has generally been entrusted with the lead responsibility for that district The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small-scale industries and other economic activities included in the priority sector in the rural and semi-urban areas Responsibile to obtain complete details of village-wise distribution of physical programs, subsidy, and credit needs, etc., from the district rural development agencies and incorporate them in the annual action plan, processing and sanctioning application of the identified beneficiaries from the villages allocated to them
? ?
?
? ?
? ? ? ? ?
Public Sector Banks adopted a new strategy for lending on the basis of a study on the impact of bank credit in the rural sector viz., “Service Area Approach” The implementation was: Identification of service area, Survey of the service area for assessing the potential for lending, Preparation of credit plans on annual basis, Coordination on a continuing basis, and A continuous system of monitoring the implementation plans. Some of the advantages claimed of Service Area Approach (SAA) are as follows: Attention to the development of the service area for each branch. Avoidance of duplication of efforts. Organized and planned lending. Easier and effective monitoring of the end-use of credit. Assessment of its impact on production levels
During implementation of the service area approach
?
Allocation of Villages:The initial allocation of villages under the service area approach was not always acceptable to all bank branches. Bank branches were choosy in respect of rural lending and confined their activities to high potential areas Organizational Issues:The strategy of SAA rested full responsibility on the bank branches to look after the credit needs of the service areas. Due to this, the organizational weaknesses of rural branches of commercial banks came to the fore
?
?
?
?
?
NABARD was set up in 1982 Its purpose was to take charge of the rural credit and also the refinance function of the Agricultural Refinance Development Corporation (ARDC) Authorized capital now stands around Rs.2,000 crore from the initial amount of Rs.500 crore Draws funds from the government, World Bank, market etc Functions Takes care of agricultural credit and as a refinance function for production, investment credit, SSI to promote rural development. It gives credits to Cooperative banks, RRBs, LDBs. It is an integrated agency to fulfill the needs of agricultural and rural development. NABARD has financed according to the terms of the RBI, granted loans to farmers, short-term loans due to natural disasters
? ?
?
?
Scheme involves debt waiver of Rs.71,860 crore In the debt waiver scheme, a farmer, who had loan not exceeding Rs. 50,000, was classified as „small and marginal farmer? and where the principal amount exceeded Rs. 50,000, was to be classified as „other farmer? Eligibility :Loan disbursed up to March 31, 2007 and overdue as on December 31, 2007 and remained unpaid until February 29, 2008,restructured and rescheduled by banks in 2004 and in 2006 through the special packages announced by the Central Government, whether overdue or not, and restructured and rescheduled in the normal course up to March 31, 2007 as per applicable Reserve Bank?s guidelines on account of natural calamities, whether overdue or not The debt waiver scheme was announced to waive the entire „eligible amount? in the case of a small or marginal farmer. In the case of „other farmers?, the scheme announced a one-time settlement (OTS) scheme under which the farmer will be given a rebate of 25 per cent of the „eligible amount?, subject to the condition that the farmer pays the balance of 75 per cent of the „eligible amount?
doc_958300535.ppt
Describes sources of rural finance, credit delivery mechanism in rural finance, the role of commercial bank, regional rural banks (RRBS), service area approach (SAA) and national bank for agriculture and rural development (NABARD)
?
Credit sources available to the farmers are institutional and private
Institutional sources:Co-operatives and commercial banks including Regional Rural Banks (RRBs) Non-institutional or private sources: moneylenders, traders, commission agents and landlords
?
?
?
Since Independence, a multi-agency approach consisting of co-operatives, commercial banks and Regional Rural Banks (RRBs) has been adopted to provide timely, adequate and relatively cheap credit to farmers
Institutional Sources of Finance The Primary Agricultural Credit Societies (PACSs) provide mainly short-term loans, and Land Development Banks (LDBs) – these are now called Cooperative Agricultural and Rural Development Banks (CARDBs) – provide long-term and medium-term loans to the agricultural sector. Agricultural credit to farmers and refinancing to above-mentioned banks is provided by the National Bank for Agricultural and Rural Development (NABARD),
?
?
Evolution of Multi-Agency Approach in India
?
?
?
?
