Introduction
The financial institutions play a dominant role in mobilizing savings and
then channelizing those savings into productive economic activities. Therefore, role
of financial institutions are crucial in the development of any sector and agriculture
is no exception to it. Rather, the development of agriculture is more dependent on
banking sector because 80 percent of farmers are small and marginal, who are
unable to save and invest due to their low levels of income.
Agriculture is the most crucial sector of the country because the main
policies of output, growth, poverty alleviation, social justice and equity are best
served in this sector. Thus, there is a need to increase the credit flow to agriculture,
raise productive capacity of land and increase the irrigation facilities as well as its
efficient use for agricultural production. Agriculture sector is vital for India in view
of the food and nutritional security of the nation as this sector is a source of
livelihood for more than 58% of the population though its contribution to the
national Gross Domestic Product (GDP) has declined over the past years and has
reached 14.2% in 2010-11 due to higher growth experienced in industries and
services sectors (GoI, 2011). Indian agriculture is dominated by small and marginal
farmers as Small and marginal holdings (below 2.00 ha.) taken together constituted
83.29 percent of the total number of holdings in 2005-06 (the latest available data)
against 81.80 in 2000-01 (GoI, 2011). (1)
Availability of credit is a critical input as the farmers have to purchase inputs
like fertilizers, pesticides and make payments for irrigation, labour and hiring
machinery, etc., for agricultural operations. The farmers in general and small and
marginal farmers in particular are poor in resources and are dependent on credit for
this purpose. Availability of credit is, therefore, very critical for agriculture.
75
Recognizing the importance of credit in the development of agricultural sector in
India‟s economy, the Government of India, the Reserve Bank of India (RBI) and
National Bank for Agriculture and Rural Development (NABARD) have played a
vital roles in creating a broad-based institutional framework for catering to the
increasing credit requirements of the sector by way of Multi- Agency network
comprising of Commercial Banks (CBs), Regional Rural Banks (RRBs) and
Cooperatives covering almost all the villages in the Country.(2)
The agriculture development depends on many factors such as climate,
market, technology, credit etc. of which credit is the most crucial factor for
agriculture development. There are two sources of agricultural credit 1)institutional
and 2)non-institutional agencies. The All India Rural Credit Survey (1954) found
only 3.3 per cent of the cultivators having access to credit from co-operatives, and
0.9 per cent from commercial banks. Thus, the GOI has taken several steps towards
boosting up the formal agriculture credit in India(3) .
Agricultural credit scenario was largely dominated by private informal sources
of credit i.e. Professional money lenders and traders. The participation of
commercial banks was negligible in agricultural loans. Farmers‟ level of income was
low and they were hesitant to use modern technology. Therefore, agricultural credit
policy is aimed at increasing the flow of institutional credit at reasonable rates of
interest to agriculture sector. The cooperative credit structure was strengthened by
re-organizing and merging weak societies with strong ones. The number of village
level co-operative societies also increased. Presently, more than 92,000 primary
agricultural cooperative credit societies are working in villages. Commercial banks
(CBs) were nationalized in 1969 and mandated to increase their geographical and
functional presence in the rural areas. Consequently, the number of rural branches of
76
CBs increased from just 1833 in 1969 to 32,121 in 2004 and 76050 in 2011. Another
credit institution lending exclusively to the weaker sectors of the rural areas, known
as Regional Rural Banks (RRBs), was set up in 1975, to meet the challenges of
institutional credit and refinance needs, an apex institution called National Bank for
Agricultural and rural Development (NABARD) was set up in 1982. In order to
increase the flow of credit new approaches such as Service Area approach, Microfinance and Kisan Credit Cards were also initiated.
The role of the credit in agricultural development
Credit plays a pivotal role in agriculture development and growth. The
change in the technology of agriculture enhanced the need for credit. Credit also acts
as a catalyst, to move the farmers from traditional agriculture to modern agriculture.
Credit provides a command over resources and needs liquidity to farmers who do
not have sufficient funds to exploit opportunities. Modern agriculture requires
considerable investment both of recurring and non-recurring nature. The recurring is
repetitive i.e., seeds, fertilizers, insecticides.labour, etc. Non recurring capital means
investment in agricultural implements, tractors, tillers etc. A host of cash and noncash inputs is necessary to improve productivity, and an important one is
agricultural credit
The adoption of modern technologies is depended on the availability of
timely and large amount of finance. The creation of adequate and requisite credit
avenues is, therefore essential for agriculture‟s progress. Credit is a condition that
enables farmers to extend their control over their resources. Credit plays the role of
an accelerator for agricultural development.
77
The necessity of credit in India arose because majority of farmers and nonagricultural population suffer from “financial anemia” at present and that the
injection of sufficient quantities of finance could accelerate their pace and increase
the value and volume of their production. The ideal credit scheme should aim at
providing and ensuring adequate finance to every person in the countryside, who is
engaged in or willing to, in any economic activity. Agriculture credit refers to credit
provided to rural population which covers loans for advanced farmers to agricultural
as well as to non-agriculturists like, artisans & landless labourers residing in rural
areas. Credit is a vital factor in Indian agriculture since the majority of the rural
farmers are poor. Technological transformation & rural development necessitates the
provision of cheap finance.
The burden of indebtedness in rural India is great, & falls mainly on the
households of rural working people. The exploitation of this group in the credit
market is one of the most pervasive and persistent features of rural life in India.
Despite major structural changes in credit institutions and forms of agricultural
credit, Darling states (1925) that „the India farmer is born in debt, lives in debt and
bequeaths debt‟, which still remains true for the great majority of agricultural
households.
Rural households need credit for variety of reasons. i) The rural economic
activity is highly seasonal in nature and households need credit to smooth out
seasonal fluctuations in earnings and expenditure. ii) Credit is necessary both for
meeting the short term requirements for working capital and for long term
investment in agriculture & other income-bearing activities.
Source of credit is an important factor which influences the propensity to
borrow. The availability of credit is major factor which controls the capacity as well
78
as the decision of the farmer to adopt modern techniques. Farmers continue to
depend for credit on institutional credit agencies. Credit plays a crucial role in oiling
the wheel of agricultural production.
Development experience shows that credit is an important determinant of
value addition in agriculture. A quick assessment by the Reserve Bank of India that
the relationship between institutional credit to agriculture (from commercial banks,
cooperatives and RRBs) evidences positive and statistically significant elasticity every 1 per cent increase in real agricultural credit results in an increase in real
agricultural GDP by 0.22 per cent with a one-year lag.2 Further, the Granger
causality test (based on lag length of 1) also indicates that the causality was
unidirectional from agricultural credit to agricultural GDP.
Ratio of Agricultural Credit to Agricultural GDP and total credit despite a
well- developed credit delivery structure; the outreach of banks has remained
restricted for various reasons. The ratio of agricultural credit to agriculture sector in
GDP increased from 5.4 percent in 1970s to 8.7 per cent in 2001-02, agricultural
credit as a proportion of total credit had decelerated from 20.5 per cent to 10.5 per
cent during the same period indicating lower deployment of credit in agriculture.
