Agricultural Credit in India
Agricultural financing is an essential precondition for increasing agriculture.
Rural credit network takes on significance as savings are insufficient for most rural Indian households to fund agriculture and other economic activities.
Types of Agriculture Credit—
[a] Short-Term Loans—
It applies to the loans required to fulfill the growers ‘ short-term needs.
These debts are usually not extended for a period after the harvest and are repaid.
Short term loans for a period of less than 15 months shall be issued.
For example, loans needed to buy fertilizers, HYV seeds, meet expenditures on religious or social gatherings, etc.
[b] Medium-Term Loans—
These loans are up to 5 years in length.
Those are the financial conditions to upgrade land, buy livestock or farm machinery, build up canals, etc.
[c] Long-Term Loans—
Those loans are for a term of more than 5 years and are usually needed to purchase new property or tractor or make substantial property improvements.
Source of Agricultural Credit in India —
India has two broad sources of agricultural credit
 Non-Institutional Sources
Non-financing is a major source of rural credit in India, accounting for about 40 percent of India’s total credit.
[b] Other Private Sources
[c] Merchants, landlords and commission agents
 Institutional Sources
The National Bank for Agriculture and Rural Development (NABARD) is an apex institution founded in India in 1982 for rural credit.
It is not funding the farmers and other local residents directly.
It provides assistance to them through the institutions defined as follows:
[A] Rural Co-Operative Credit Institutions:
Rural Financial cooperatives are India’s oldest and largest form of institutional rural financing.
The key purpose of these cooperatives in the area of agricultural credit is to discourage money-lenders from cheating the peasants.
Primary Agricultural Credit Societies (PACS):
These are organized at the village level.
Such cultures usually only lend loans for beneficial purposes.
A PACS ‘ key objective is to collect capital for the purpose of financing and promoting the members ‘ vital activities such as providing agricultural inputs at a cheap price, improving irrigation on members ‘ land, encouraging various income-increasing activities such as horticulture, animal husbandry, poultry, etc. In India, the PACs occupy about 99.5 percent of villages.
District Central Cooperative Banks:
These cooperatives are structured at the district level.
The PACS is affiliated with Central Co-operative Banks of the District (DCCBs).
DCCBs manage the operations of federal financing organizations in the region, arrange credit for PACs and perform the banking business.
State Co-operative Banks:
The DCCBs are affiliated with State Co-operative Banks (SCBs), which manage the operations of DCCBs, organize funding for loan-worthy farmers, conduct banking business and serve as the chief of the State Co-operatives.
[B] Commercial banks:
Commercial banks (CBs) provide rural loans by setting up branches in rural areas.
Commercial banks ‘ share of rural lending was very meager until 1969.
The All India Rural Credit Review Committee (1969) proposed the rural and particularly agricultural credit approach to the multi-agency approach. This indicated the increasing role of the CBs in providing farm loans.
In addition, under the Social Protection Program adopted in 1967 and subsequently the nationalization of 14 main CBs in 1969 (followed by a further six banks in 1980), CBs were granted a special duty to set up their advances for the country’s agricultural and allied operations.
There was a significant expansion of regional branches, and CBs implemented Regional Area Lead Bank scheme and district loan programs.
Banks were required to lend to agriculture 18 percent of their overall advances under the 40 percent quota of priority sector lending.
This rural lending growth went on until the late 1980s.
Nevertheless, CBs suffered major losses during the late ’80s due to government waiving of agricultural loans.
With the implementation of the Narasimham Committee study in 1993, the financial liberalization process mandated banks to concentrate on productivity and follow prudential standards.
The proportion of bank credit to rural areas has gradually declined, especially to small lenders.
[C] Regional Rural Banks (RRBs):
RRBs are specialist banks set up under the 1976 RRB Act to address the needs of rural poor people.
RRBs are set up as rural-oriented commercial banks with low-cost cooperative profile but with the business banks ‘ technical discipline and urban outlook.
Enhanced district coverage by RRBs makes them a major part of the Rural Financial Institutions (RFI).
The RRBs branch network in the rural area makes up around 43 percent of the commercial banks ‘ overall rural branches.
A substantial number of RRB branches have been opened in unbanked or underbanked areas that offer services to the country’s interior and far-flung areas.
RRBs mainly include small and marginal producers, landless laborers, rural craftsmen, small traders, and other poorer rural population groups.
The government has launched policy programs in recent years to enhance the operation of RRBs.
Agricultural credit trends — increasing institutional credit dependency.
Over time, the supply of credit has extended impressively to agriculture and the rural economy.