RURAL CREDIT AND SOURCES OF RURAL CREDIT

•    INDIAN ECONOMIC DEVELOPMENT

•    RURAL CREDIT : RURAL DEVELOPMENT PART 2
(HINDI MEDIUM)

•    MEANING OF RURAL CREDIT

•    MOST OF THE POPULATION OF THE RURAL AREA IS POOR AND NEEDS FINANCIAL ASSISTANCE IN THE FORM OF CREDIT. MONEY IS BORROWED TO BUY FERTILIZERS,SEEDS AND OTHER IMPLEMENTS AND ALSO MEETING FAMILY EXPENSES

•    RURAL CREDIT IS NEEDED FOR THE FOLLOWING REASONS :

I.            LONG GESTATION PERIOD: BETWEEN THE SOWING OF CROPS AND HARVESTING OF THE CROPS.

II.            FARMERS NEED MONEY TO BUY SEES,FERTILIZERS AND TOOLS ETC

III.            PERSONAL EXPENSES:- LIKE MARRIAGE,DEATH,RELIGIOUS CEREMONIES AND TO REPAY OLD DEBT

•    TYPES OF RURAL CREDIT

I.            SHORT TERM: FOR THE PURCHASE OF INPUTS LIKE SEEDS, PESTICIDES AND INSECTICIDES AND PAYMENT OF ELECTRICITY BILLS. FOR A PERIOD OF 6 MONTHS TO 12 MONTHS

II.            MEDIUM TERM LOANS IS REQUIRED FOR THE PURCHASE OF MACHINERY,CONSTRUCTION OF FENCES AND DIGGING OF THE WELLS AND  REQUIRED FOR A PERIOD OF 12 MONTHS TO 5 YEARS

III.            LONG TERM CREDIT: - FOR THE PURCHASE OF ADDITIONAL LAND, FOR CARRYING OUT PERMANENT IMPROVEMENT ON THE EXISTING LAND. RANGE IS 5 TO 20 YEARS

•    SOURCES OF RURAL CREDIT

•    AT THE TIME OF INDEPENDENCE INSTITUTION CREDIT SHOWED ONLY NOTIONAL EXISTENCE

•    NON INSTITUTIONAL CREDIT RULED THE ROOST AND IT WAS DOMINATED BY THE MONEY LENDERS, TRADERS AND COMMISSION AGENTS. THEY CHARGED A VERY HIGHER INTEREST RATES AND MANIPULATED THE ACCOUNTS TO EXPLOIT THE FARMERS

•    NON INSTITUTIONAL CREDIT LEADS TO DEBT TRAP FOR THE FARMERS

•    A SIGNIFICANT CHANGE OCCURRED IN 1969 WITH NATIONALIZATION OF COMMERCIAL BANKS

•    THE CONCEPT OF SOCIAL BANKING WAS PUT INTO PRACTICE AND CREDIT NEEDS OF THE FARMERS WAS ADDRESSED AS A PRIORITY ISSUE IN THE CONTEXT OF RURAL DEVELOPMENT

•    SOURCES OF RURAL CREDIT

I.            INSTITUTIONAL

II.            NON INSTITUTIONAL

•    NON INSTITUTIONAL SOURCES ARE THE CONVENTIONAL/TRADITIONAL SOURCES :

I.            LAND LORDS

II.            VILLAGE TRADERS

III.            MONEY LENDERS

IV.            MOST CREDIT NEEDS ARE MET THROUGH THESE SOURCES

•                95% OF THE BORROWING OF THE FARMERS IN THE BEGINNING OF THE FIRST FIVE YEARS PLAN

BUT BY THE 1981.THE INSTITUTIONAL SOURCES EMERGED AS THE PRINCIPAL CHANNEL OF THE RURAL CREDIT

•    INSTITUTIONAL SOURCES:

I.            GOVERNMENT

II.            COOPERATIVES

III.            COMMERCIAL BANKS

IV.            REGIONAL RURAL BANKS

TOGETHER THEY ACCOUNTED FOR ONLY SEVEN PERCENT OF THE CREDIT NEEDS OF THE FARMERS IN THE BEGINNING OF THE FIRST FIVE YEAR PLANS, BUT PRESENTLY THEIR SHARE HAS INCREASED TO 66% PERCENT