79
Structure of agricultural credit in India
Govt. of India, RBI
NABARD
Commercial banks
Co-operative societies
Long term credit structure
Regional rural banks
Short term credit structure
State co-operative agriculture
and rural development banks
State co-operative
banks
DCCBs
PCARDs
PACs
Estimation of agriculture in India
Estimated Institutional Share of Agricultural Credit (2002-2003 to 20062007) Rs in billions
Table 4.15: Estimated Institutional Share of Agricultural Credit (2002-2003 to 20062007) Rs in billions
Particular
2002-03
2003-04
2004-05
2005-06
2006-07
Total
Banks
247.11
304.93
377.2
467.73
581.39
1978.36
RRBs
31.45
38.81
48.01
59.53
74
251.8
170.73
210.68
260.61
323.15
401.68
1366.85
Production Credit
Co-operative
Commercial
Banks
80
Sub- Total
449.29
554.42
685.82
850.41
1057.07
3597.01
Growth Rate %
23.1
23.4
23.7
24
24.3
Banks
104
141.44
192.36
261.61
355.78
1055.19
RRBs
26
35.36
48.1
65.41
88.96
263.83
Banks
241.44
328.36
446.57
607.33
825.97
2449.67
Sub- Total
371.44
505.16
687.03
934.35
1270.71
3768.69
Growth Rate %
0.36
0.36
0.36
0.36
0.36
Grand Total
820.73
1059.58
1372.85
1784.76
2327.78
Investment Credit
Co-operative
Commercial
7365.7
Source: Annual Capital Market Review, 2003-2004, Bombay Stock Exchange
Agricultural credit policy
India has initiated several policy measures to improve the accessibility of
farmers to Government in institutional sources of credit. The emphasis of these
policies has been on progressive institutionalization for providing timely and
adequate credit support to all farmers with particular and small and marginal farmers
to enable them to adopt modern technology and improved agricultural production
and productivity. The Policy lays emphasis on augmenting credit flow at the ground
level through credit planning, adoption of region-specific strategies and
rationalization of lending policies and procedures. These policy measures have
resulted increase in the share of institutional credit of the rural households. Progress
in regard to flow of agricultural credit is given below:
81
Table 4.16 : Target and Achievement of Agricultural Credit Flow in India2004-2005 to
2009-2010, As on 31.07.2010)
(Rs. in Crore)
Year
Target
Achievement
2004-2005
105000
125309
2005-2006
141000
180486
2006-2007
175000
229400
2007-2008
225000
254657
2008-2009
280000
301682
2009-2010
325000
366919
2010-2011
375000
122864.40*
2011-2012
475000
511029
2012-2013
575000
308025*
2013-2014
700000
Source: Economic Survey in 2012-13
The agricultural credit in pre independence era
History of the pre independence India reveals the stories of exploitation of the
agriculturists „by the money lenders. During those days, an absence of effective
institutional credit agency to finance for agriculture was an added advantage to the
village sahukar (4). Money lenders generally charged very high rate of interest. The
rate of interests varied with security offered and personal relation between the
lenders and the barrowers. In regard to recovery of dues, the money lenders used
several methods against the barrowers
Then the British government entered in field of agriculture finance by
introducing the two acts namely (i) Land Improvement Act 1883 and (ii)
82
Agriculturists Loans Act of 1884. Loan under these acts were known as Taccavi
loans.
Taccavi loans generally were given in times of difficulties like floods, droughts
and famine (5). They carried low rate of interest and were to be paid back in
installment.
The introduction of Cooperative Society Act in 1904 marked the beginning
of the cooperative movement in India. Cooperatives were most important agencies at
the village level while fulfilling the agricultural requirements. In 1912 new law had
been formulated for cooperative sector. In 1927-28 the Royal Commission (6) on
agriculture had given a detailed report on different agricultural credit problems. The
commission had postulated number of recommendations for growth and
development of cooperative movement. In 1931 government of India appointed
“Central Bank Survey Committee, on the recommendation of this committee in 1934
and as a result agricultural credit department was established in RBI and this
department was made responsible for the success of cooperative movement. In 1939
there was rise in the price of agricultural produce and banks log credit had not been
repaid by farmers which had mounted in depression. Due to better economic
condition of farmers there was a sharp decrease in demand for agricultural credit and
consequently cooperative sector faced problems of existence. The Government of
India has constituted an agricultural finance subcommittee under the chairmanship
of Professor Gandgil, in 1945. These Committees had for the first time
recommended
positive
credit
policies
for
agricultural
sector
and
this
recommendation of credit policies can be termed as a mile stone in cooperative
movement.
83
Agricultural credit in post-independence in India
The pre independence period witnessed the dominant role played by the
money lenders and indigenous banks in the supply of credit to agriculture. After
recognizing credit as a “Social good” for agriculture,. The appointment of Rural
Credit Survey Committee (7) in August 1951 was the first move in this direction.
The survey revealed that the existing institutional and non-institutional
credit to agriculture was far from satisfactory and recommended an integrated
scheme for agricultural credit involving cooperative as the major source of
institutional credit. But these cooperative were unable to cope with the demand for
agricultural credit. As a result Governments of India nationalized 14 major banks in
1969 and further 6 more banks in 1980, with the object of providing credit to
agriculture and other neglected sector of the economy. Thus the doors of
commercial banks were opened for agriculture sector as per the recommendations on
M. Narasimhan Committee appointed by the RRB Act 1975. The NABARD was
formed in July 1982 as per the recommendation of Mr.Sivaraman Committee.(8)
The NABARD undertook the entire agriculture refinancing function of RBI. It
finances farmers indirectly. Thus one of the increase in the numbers of credit
institutions resulted in a major change in the share of credit to the agriculture and
also reduced the importance of non institutional credit agencies
Progress of Commercial banks in India
The commercial banks played significant role among the institutional sources
of credit for priority sector in India. Among the institutional sources of agricultural
credit, cooperatives have been the oldest, and for a long time, the dominant source.
Starting with the nationalization of banks, commercial banks have gradually become
84
an important source of agricultural credit, although the growth in their share has not
been monotonic At the beginning of the 1980s, cooperatives supplied about half of
the total institutional credit while commercial banks had a share of about 40 per cent
and RRBs just about 2 per cent.
The CBs are the most important segment of the Indian banking system.
The All India Rural Credit Review Committee was set up under the chairmanship of
B. Venkatappaiah in 1966(9) , to study the flow of agricultural credit through the
CBs. This Committee recommended that the CBs should play a complementary role,
along with cooperatives in extending rural credit, because in the beginning the CBs
were engaged only to finance the trade and industry and totally neglected the
agriculture sector. The Gorawala Committee Report (1954) strongly suggested that
the CBs should lend the resources to the agricultural sector. Hence, they started to
provide credit to the agriculture sector. Government, thus came to the conclusion
that the desired regulation and rate of progress consistent with the urgency of our
problems that could be secured only through the nationalization of these banks”. In
this connection, 14 major CBs were nationalized in July 1969, (Incidentally six more
banks were nationalized in April 1980) and these banks have been actively involved
in the disbursement of agricultural credit (Shivamaggi, 1993). Further, for the
development of agriculture, different program like Village Adoption Scheme,
Agricultural Development Branches, Lead Bank Scheme and Rural Service Centers
were formulated by CBs from time to time(10) (Sharma and Asha 2009). Moreover,
on the recommendations of RBI, CBs had also started preparing Special Agriculture
Credit Plans (SACP) from the year 1994. The Table–1 clearly highlights the
performance of the CBs in India from2000-01 to 2008-09.