A survey for the year 1950-51 shows that the co-operatives met only 3.3 percent of the total requirement of the farmers. Then, State Bank of India (SBI) was set-up in 1955 after taking over the Imperial Bank of India to show special concern for agricultural credit The All-India Rural Credit Review Committee (1969) recommended that the adoption of “Multi-Agency Approach” was necessary to the rural sector.This is one of the main reasons for the nationalization of the 14 top commercial banks in 1969 in 1976, the commercial banks were asked to set-up RRBs to help the small and marginal farmers and the rural artisans Thus the multi-agency approach to institutional credit to agriculture – cooperative societies and co-operative banks, commercial banks and RRBs – evolved over a number of years
Problems of Multi-agency Approach
?
There was multiple financing, over-financing in some areas and under financing due to lack of co-ordination between the agencies in the same area. Despite the adoption of lead bank scheme and district credit plans, the different agencies often failed to formulate and develop meaningful agricultural programs in given blocks and districts.
?
?
Despite guidelines issued by RBI, different agencies adopted different procedures and policies in the matter of providing loans and their recovery.
When different agencies had lent loans to the same persons there were some practical problems in the recovery of loans.
?
Role of RBI in Rural Credit
?
?
?
?
The RBI has been taking keen interest in expanding rural credit. It has been taking a series of steps for providing timely and adequate credit through NABARD Scheduled commercial banks excluding foreign banks have been forced to supplement NABARD?s efforts- through the stipulation that 40 percent of the net bank credit should go to the priority sector, out of which at least 18 percent should flow to agriculture It is mandatory that any shortfall in fulfilling the 40 percent target or the 18 percent sub-target would have to go to the corpus of Rural Infrastructure Development Fund (RIDF) RBI has also taken steps to strengthen institutional mechanisms such as recapitalization of RRBs and setting up of Local Area Banks (LABs)
?
?
?
Micro-Finance Micro-finance is a novel approach to “banking with poor” as they attempt to combine lower transaction costs and high degree of repayments Micro-finance initiatives is through the setting up of Self-Help Groups (SHGs), Non-Governmental Organizations (NGOs), and Credit Unions etc Through providing refinance, revolving fund assistance and grants of NABARD has actively promoted these initiatives
As on March 31, 2007, 2.89 million SHGs were bank linked with outstanding bank loans of Rs.12,366 crore. While commercial banks accounted for 71 per cent of the outstanding loans, RRBs and cooperative banks accounted for 23 per cent and 6 per cent, respectively
?
?
?
?
?
Kisan Credit Cards Another notable development in recent years is the introduction of Kisan Credit Cards (KCCs) in 1998-99. The Kisan Credit Card (KCC) Scheme was introduced in 1998-99 to enable farmers to purchase agricultural inputs and draw cash for their production needs in a hassle free and cost effective manner. The scheme has gained popularity and 27 commercial banks, 187 RRBs and 334 Central Co-operative Banks have taken up its implementation. During 2007-08 public sector banks issued 4.6 million KCCs covering limits aggregating Rs.59,582 crore (provisional). The cumulative number of KCCs issued by public sector banks aggregated 31.22 million (provisional) up to March 31, 2008 involving an amount of Rs.1,54,294 crore.
Agricultural Insurance
?
?
?
The government of India introduced a comprehensive crop insurance scheme throughout the country in 1985 covering major cereal crops, oilseeds and pulses. The Government of India has also introduced seed crop insurance and livestock insurance for the benefit of farmers. Farmers availing of crop loans from co-operative credit institutions and commercial banks including RRBs were covered under this scheme. The sum insured was equal to crop loan disbursed subject to a maximum of Rs.10,000 per farmer. This scheme was terminated and replaced by the National Agricultural Insurance Scheme (NAIS) from Rabi 1999–2000
Commercial banks first took interest in rural finance when the State Bank of India was created in 1955 to provide, among others, credit facilities for co-operative processing and marketing societies
?
Direct Financing by Commercial Banks: Term loans for varying periods are given for purchasing pump-sets, tractors and other agricultural machinery, for construction of wells and tube wells, for development of fruit and garden crops, for leveling and development of land, for the purchase of ploughs, animals etc Commercial Banks and Small Farmers : Nearly 70 percent of farmers owning less than two hectares of land could not get bank credit.So,under the direction of the Planning Commission, Small Farmers Development Assc.(SFDA) have been set-up in certain districts in identifying small farmers and working out economically viable schemes
?
?
IRDP and Commercial Banks: Since October 1980, the Integrated Rural Development Programme (IRDP) has been extended to all the blocks in the country and the commercial banks have been asked by the government of India to finance IRDP
Indirect Financing by Commercial Banks : Commercial banks provide finance increasingly to co-operatives engaged in the marketing and processing of agricultural produce or in activities ancillary to agriculture such as dairy, poultry, etc They extend credit to manufacturing or distribution firms and agencies and co-operatives engaged in the supply of pump-sets and other agricultural machinery on a hire-purchase basis or otherwise They finance the operations of the Food Corporation of India, the state governments and others in the procurement, storage, and distribution of food grains
?