•    INSTITUTIONAL SOURCES:

•    OUT OF TOTAL INSTITUTIONAL CREIDTS COOPERATIVES CREIDT CONTRIBUTES NEARLY 15% AND COMMERCIAL BANKS ABOUT 75%

•    APART FROM THE SUBSTANTIAL EXPANSION IN THE FLOW OF CREDIT BY COMMERCIAL BANKS AND REGIONAL RURAL BANKS ARE THE COOPERATVES CREDIT INSTITUTION HAVE EMERGED AS IMPORTANT INSIUTIONAL AGENCIES OFFERING CREIDT SUPPORT AND RELATED SERVICES

•    MULTI AGENCY SYSTEM

•    INSTITUTIONAL STRUCTURE  RURAL BANKING CONSISTS OF RURAL BANKING CONSISTS OF :

I.            COMMERCIAL BANKS

II.            COOPERATIVE CREDIT SOCIEITES

III.            LAND DEVELOPMENT BANK

THE INSTITUTIONAL STRUCTURE OF RURAL BANKING IS CALLED MULTI AGENCY SYSTEM

•    IMPORTANT INSTITUTIONAL AGENCIES

•    CO-OPERATIVE CREDIT SOCIETIES :

•    THE COOPERATIVE CREDIT INSTITUTION IN INDIA CAN BE CLASSIFIED AS UNDER A THREE TIER STRUCTURE:

I.            PRIMARY CREDIT SOCIETIES AT THE BOTTOM ARE FUNCTIONING IN THE VARIOUS TOWNS AND VILLAGES

II.            CENTRAL COOPERATIVE AT THE BANK: AT THE DISTRICT HEAD QUARTER

III.            STATE COOPERATIVE BANK AT THE TOP:-STATE COOPERATIVES BANKS AT THE STATE CAPITALS FORMING THE APEX OF THE SYSTEM

THE RESERVE BANK OF INDIA ASS ITS THE COOPERATIVE STRUCTURE BY PROVIDING CONCESSIONAL FINANCE THROUGH NABARD. THE WHOLE SYSTEM IS INTEGRATED WITH BANKING STRUCTURE OF THE COUNTRY.

•    A CREDIT UNION IS MEMBER OWNED FINANCIAL COOPERATIVES DEMOCRATICALLY CONTROLLED BY ITS MEMBERS AND OPERATED FOR THE PURPOSE OF PROMOTING THRIFT,ARRANGING CREDIT AT THE COMPETITIVE RATES AND PROVIDING SO MANY OTHER FINANCIAL SERVICES TO ITS MEMBERS.

•    THE COOPERATIVES CREDIT SOCIETIES PROVIDE ADEQUATE CREDIT TO FARMERS AT REASONABLE RATE OF INTEREST

•    ALSO PROVIDE GUIDANCE TO DIVERSE AGRICULTURAL OPERATIONS WITH A VIEW TO RAISING THE CROP PRODUCTIVITY

•    CURRENTLY COOPERATIVES ACCOUNT FOR 16 TO 17 PERCENT OF RURAL CREDIT FLOWS

•    THESE SOCIETIES ARE TO ENSURE :

I.            TIMELY AND RAPID FLOW OF CREDIT TO THE FARMERS

II.            ELIMINATION OF THE MONEY LENDERS AS CREDIT AGENCIES

III.            SPREAD CREDIT FACILITIES ACROSS ALL REGIONS OF THE COUNTRY

IV.            PROVISION OF ADEQUATE CREDIT IN AREAS COVERED BY SPECIAL PROGRAMMES DEVELOPMENT

•    STATE BANKS AND OTHER COMMERICALS BANKS

I.            THE STATE BANK OF INDIA WAS SET IN 1955 WITH A FOCUS ON RURAL CREDIT

II.            THE GOVT REALIZED THAT RURAL CREDIT NEEDS COULD NOT BE MET BY THE COOPERATIVE CREDIT SOCIETIES ALONE AND THAT COMMERCIAL BANKS SHOULD PLAY AN IMPORTANT ROLE