85
Table–4.17: the performance of the CBs in India
Year
No.of.CBs
No.
Of Deposit
Borrowing
Investment
Branches
2000-
Loan&
advances
297
65412
2179206
141029
1146985
1338722
301
65919
2562937
208161
1352178
1614895
298
66190
2971921
249336
1592394
1910659
294
66535
3432089
290405
1884757
2248608
291
67188
3985232
351377
2221079
2753701
288
68355
4586903
467987
2736326
3531278
222
69471
5384191
614505
3496971
4648881
183
71839
6453840
743502
4562566
5975082
175
76050
7917921
892047
5800180
7431111
01
200102
200203
200304
200405
200506
200607
200708
200809
Sources: Various Reports of NABARD, RBI and NAFSCOB.
86
Progress of Cooperative banks in India
The first step was taken by the „British Government‟ in context of
organized/institutional loan for agriculture in India. (i) Land improvement Loans
Act of 1883 and (ii) Agriculture Loan Act of 1884 were passed.
Under these Laws, indirect loan known as “Taccavi” the loan were given to
the farmers for understanding land improvement measure like embankment, tanks,
water-source and with a maximum repayment, period of 35years. Under later stage,
direct loans were provided for the purchase of seeds, cattle, manure and
implements.Taccavi loans played an important role during times of famines, floods
and drought. These loans were routed through the revenue department of the State
Government up to 1969-70.The second step was taken in 1904 in the context of
institutional loans for agriculture as a Co-operative movement. The Co-operative
movement owns its origin to Robert Owen, a great philosopher of England.(11)
The cooperative banking sector in India was established by British colonial
government in 1904 on the lines of the rural cooperative banking sector in Germany.
It is broadly divided into
I) the short term cooperative credit system providing
short term and medium term loans and ii)the long term system providing long term
loans, initially for debt redemption and subsequently for the support of investments
in agriculture.
In most states, the short term CCS has three tiers with the i) Primary
Agricultural Cooperative Credit Society (PACS) as the base unit at the grassroot
level spread all over the country in which over two million farmers and rural artisans
are members. About 70 percent of all rural households or nearly 500 million rural
people are basically linked to the short term CCS. On an average about 1000 persons
are members per primary society. As at the end of March 2005, there are 1,08,779
87
PACS in the country. ii) The middle tier consists of 367 District Cooperative Central
Banks (DCCBs) which act as federations to PACS operating in a district and with
wholesale and retail financial functions. iii) The 31 State Cooperative Banks (SCBs)
are the apex banks of the CCS in each State who carry out wholesale as well as retail
functions. The DCCBs and SCBs together have a network of 13,230 branches. The
long-term CCS comprises of 727 Primary Cooperative Agricultural and Rural
Development Banks (PCARDBs) with 1081 branches at district and block levels and
a total membership about 13 million people. There are 20 State Cooperative
Agricultural and Rural Development Banks (SCARDBs) with 877 branches as apex
banks at the state level. Until the end of the 1960s, the Cooperative Banks were the
only formal institutions available in India.
The Co-operative movement was introduced in India in the early 20th
century with the object of relieving the burden of debt and for providing credit The
Co-operative Societies Act, 1904, was passed on the recommendation of the Law
Committee appointed by the government of India under the chairmanship of
“Edward Law”. Indian Co-operative Movement gained momentum especially after
the world war I. Co-operative Banks provide limited banking products and are
functionally specialists in agriculture related products. It was the only method by
which the farmers could overcome their burden of debt and keep them away from
the clutches of the money-lenders.
Structure of the cooperative credit societies in India
Figure 1 Organization Structure of Co-Operative Banking In India
Co-operative societies
Long term credit structure
State co-operative agriculture
and rural development banks
PCARDs
Short term credit structure
State co-operative
banks
DCCBs
PACs
88
1. Primary Agricultural Cooperative Societies (PACS)
The PACS is one of the most important tiers of the cooperative structure in
the Indian banking system. These societies have been playing a pivotal role in the
village level which is presented in Table–1. This is explained with the secondary
data analysis relating to its deposits, borrowings and loans and advances over a
period of 10 years From 2000-2001 to 2008-2009. The table reveals that growth
rates for the deposits, borrowings and loan outstanding (Loans & Advances) have
been much better
Table-4.17: Performance of the PACs in India Over a Period of Time.
Year
No.
of Deposits
Barrowings
Loans and advances
PACs
(in crore)
( in crore)
( in crore)
2000-01
98843
33001
655566
84370
2001-02
98247
40785
77714
103848
2002-03
112309
47447
85643
117713
2003-04
105735
52108
94010
127063
2004-05
108779
56239
104785
135070
2005-06
106384
56680
115524
144437
2006-07
97224
62021
124982
159184
2007-08
94950
68495
132580
176065
2008-09
95633
75179
140501
188331
Sources: Various Reports of NABARD, RBI and NAFSCOB
B. The District Central Cooperative Banks (Dccbs)
The DCCBs are the second tier of the cooperative credit structure; these
banks are mainly located at the district level and are called the intermediate banks
89
between the SCBs on the one hand and PACSs on the other hand. Table- 2 clearly
reveals the performance of the DCCBs in India 2000-01 to 2008-09. Currently
around 373 DCCBs with 13,233 branches are working in the country. The
performance of the DCCBs in terms of the deposits, borrowings and investment are
very impressive.
TABLE-4.18: performance of the DCCBs in India over a period of time
Year
No.of
No. of Deposits
Barrowings Investment Loan
banks
Brnches (in crore) (in crore)
( in crora)
and
advancement
(in crore)
2000-01
370
12787
161178
44661
66610
134124
2001-02
371
13068
182437
49226
74548
155434
2002-03
365
19865
201005
54081
83936
173134
2003-04
367
19866
201598
58564
95115
186184
2004-05
368
19858
229667
61845
101578
198108
2005-06
370
19991
243925
65808
107567
212447
2006-07
371
12928
259210
72700
112702
234288
2007-08
372
13515
284727
81676
126165
258172
2008-09
373
13233
321797
86952
150079
278642
Sources: Various Reports of NABARD, RBI and NAFSCOB.
C. The state cooperative banks (SCBs):
The SCBs are one of the important financial institutions under the
cooperative credit structure in India. These banks are mainly located at the state
level. Table-3 reveals the performance of the SCBs in India. The performance of the
SCBs in terms of the number of banks and branches are grown positively during the
90
periods i.e., 2000-01 to 2008-09. Currently 31 SCBs are working throughout the
county. In addition to this the performance of the SCBs in terms of the deposits,
borrowings, investment and loans and advances and have achieved highest growth
in the period
TABLE-4.19 performance of the SCBs in India over a period of time
Year
NO.