?
?
?
Problems of Commercial Banks in Rural Credit: In the field of financing agriculture, the problems concern quantitative and coverage aspects. The RRBs have been under severe financial strain on account of higher transaction costs involved in handling of a large number of small-sized loan accounts; and somewhat lower interest income as a result of concessional rates of interest on small-sized loans.
The lower proportion of current deposits in total deposits of rural branches has also placed them at a disadvantage with regard to cost of resources
?
?
?
?
Main objective of RRBs is to provide credit and other facilities particularly to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs and develop agriculture, trade, commerce, industry and other productive activities in the rural areas Sponsor banks provide managerial and financial assistance and refinance facilities to RRBs Weaknesses of RRBs:quality of lending was poor, and proper procedure, follow-up and supervision were lacking. There were cases of misuse and diversion of loan amounts into unproductive activities, resulting in largescale willful default. Frequent natural calamities like droughts and floods, resulted in increasing over dues in several banks, increase in salary structure of RRBs also contributed to the higher establishment costs
?
?
?
?
Introduced towards the end of 1969, envisages assignment of lead roles to individual banks for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of a given district and endowed with adequate financial and manpower resources has generally been entrusted with the lead responsibility for that district The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small-scale industries and other economic activities included in the priority sector in the rural and semi-urban areas Responsibile to obtain complete details of village-wise distribution of physical programs, subsidy, and credit needs, etc., from the district rural development agencies and incorporate them in the annual action plan, processing and sanctioning application of the identified beneficiaries from the villages allocated to them
? ?
?
? ?
? ? ? ? ?
Public Sector Banks adopted a new strategy for lending on the basis of a study on the impact of bank credit in the rural sector viz., “Service Area Approach” The implementation was: Identification of service area, Survey of the service area for assessing the potential for lending, Preparation of credit plans on annual basis, Coordination on a continuing basis, and A continuous system of monitoring the implementation plans. Some of the advantages claimed of Service Area Approach (SAA) are as follows: Attention to the development of the service area for each branch. Avoidance of duplication of efforts. Organized and planned lending. Easier and effective monitoring of the end-use of credit. Assessment of its impact on production levels
During implementation of the service area approach
?
Allocation of Villages:The initial allocation of villages under the service area approach was not always acceptable to all bank branches. Bank branches were choosy in respect of rural lending and confined their activities to high potential areas Organizational Issues:The strategy of SAA rested full responsibility on the bank branches to look after the credit needs of the service areas. Due to this, the organizational weaknesses of rural branches of commercial banks came to the fore
?
?
?
?
?
NABARD was set up in 1982 Its purpose was to take charge of the rural credit and also the refinance function of the Agricultural Refinance Development Corporation (ARDC) Authorized capital now stands around Rs.2,000 crore from the initial amount of Rs.500 crore Draws funds from the government, World Bank, market etc Functions Takes care of agricultural credit and as a refinance function for production, investment credit, SSI to promote rural development. It gives credits to Cooperative banks, RRBs, LDBs. It is an integrated agency to fulfill the needs of agricultural and rural development. NABARD has financed according to the terms of the RBI, granted loans to farmers, short-term loans due to natural disasters
? ?
?
?
Scheme involves debt waiver of Rs.71,860 crore In the debt waiver scheme, a farmer, who had loan not exceeding Rs. 50,000, was classified as „small and marginal farmer? and where the principal amount exceeded Rs. 50,000, was to be classified as „other farmer? Eligibility :Loan disbursed up to March 31, 2007 and overdue as on December 31, 2007 and remained unpaid until February 29, 2008,restructured and rescheduled by banks in 2004 and in 2006 through the special packages announced by the Central Government, whether overdue or not, and restructured and rescheduled in the normal course up to March 31, 2007 as per applicable Reserve Bank?s guidelines on account of natural calamities, whether overdue or not The debt waiver scheme was announced to waive the entire „eligible amount? in the case of a small or marginal farmer. In the case of „other farmers?, the scheme announced a one-time settlement (OTS) scheme under which the farmer will be given a rebate of 25 per cent of the „eligible amount?, subject to the condition that the farmer pays the balance of 75 per cent of the „eligible amount?
doc_958300535.ppt