III.            THE PROMPTED NATIONALIZATION OF CERTAIN BANKS IN 1969

IV.            THROUGH THEIR BRANCH EXPANSION WERE DIRECTED TO OFFER CREDIT DIRECTLY TO THE FARMERS AS WELL AS INDIRECTLY THROUGH COOPERATIVES SOCIETIES

•    REGIONAL RURAL BANKS ( RRBS) AND LAND DEVELOPMENT BANKS

I.            REGIONAL RURAL BANKS (RRBS) ARE INDIAN SCHEDULED COMMERCIAL BANKS OPERATING AT REGIONAL LEVEL IN DIFFERENT STATES OF INDIA

II.            THEY HAVE BEEN OPERATING AT THE REGIONAL LEVEL IN DIFFERENT STATES OF INDIA

III.            FOUNDED ON 2^ND OCTOBER ,1975 UNDER THE PROVISIONS OF  ORDINANCE PASSED ON 26 TH SEPTEMBER,1975

IV.            HAVE BEEN CREATED WITH A VIEW TO SERVE PRIMARILY TH RURAL AREAS OF INDIA WITH BASIC BANKING AND FINANCIAL SERVICES

V.            MAY HAVE BRANCHES SET UP FOR URBAN OPERATIONS AND THEIR OPERATION MAY INCLUDE URBAN AREAS TOO

VI.            REGIONAL RURAL BANKS ( RRBS) AND LAND DEVELOPMENT BANKS

VII.            AREA ARE NOTIFIED BY THE GOVT OF INDIA

•    RRBS PERFORM VARIOUS FUNCTIONS IN FOLLOWING HEADS :

I.            PROVIDING BANKING FACILITIES TO RURAL AND SEMI URBAN AREAS

II.            CARRYING OUT GOVT OPERATIONS LIKE DISBURSEMENT WAGES OF MGNREGA,WORKERS AND DISTRIBUTION OF PENSIONS

III.            PROVIDING PARA BANKING FACILITIES LIKE LOCKER FACILITIES,DEBIT AND CREDIT CARDS ,MOBILE BANKING ,INTERNET BANKING ETC

•    REGIONAL RURAL BANKS ( RRBS) AND LAND DEVELOPMENT BANKS

I.            WERE SET UP TO PROMOTE CREDIT SUPPLIES,PARTICULARLY IN THE REMOTE RURAL AREAS AND BACKWARD

II.            OPERATE AT THE DISTRICT LEVEL AND ARE UNDER OBLIGATION TO FOCUS ON CREDIT NEEDS OF THE WEAKER SECTION OF THE RURAL POPULATION

•    NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMENT

I.            NATIONAL BANK FOR AGRICULTURE IS A DEVELOPMENT BANK FOCUSING PRIMARILY ON THE RURAL SECTOR OF THE COUNTRY.

II.            INDIA’S APEX DEVELOPMENT BANK. ONE OF THE IMPORTANT INSTITUTION IN THE COUNTRY

III.            NABARD IS RESPONSIBLE FOR THE DEVELOPMENT OF THE SMALL INDUSTRIES, COTTAGE INDUSTRIES AND ANY OTHER SUCH VILLAGE OR RURAL PROJECTS.

IV.            ESTABLISHED ON 12 TH JULY,1982 AND IT HAD INITIAL CAPITAL OF 100 CRORES

V.            THE BANK IS UNDER THE SUPERVISION OF A BOARD OF DIRECTORS WHICH THE GOVT WILL APPOINT

VI.            HEADQUARTER OF THE NABARD IS IN MUMBAI

VII.            MAIN FUNCTIONS OF NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMENT

VIII.            TO SERVE AS APEX FUNDING AGENCY FOR THE INSTITUTIONS PROVIDING CREDIT IN RURAL AREAS

IX.            TO TAKE APPROPRIATE MEASURES TO IMPROVE THE CREDIT DELIVERY SYSTEM

X.            THE BANK WAS TO FOCUS ON RESTRUCTURING OF CREDIT INSTITUTIONS AND TRAINING PERSONNEL

XI.            TO COORDINATE THE RURAL FINANCING ACTIVITIES OF ALL CREDIT INSTITUTIONS AND MAINTAIN LIA SON WITH GOVERNMENT OF INDIA,STATE GOVERNMENT,RESERVE BANK OF INDIA AND OTHER NATIONAL LEVEL INSTITUTIONS CONCERNED WITH POLICY FORMULATIONS