No.
of
Branches
banks
of Deposits
(
Barrowings Investment
in ( in crore)
( in crore)
crore)
Loan
and
advancement
( in crore)
2000-01
30
865
87201
32852
36027
360
2001-02
30
899
98062
34602
39428
394
2002-03
30
931
107895
35652
43870
439
2003-04
30
929
118145
37191
49306
493
2004-05
30
953
126042
40179
56290
563
2005-06
30
962
134603
45065
62555
626
20006-07
31
938
140937
53693
68048
680
20007-08
31
986
153157
60625
73606
736
2008-09
31
992
176800
65339
91206
912
Sources: Various Reports of NABARD, RBI and NAFSCOB.
Progress of Regional Rural Banks in India
Agriculture and rural sector play an important role in India‟s overall
development. The RRBs were introduced to meet the excess demand for institutional
credit in the rural areas, particularly among the economically and socially
marginalized sections. Although the CCBs and the CBs had reasonable records in
terms of geographical coverage and disbursement of credit, in terms of population
91
groups, the CCBs have been concentrating on the rural rich, while the CBs had a
clear urban bias. In this connection, the Government of India appointed a Committee
under the Chairmanship of Narasimham in 1975. This Committee conducting a
detailed survey recommended an urgent need to try new experiments, to increase the
flow of rural credit. In this context, the Government of India had established the
RRBs on October 2, 1975 to strengthen the institutional rural credit system in
India.(12) The major objectives of the RRBs are; to develop the rural economy by
providing credit facilities for agriculture, trade, commerce, industries and other
productive activities in rural areas, particularly to small and marginal farmers .
Dhananjaya (2005) in his paper stated that RRBs have played a key role in
India in enhancing financial services in rural areas. Apart from their focus on
lending to the priority sector, these banks have also evolved different savings
products to provide safe savings options in the rural areas. Over the years, RRBs
emerged as a key rural financial institutions in terms of geographical coverage,
clientele outreach and business volume. From a modest beginning of six RRBs with
17 branches covering 12 districts in December 1975, the number of RRBs has grown
into 196 with 14,446 branches working in 518 districts across the country in March
2004 (just before the amalgamation process). As on March 2009, RRBs have a large
branch network in the rural area forming around 37 per cent of the total rural
branches of Commercial Banks. In the multi agency approach to provide credit to
agriculture, Regional Rural Banks (RRB‟s) have special place.
92
Table 3.20 Performance of Regional Rural Banks in India
No.of
No.of
Deposits
RRBs
Branches
(
Barrowings
in ( in crore )
Investment
Loan
( in crore)
&advances(
Crore)
2000-
in crore)
196
14301
81476
9839
45363
32007
196
14311
97579
10638
56780
38036
196
14350
115059
11921
72409
46106
196
14311
132931
13080
86515
55837
196
14446
150988
13919
99731
66901
196
14484
168591
14918
105966
81142
133*
14494
189822
17422
114086
98696
96*
14521
216620
22603
123616
118075
91*
14761
253571
28572
135515
143798
86*
15235
296559
33520
145491
169926
01
200102
200203
200304
200405
200506
200607
200708
200809
200910
Note: * indicates that in the respective years so many RRBs were amalgamated.
93
Sources: Various reports of NABARD and RBI.
Table Reveals that the performance of the RRBs during the period from 200001 to 2008-09.. Currently there are only around 86 RRBs and 15,235 branches are
working in 518 districts across the country. The overall CGRs clearly indicate that
the growth rates are positive for all the variables.
Agricultural credit in India
Traditionally, the role of credit is that of boosting the development process.
In fact, it is a lubricant that keeps the wheels of development moving. Credit is one
of the critical input for agricultural development. It capitalizes to undertake new
investment and adopt new technologies. The importance of agricultural credit is
further reinforced by the unique role of Indian agriculture in the macroeconomic
framework, along with its significant role in poverty alleviation. Dualism is an
important characteristic of India. Money market both institutional and noninstitutional agencies have remained co-exists. The non-institutional agencies are
dominant source f credit for the rural agricultural households in India. But the share
has come down in recent years. Still they occupy and play an important role in rural
agricultural credit.(13)
Institutional credit system started in India with the passing of the Credit
Cooperative Act in 1904. The growth of institutional credit activities was slow till
1950. The financing of All India Rural Credit Survey Committee (AIRCSC 1954).
(14) Revealed that the need to reorganize the institutional credit system. The
Review Committee 1969 revealed that the process on institutionalizing rural credit
for the benefit of the rural poor, continued to be very slow because of the slow
94
response of the Government. Hence, the Committee recommended the creation of
specialized agencies to take care of the credit needs of the rural poor..
The Government of India has changed the policy of single agency system
that is distributing credit through cooperative, to multiagency approach as per the
recommendations of the Kamat Working Group. The institutions comprising under
multi-agency system are cooperatives, state government, commercial banks, and
RRBs. Since the advent of green revolution, there has been a noticeable progress in
various fields of economic activities. The institutionalized credit in the agriculture
sector has made repaid progress in conforming to the general trend in loan
advancement.
Credit is one of the critical inputs of agricultural development. It capitalizes
farmers to undertake new investment and adopt new technologies. The importance
of agricultural credit is further reinforced by the unique role of Indian agriculture in
the macroeconomic framework along with its significant role in poverty alleviation,
realizing the importance of agricultural credit in fostering agricultural growth and
development. The emphasis on the institutional framework for agricultural credit is
being emphasized since the beginning of planned development era in India.
The rural market appears to be confronted with a paradox. The informal
sources of finance charged more than 20%rate of interest, often keep land as
collateral against loan and have a very high recovery rate. On the other hand, Rural
Financial Institutions (RFIs) charged almost half of third rate of interest, do not take
land as collateral for most of the crop loans, and still face the defaults, and face
many problems in delivery of credit to agriculture sector. Therefore it is
recommended that the RFs should be strengthened to accelerate the flow of credit to
95
meet the credit demand of the agriculture sector and bring overall development in
the rural economy. In this context, various policies and institutional measures that
have been undertaken, so far, for a speedy and timely delivery of credit to
agricultural sector.
The evolution of institutional credit to agriculture could be broadly classified
into four distinct phases-1904-1969 (predominance of cooperatives and setting up of
RBI),1969-1975(nationalization of commercial banks and setting up Regional rural
banks (RRBs)),1975-1990( setting up NABARD) and from 1991 onwards (financial
sector
reforms).
The genesis of institutional involvement in the sphere of
agricultural credit could be traced back to the enactment of the cooperative societies
act in 1904. The establishment of the RBI in 1935 reinforced the process of
institutional development for agricultural credit. The RBI is perhaps the first central
bank in the world, have taken interest in the matters related to agriculture and
agricultural credit, and it continues doing so (reddy, 2001).
The demand for agricultural credit arises due to,
1) Lack of simultaneity between the realization of income and act of expenditure.
2) Lumpiness of investment in fixed capital formation and
3) Stochastic surges in capital needs and savings that accompany technological
innovation. Credit, as a one of the critical non land inputs, has two- dimension from
the viewpoint of its contribution to the augmentation of agricultural growth vis.,
availability of credit and the distribution on credit.
Agricultural credit: discernible trends.
In India, where the formal financial system is predominantly bank-oriented,
banks play an important role in financing, the needs of agricultural sector with the
96
aim of facilitating timely and adequate credit flow to agriculture,. In India a multiagency approach comprising cooperative banks, scheduled commercial banks and
RRBs has been followed for providing credit to agricultural sector. The policy of
agricultural credit is mainly by the consideration of ensuring adequate and timely
availability of credit at reasonable rates through the expansion of institutional
framework, its outreach and scale as also way of directed lending.(15) . The source
wise and creditor wise credit availability to the agricultural sector in different time
periods in India is presented in the following table 1.
Table 4.21: Borrowing of Cultivators Form Different Credit Agencies
Proportional in Total Borrowings in Per Cent
Credit Agency
1951-52
1971-72
1995-96
2005-2006
2010-2011
A. INSTITUTIONAL CREDIT (1 TO 3)
1. Government
61.1
68.8
7.3
31.7
75
2. Co-operative Society/
4.6
1.5
3.1
7.1
5
30.2
24.9
3.3
22.0
40
26.3
25.1
0.9
2.6
30
38.9
29.7
Banks
3. Commercial Banks &
Rural Banks
B. NON-INSTITUTIONAL CREDIT (4 TO 7)
4. Moneylenders
92.7
5. Traders
21.9
68.3 25.0
69.7
36.1
7.0
26.8
3.6
5.5
8.4
5.0
6.Relatives and friends
5.2
7.Landlords and others
1.5
0.4
14.2
13.1
3.0
5.4
3.8
3.3
10.7
10.0
100
100
100
TOTAL (A+B)
100
100
Source: 1. All India Credit and Investment Survey,
97
2. All India Debt and Investment Survey and NSSO.
3. Economic Survey
The structure of agricultural credit by the cited table confirms the grip of noninstitutional sources in 1951 and 71 and institutional sources in 1981. We can
observe the clear hold of institutional sources by 1995-96. Though the institutional
sources lost its share by 2005-06 but recovered soon by 2010-11. Among
institutional sources co-operatives societies‟ share is as high as commercial banks
and other rural banks. By 2010-11, the share of commercial banks rose to 25.1
which is highest among institutional sources followed by co-operatives with 24.9 per
cent.
The share of non-institutional sources is decreasing drastically. It was very high
at 92.7 in 1951-52 but sharply declined to 36.8 per cent. Once again it raised its
share against institutional sources in 2005-06, but gradually losing its domination
again. It contributes 29.7 per cent in 2010. Among non-institutional sources,
moneylenders share is very high right from the beginning. In 2010 moneylenders
share alone is 73 per cent, whereas the share of traders and landlords is almost same
and constant over the period. The percentage of relatives and friends is losing
drastically and by 2010 its share is negligible. Some of the major discernible trends
are as follows:
Over time the public sector have made commendable progress in terms of
putting in place a wide banking network, particularly in the aftermath of
nationalization of banks. The number of offices of public sector banks increased
rapidly from 8.262 in june 1969 to 68.355 by march 2005.
From the very beginning, the actual disbursements exceeded the targets for each of
the last four years (Table 4.22)
98
Table 4.22: Targets and actual disbursement to agriculture by banks
2009-10
2006-07
2007-08
Achiev-
2008-09
Achieve-
(Provisional)
2010-11
Achieve
Achieve
-
-
Achieve-
Target
ement#
Target
ement
Target
ement
Target
ement
Target
ement^
119000
140382
150000
181088
195000
228951
250000
274963
2800000
66579.92
41000
42480
52000
48258
55000
46192
45000
57500
55000
14629.93
15000
20434
23000
254658
30000
26765
30000
34456
40000
8477.19
175000
203296
225000
254658
280000
301908
325000
366919
375000
89687.04
(Rs.crore)
(Sources: NABARD; *: Provisional Source: RRBs)
The spread of institutional machinery for the credit and decline in the role of of
the major achievement in the post independent India has been widening non
institutional sources, notwithstanding some reversal in the trend observed
particularly in the 1990s.
The efforts increased the flow to agriculture seems to have yielded better results
in the recent years as the total institutional credit to agriculture records a growth of
around 23percent during 1995-96 to 2008-09 from little over 14 percent during
1991-92 to 2008-09 in terms of total credit to agriculture, the commercial banks
recorded a considerable growth (from around 43% to 69%) while cooperative banks
registered a fall(over 52% to over 18% ) during the above period. There is a
considerable increased in RRBs from 5% to 13% ( table 3)
Table 4.23: Institutional Credit to Agriculture (Rs. Crores)
Institutions
Year
Cooperative Share
banks
%
RRBs
Share Commercial Share Total
Percent
%
increase
banks
%
99
2000-01 20,801
39
4,219
8
27.807
53
52.827
14
2001-02 2,604
38
4,854
8
33.587
54
62.045
17
2002-03 23,716
34
6,070
9
39.774
57
69.560
12
2003-04 26,959
31
7,581
9
52.441
60
86.981
25
2004-05 31,424
25
12..404 10
81.481
65
1.25.309
44
2005-06 39,404
22
15.223
8
1.25.859
70
1.80.486
44
2006-07 33,987
24
15.170
10
1.00.999
67
1.50.156
49
2007-08 35,875
20
17.987
10
1.28.876
70
1,82,738
51
2008-09 36,165
19
19.325
10
1.28.761
71
1,88,251
53
2009-10 32,871
18
23.984
13
1.21.879
69
1,78,724
-
Source: Economic survey and NABARD various issues
This table shows that the growth of agricultural credit by different
institutional agencies. Flow of credit to agriculture is increased every year, it is
52.827 Crore (14%) in 2001 to 1.80.486 Crore (44%) in 2005-06 and 188.251 Crore
( 53%) in 2008-09 but the share of cooperative banks increased 39% in 2001 to 24%
in 2006-07 and 18% in 2009-10 and the share of commercial banks increased 53%
in 2001-02 to 67% in 2006-07 and 69% in 20009-10. overall say that the increased
the credit in tremendously.
100
This figure analyzed a at the beginning of the 1980s, cooperatives supplied
about half of the total institutional credit while commercial banks had a share of
about 40 per cent and RRBs just about 2 per cent.5 The share of commercial banks
had increased continuously through the 1980s overtaking the share of the
cooperatives. This trend, however, reversed in the 1990s when the share of
commercial banks declined. This is possibly accounted for by the fact that this was a
period when banking penetration across the country, as measured by the number of
rural branches and average population per branch, showed a fall during this period.
Table4.24: ST , MT and LT loan by different institutional sources
Production
(Short
Term)
Credit
Cooperative Banks
Regional
2005-06
2006-07
2007-08
2008-09
2009-10*
34930
38622
40515
40230
32514
12712
16631
20715
22413
19218
57640
83202
122289
147818
101593
68
0
0
0
0
105350
138455
183519
210461
153325
Rural
Banks
Commercial
Banks
Other Agencies
Sub Total
MT/LT Total
Cooperative Banks
Regional
4474
3858
3169
5962
1549
2511
3804
4099
4352
2914
67837
83283
58798
81133
38140
314
0
0
0
0
75136
90945
66066
91447
42903
Rural
Banks
Commercial
Banks
Other Agencies
Sub Total
ST+MT/LT Credit
101
Cooperative Banks
Regional
39403
42480
48258
46192
34363
15223
20435
25312
26765
22132
125477
166485
181088
228951
139733
382
0
0
0
0
180485
229400
254658
301908
196228
Rural
Banks
Commercial
Banks
Other Agencies
Grand Total
Agricultural credit in Karnataka
Karnataka, India‟s eighth largest state in terms of geographical size (191,791
sq km) is home to 5.28 crore people (2001 census) accounting for 5.1 % of India‟s
population. The population density in the state has risen from 235 in 1991 to 275 in
2001. It is lower than the corresponding figures of the country (267 and 324
respectively). The state is divided into 30 districts and 176 taluks. In spite of the
declining share of primary sector in GSDP, agriculture remains the primary activity
and main livelihood source for the rural population in the state. Agriculture in the
state is characterized by wide crop diversification and still remains highly dependent
on the southwest monsoon. Out of the net area sown, about 30 percent is irrigated.