XII.            TO UNDER TAKE MONITORING AND EVALUATION OF PROJECTS REFINANCED BY IT

•    ROLE OF RBI IN RURAL CREDIT

•    SINCE 1935,THE RBI HAS BEEN PLAYING AN IMPORTANT ROLE IN PROVIDING CREDIT TO AGRICULTURE AND STRENGTHEN CREDIT INSTITUTION,PRIMARY COOPERATIVES CREDIT SOCIETIES AND DEVELOPMENT BANK IN PARTICULAR

1. FOCUSES ON : SHORT TERM FINANCE FACILITIES TO AGRICULTURE AND ALLIED ACTIVITIES
2. DEVELOPMENT OF COOPERATIVE CREDIT INSTITUTIONS
3. EXPANSION OF SOURCES OF FUNDS  FOR SHORT TERM AND LONG TERM WINGS OF THE COOPERATIVES CREDIT SUSTAINING AND PROFESSIONALISM OF COOPERATIVES
4. CONDUCTING RURAL CREDIT SURVEYS TO DETERMINE THE COVERAGE OF RURAL HOUSEHOLDS BY CREDIT INSTITUTIONS
5. HELPING BANK BRANCH EXPANSION PROGRAMME TO PROVIDE CHEAPER REMITTANCE FACILITIES FOR BANKS OPERATING IN RURAL AREAS
6. GUIDANCE TO ALL CONCERNED ON MATTERS RELATING TO RURAL CREDIT

·         MULTIDIMENSION

•    EVALUATION

I.            NATIONALISATION OF COMMERCIAL BANKS MARKED THE BEGINNING OF SOCIAL BANKING IN RURAL SECTOR

II.            ESTABLSIHMENT OF NABARD AS AN APEX BODY COORDINATING ACTIVITIES OF ALL FINANCIAL INSTITUTIONS ENGAGED IN RURAL CREDIT PROGRAMMES HAS MADE A SUBSTANTIAL DIFFERENCE IN THE INSTITUTION OF RURAL CREDIT.

III.            INSTITUTIONAL CREDIT HAS GONE A LONG WAY IN LIBERATING THE FARMERS FROM THE DEBT TRAP OF MAHAJANS AND MONEY LENDERS

IV.            ALSO PROMTED THE COMMERCIALIZATION OF AGRICULTURE

V.            EVALUATION

VI.            SELF HELP GROUPS AND MICRO CREDIT PROGRAMMES ARE AN EMERGING PHENOMENON IN THE CONTEXT OF RURAL CREDIT AND PROMOTE THRIFT AMONG RURAL HOUSEHOLD

VII.            CREDIT IS OFFERED WITHOUT ANY SECURITY AND A MODERATE RATE OF INTEREST.

VIII.            BANKS MAY ISSUE THE KISAN CREDIT CARDS TO THE FARMERS WHICH AIMS AT ADEQUATE AND TIMELY SUPPORT TO THE FARMERS  FOR THEIR SHORT TERMS CREDIT NEEDS

 •    DEFICIENCIES OF RURAL BANKING SYSTEM

I.            TIED TO COLLATERAL ( SECURITY OR GUARANTEE OF PROPERTY  FOR THE LOANS

II.            LACK OF STRICTNESS IN RECOVERY OF LOANS

III.            FAILED TO DEVELOP A CULTURE OF THRIFT

IV.            SUBDUE AFFAIR OF MOBILIZATION OF DEPOSITS

V.            IMPACT OF DEBT IS HUGE ,SUICIDAL TENDENCIES

VI.            CONSIDER AS SOCIAL BANKING RATHER THAN A ACTIVITY TO ACHIEVE POLITICAL POPULARITY