During 2010-11 food grains production in the state increased at the rate of more
than 14 percent over the last year‟s production and this increase was mainly led by
increase in yield rate as the area increase during the year was only 2.9 percent. The
production of food grains increased from less than 110 lakh tones in 2009-10 to
above 125 lakh tones during the current year. (16)
NABARD has estimated a credit flow potential of ` 52,168.11 crore under
Priority Sector in Karnataka for the year 2012-13, 26.9% increase over the previous
year. The share of Crop Loan formed 46.6% of the total potential estimated,
102
followed by Other Priority Sector at 27.3%, Agricultural Term Loan at 18.8% and
Non Farm Sector at 7.3%.( 17)
Institutional credit enables the farmer to procure the necessary, input for
Production and creates conducive climate for enhanced output. Since institutional
credit exerts a “push effect and has a catalytic role in development process,
provision of adequate, timely and liberal credit to the farmer has become an integral
part of the agricultural development policy in India. As a result, agricultural credit
service in the country is provided through three main channels, viz., commercial
banks including private sector banks in the recent years, regional rural banks and cooperatives.
Credit is considered as essential lubricant to increase he production channels
of agriculture, industry and services to stimulate their smooth operation. Credit is
regarded as life blood of commerce. The growth in business, in modern days
depends on the availability of credit, either it be for production or selling of the
output. During the earlier centuries the financial agencies usually gave credit only to
established and protected markets and only to known tested and trusted customers.
But today the competition in the business has forced them to give credit to even
those who are unknown to them and has made it more risky. Hence, credit planning
and management, performance have become very important in the modern world.
Credit, now is an integral part of the developing as well as developed economies.
Agriculture Profile of the State
 The state has 66% rural population (72% at all India level) and 55.5% workers
are
103
classified as Cultivators/ Agricultural Labourers (compared to all India level at
58.4%).
 Net irrigated area is 31.32 lakh ha. Major sources of irrigation were
wells/tubewells/
borewells : 15.13 lakh ha.
 Land use pattern in the State (2007-08) - Net sown area (NSA) of the state
constituted
54.7% followed by forest (16.1%), land put to non agricultural use (7.2%), barren &
cultivable waste (6.3%), permanent pasture & trees and groves (6.4%) and fallow
(9.3)%
of the total geographical area.
 Distribution of operational holdings depict a skewed pattern in the State. The
average size of operational holding is 1.63 ha. in Karnataka, larger than the all
India level at 1.33 ha. The average size of a holding by small and marginal
farmers at 0.82 ha., restricts the scope of individual financing.
 Two thirds of the geographical area of Karnataka is under arid and semi-arid
conditions.
Karnataka ranks second, after Rajasthan, in terms of drought prone area. 18 out of
30
districts are drought prone. 62% of cereals and almost entire pulses are produced in
these
dry land areas.
 The State has a large banking network with 41 Commercial Banks (5122
branches), 6 RRBs (1256 branches), KSCAB (31 branches), 21 DCCBs (615
branches), KSCARDB (177 PCARDBs) and 4764 PACS.
104
 The per branch population was 8500 as on 31 March 2011 (excluding PACS)
and was quite high at 5106 including PACS.
 The CD ratio of the banks operating in the State is at 76%.
Progress of Commercial Banks in Karnataka
The structure and progress of commercial banks in Karnataka
The commercial banking system in India now consists of public sector scheduled
banks and private sector (non-scheduled) banks. The public sector banks now have a
dominant position. They accounts for more than 80% of the entire banking business
in the country. The commercial banks are the institutions that accept deposits from
the people and advance loans. In India such banks are called commercial banks
which are established in accordance with the provision of the Banking Regulation
Act, 1949.In Karnataka , the commercial banks progress are growing up (see Table
below).
Table.4.25: Progress of Scheduled Commercial Banks in Karnataka
Table No. 7
1996
2000
2001
2002
2003
2004
2005
2006
4470 in No.
4674
4701
4709
4704
4751
4828
4962
2253 in No.
2250
2229
2201
2187
2187
2179
2208
10066 in No.
11651
11716
12105
12394
12547
12643
11652
13778 in No
16265
16833
17118
17850
17851
18297
16689
Total deposits
23987 in Cr
41822
48831
54999
63840
77693
90807
106670
of which rural
3591 in Cr
6563
7368
8264
8812
9994
10908
15708
Deposits
537 in Lakhs
893
1175
1327
1357
1635
1884
2150
Indicator
Total branches
(Offices)
Of Which rural
branches
Population per
branch
Population per
rural branch
per
105
branch
of which rural
159 in Lakhs
293
325
375
403
457
502
711
Per
5331 Rs
7658
10028
9649
10640
13036
14911
18946
of which rural
1156 Rs
1803
1991
2006
2257
2563
2748
4268
Total advances
16680 in Cr
26073
32153
34350
41592
51616
67155
85714
of which rural
2636 in Cr
4632
5140
5690
6624
7454
9229
11488
Advances per
373 in lakhs
557
675
729
884
1086
1393
1727
of which rural
117 in lakhs
207
234
258
303
341
425
469
Per
3707 Rs
4775
5762
6026
7134
8660
11027
15251
of which rural
848 Rs
1272
1389
1509
1656
1911
2325
3122
Credit Deposit
70 %
62
60
62
64
66
74
80
74 %
71
80
69
68
75
85
91
Capita
deposit
branch
capita
advances
Ratio
of which rural
The total branches of the commercial banks in Karnataka at the end of
March 2006 were 4962 of which the rural branches are 2208. The rural branch
which was 50.4% in 1996 gradually decreased to 48.13%by 2000 and to 44.98% by
2006. The population per branch was 10006 and in rural area it was 13778 in 1996
and by 2006 it deteriorated to 11652/branch and in rural area it was 16689. It is very
clear from it that the commercial banks are not increasing in tune with the growth of
population and there are many closures in rural areas. The deposit mobilization in
the Commercial Banks has increased from Rs.23987 Crores in 1996 to Rs 106670
Crores by 2006. The deposit per branch worked to be Rs. 537 Lakhs (Rs.159
Lakhs/branch in rural area) in 1996 to Rs.2150 Lakhs (Rs.711 Lakhs/ branch in rural
area) by 2006. The share of deposit mobilization in rural areas was 14.97% of total
deposits in 1996 which declined to 12% by 2005 and slightly increased to 14.72%
by 2006. The total advance led by the commercial banks in 1996 was Rs.16680
106
Crores and by 2006 it increased to Rs.85714 Crores. Out of the total advances
15.8% was lent by the rural branches in 1996, which increased to 17.76% by 2000
increased to 13.4% by 2006. The percapita advances was Rs.3707 (Rs.848 in rural
areas) in 1996 increased to Rs.15251 (Rs.3122 in rural areas) by 2006. The CD
Ratio which was 70% (74%in rural areas) in 1996 increased to 80% (91% in rural
area 2006)(18)
Table 4.26: District wise Distribution of Branches of Commercial Banks
Name of District
R
SU
U
M
T
Bagalkot
68
55
-
-
123
Bangalore (rural)
66
43
-
-
109
Bangalore(urban)
49
36
-
743
828
Belgaum
127
113
79
-
319
Bellary
82
43
31
-
156
Bidar
68
12
15
-
95
Bijapur
74
23
27
-
124
Chamrajnagar
34
19
-
-
53
Chickmagalur
109
25
-
-
134
Chitradurga
82
32
-
-
115
Dakshina kannada
115
41
151
-
307
Davangere
69
23
34
-
126
Dharwad
54
17
116
-
187
Gadag
37
25
16
-
78
Gulbarga
101
35
39
-
175
Hassan
114
52
-
-
166
Haveri
61
35
-
-
96
Kodagu
89
22
-
-
111
Kolar
127
54
-
-
181
Koppal
45
29
-
-
74
Mandya
92
18
19
-
129
107
Mysore
85
32
129
-
244
Raichur
40
32
28
-
95
Shimoga
79
42
36
-
157
Tumkur
113
37
34
-
184
Udupi
130
44
31
-
205
Uttar kannada
87
79
-
-
166
Karnataka Total
2199
1018
777
743
4737
Source: Reserve Bank of India, Annual Report
The commercial banks has total of 4737 branches in Karnataka, out of which
2199 are in rural, 1018 are in semi Urban, 777 in Urban, 743 in Metropolitan areas.
In Karnataka, Bangalore Urban has the highest number of banks (828) Out of which
49 are in rural areas, 36 in semi Urban and 743 in Metropolitan areas. Belagaum has
127 in rural, 113 in semi Urban and 79 in urban areas totaling 319 branches.
Chamaraja Nagar has the least number of Banks in the state. It has 34 branches in
rural areas and 19 in semi urban areas. The other districts which have less than 100
branches are Haveri (96), Bidar (95), Raichur (95), Gadag (78), and Koppal (74).
The commercial banks were mainly meant for extending agricultural credit
to the poor farmers at a cheaper interest and to save the peasants from the ruinous
interest rates and exploitation by the moneylenders. As on 2006 march, there were
5002 branches with as deposits
of Rs. 134698 crores and total credit issued
by them amounting to Rs.103456 crores. And on March 2008, there were 5.590
branches handling 2, 24,001 Crores of deposits and Rs.74, 990 crores credit amount
respectively.
108
Progress of Cooperative banks in Karnataka
Cooperatives were the pioneers in the field of rural credit in India. The entire
rural credit delivery was more or less a preserve of the cooperative credit institutions
from 1904 to 1969, when the nationalization of Commercial Banks and the
subsequent emergence of Regional Rural Banks in 1975 heralded the adoption of the
Multi Agency Approach to rural lending. Even today, the cooperative credit
structure has the largest outreach and delivers credit to the largest numbers of clients
in the rural areas in comparison to other institutions, although the quantum of credit
delivered is second to commercial banks.
Cooperative movement in Karnataka
Karnataka has a special place in the Indian co-operative sector as it is one of
the first states to have started the movement. Karnataka has a fascinating history of
co-operative movement. Co-operative culture in various economic activities in the
state is clearly evident. It is deep-rooted since the official launching of the
movement in 1904. The first Primary Agricultural Credit Society to be founded in
the country was at Kanaginhal of Gadag district on 8th may 1905. In the same year a
Consumer Cooperative Society was also established in Bangalore.
Table.4.27: The district wise number of Cooperative (including under
liquidation) in the state as an 31.3.2008 was as follows,
District
Number of cooperative
Bangalore(circle I )
530
Bangalore(circle II )
1.463
Bangalore rural
1659
Kolar
2295
109
Tumkur
1362
Chitradurga
689
shimoga
975
Belgaum
3861
Dharwad
1012
bijapur
973
Uttar kannada
852
Mysore
1581
Mandy
1534
Hassan
1191
Chikmangalur
508
Kodagu
335
Dakshina kannada
727
Gulbarga
1851
Raichur
741
Bellary
1065
Bidar
820
Davanagere
1242
Bagalkot
1196
Haveri
916
Gadag
895
Chamarajnagar
596
Udupi
511
koppal
528
As on march 2004, Karnataka had 32.804 cooperative societies under which
27.261 were active. Among these 15.468 societies were profitable and 12.756
increased losses. Around 9367 milk cooperative societies, 361 urban cooperative
banks and around 2000 credit cooperative societies are some examples which are
run
profitable in the state. Karnataka has 9.367 milk cooperative which are
110
producing over 23 lakh liters of milk every day.The state has over 4.000 primary
agricultural societies and 10.12 lakh farmers are benefited from these cooperatives.
Exist 100% villages are covered by cooperative societies 33.394 cooperative
societies in the state as on 31.3.2008 with a membership of 2.9 crores. The working
capital of all the cooperative banks stands at Rs 27.180 crores. The share capital in
the cooperatives by the government is Rs 260 crores which is contributed The flow
of agricultural credit to the farmers through the cooperatives stand at 3% per annum.
During the year 2008-2009 up to end of December 2008, nearly Rs2.49.384 crores
has been disbursed to 9.68.376 farmers for the agricultural operation. Progress has
also been made in issuing kisan Credit Cards for the benefit of farmers (18).
Cooperative movement plays a very significant role in the economic
development of our state and a large number of farming community and weaker
sections are getting benefited from them. They helped the farming community not
only in earning their livelihood, but also in improving the economic activity of state.
Cooperative finance is the cheapest and has proved best for the Indian farmers. The
cooperative banks have played a dominant role in providing credit to the needy.
The structure of co-operative credit societies
The cooperative credit agencies can be divided into two on the basis of duration or
length of period of credit.1) Short term and medium term and 2) Long term.
1. Short term and medium term finance
Strengthening financial resources base of the various cooperative credit
institutions and enterprise is definitely a priority area for working out a competitive
edge for cooperatives in the field of short term and medium term credit system.
111
The short term and medium term agricultural loans provided by the primary
agricultural cooperative banks during the tenth five year plan was Rs 5043.93
crores and Rs 291.51 crore for short term and Rs 625 crores for medium term
respectively.
2. Long term
The SARDBs are provided for long term investment finance to the farming
community in rural areas for minor irrigation, farm mechanization, land
development project, fisheries, poultry, etc.
Progress of Cooperatives
Table 4.27 Highlight the registered growth of cooperative societies in
Cooperative development in India is traced to the enactment of the first cooperative
legislation in 1904, which provided for the establishment of agricultural cooperative
credit societies with unlimited liability. Under the Act of 1904, a number of
cooperative credit societies came in to existence and the cooperative credit
movement recorded progress in Karnataka as follows
Table 4.27: growth of cooperative societies
Year
Number
of Membership
Share
of
Working
societies
actual
capital
capital
1905-06
5
386
0.11
0.14
1925-26
1603
92292
35.52
112.38
1950-51
5190
501281
138.74
690.38
1975-76
22713
5945009
1254300
91637.00
2000-01
29903
16167000
14731600
2119869.65
2005-06
32577
20500000
191700.00
2647500.00
112
2007-08
33394
209500000
269000.00
2718000.00
2008-09
34025
18788741
278574.89
3269321.66
2009-10
34863
19904730
317136.39
3824891.96
2010-2011
35502
21533651
3.46.900.00
41.35.500.00
Source: Register of co-operative societies in Karnataka.
So, cooperative institutions have played a vital role in the socio-economic
development of the country, particularly in the rural area and in agriculture and
allied sector. It is our firm belief and conviction that the cooperative institutions will
continue to play a key role in the economic development of the country and will
become more relevant in the changing economic environment of liberalization of
globalization.
Progress of Regional Rural banks in Karnataka
Agriculture and rural sector play an important role in India‟s overall
development. Regional Rural Banks (RRBs) were formed through RBI Act of 1976
to provide the credit to the rural poor. RRBs were expected to evolve as specialized
rural financial institutions for developing the rural economy by providing credit to
small and marginal farmers, agricultural laborers, artisans and small entrepreneurs
(Sardesai Committee, 2005).
Table-2 presents the performance of the RRBs in Karnataka State from the
liberalization period i.e., 1990-91 to 2009-10. RRBs in Karnataka have achieved
significant growth in terms of number of wide branches during both the regimes.
Since 1990-91 there were 13 RRBs with 1075 branches working across the districts
of Karnataka..
113
Table-4.28: Performance of the RRBs in Karnataka State over a Period of
Time
Years
No.of Branches
Deposits (in Crore)
Advances (in Crore)
2000-01
1096
2432
1979
2001-02
1103
2720
2256
2002-03
1107
3264
2594
2003-04
1120
4134
3650
2004-05
1124
4569
4177
2005-06
1127
5004
4705
2006-07
1128
6025
5893
2007-08
1153
7618
7082
2009-10
1184
9981
8788
2010-11
1201
11727
9781
Source: NABARD Annual Reports.
Institutional credit flow to agriculture in Karnataka:
Table:4.29: Disbursement of agricultural credit .Rs. in lakh
Year
Amount
2003-04
682600
2004-05
728127
2005-06
1291353
2006-07
15496
2007-08
18737
2008-09
20147
2009-10
24006
2010-11
8547
114
This table shows the yearly increase in the agricultural credit in Karnataka
and the growth of credit to agriculture is increased. In total amount Rs.6.32.600 lakh
in 2003-04, to 8546 lakh in 2010-11. The government has been increasing to lap
institutional finance from banks and other term lending institutions for financing
various development programmes in the state in view of the need to supplement plan
financing banks in the state have also played a pivotal role in this regard
Ground level credit flow to agriculture
The ground level credit larger for agriculture in 2010-11 has been fixed at 25.970
crore by GOI for Karnataka state. Crop loan have allocated 60% (145.70 crore ) of
the target, while the rest of the allocation of R10500 crore for term loan. The share
of commercial banks is 75%(19500 crore) RRBs is 10%(Rs.2570 crore ) and
cooperative banks is 15%(Rs3900 crore) and 80% of the credit for agriculture sector
is provided for crop loan and only 20% of agricultural term loans resulting in
meager capital formation.
Table.4.30: Commercial banks credit to agriculture in Karnataka state.
No. of accounts
Year
Out standing (Rs, in crore)
Direct
Indirect
Total
Direct
Indirect
Total
accounts
accounts
accounts
finance
finance
finance
2003-04
2.07.17.954
5.84.214
2.13.04.168
70.098.7
26.146.3
96.245.0
2004-05
2.60.10.380
6.45.928
2.66.56.308
94.635.4
29.749.5
1.24.384.9
2005-06
2.84.18.193
6.49.920
2.84.18.193
1.24.562.9
48.121.1
2.72.684.1
2006-07
3.24.82.876
7.33.691
3.24.82.876
1.71.496.8
58.694.3
2.30.191.1
115
2007-08
3.75.16.330
6.88.848
3.75.16.330
2.12.567.1
61.574.0
2.74.141.1
2008-09
3.92.56.293
7.24.201
3.92.56.293
2.38.702.8
70.766.6
3.09.469.4
2009-10
4.10.01.637
17.68.192
4.16.01.637
2.96.8496
93.448.7
3.90.298.3
Source money and banking. Centre for monitering Indian economy.october 2011.
In this table we gind that CB credit to agriculture is increased year by year . in
2003-04 the total accounts s 2.13.04.168 it is increased to 4.27.829 on 2009-2010.
As well as the outstanding is also increased 96.245.0 to 3.90.469.3 crore in
respective year.
 RRBs credit to agriculture in Karnataka
Regional Rural banks are important in rural institutional financing in terms of
geographical coverage, direct out reach, business volume and contribution to the
development of rural economy.
Table: 4.31:GLC for agriculture in Karnataka
Year
Amount ( in lakhs )
2006-07
NA
2007-08
NA
2008-09
178606
2009-10
247879
2010-11
3853161
The table shows that the performance of RRBs in Karnataka, it is very
impresivally increasing in the flow of ceredit to agriculture .fromRs178606 lakh in
116
2008 to 3853161 in 2010-11 Rural banks have performed in village level, to
promote the rural peoples

Cooperative banking credit to agriculture in Karnataka
Table 4.32 Table loan disbursed by cooperative to agriculture
Year
Short term
Medium term
Long term
2001-02
1384.44
32.33
117.71
2002-03
1323.76
30.15
127.57
2003-04
1300.00
26.00
83.44
2004-05
700.55
14.88
27.04
2005-06
NA
NA
NA
2006-07
NA
NA
NA
2007-08
2849.49
98.54
250.86
2008-09
2222.04
61.19
39.51
2009-10
3541.92
164.04
NA
The cooperative credit societies are gave a loan to farmers in low level of
rate of interest. Whose member in the societies they disbursed the loan three time
that is short term medium term and long term loan for agricultural purposes the
societies are gave the importance to ST, it is 1384.44 in 2001-02 to 3541.92 in
2009-10. in medium loan from 2001to 164.04 in 2010 and long term loan is 117.17
in 2000-01 to 39.21 in 2008-09
117
Table 4.33: Recovery of agricultural credit in Karnataka (in %)
Year
ST
MT
LT
2001-02
24.55
28.16
28.16
2004-05
6.95
5.82
2.46
2007-08
68.15
42.28
38.65
2008-09
58.98
26.92
52.58
2009-10
80.49
75.88
39.93
This table reveals that the recovery of agricultural credit in cooperative
banks. The recovery is the most important instrument in development of banks
functions. The recovery rate is increased every year it show that the position of
banks is good. The recovery increased in ST 24.55%to 80.49% and in MT 28.16%
to 75.88% and in LT 28.16% to 39.93%
118