India-Agricultural Credit

Credit institutions serving agricultural-sector needs developed in three phases. In the first phase, which lasted from 1947 to 1969, cooperative agencies were the primary vehicle providing credit. In the second phase, after nationalization of banks in 1969, commercial banks were assigned a role in providing agricultural credit but were supplementary to cooperatives (see Fiscal Administration, ch. 6). In the last phase starting in 1975, regional rural banks were established to provide credit. In the 1990s, agricultural credit is provided through a multiagency approach in the form of cooperatives, commercial banks, and regional rural banks. These institutions have gradually ensured that credit reaches the most remote agricultural and rural areas.

Since the inception of central economic planning in 1950, the government has favored cooperative societies as a channel for providing credit and as a means of broadening the experience of villagers in such activities as marketing, community farming, and consumer purchasing. Credit societies were the first to be established and continue to be the most extensive and important group of cooperatives. Of the roughly 250,000 cooperatives in India in 1980, about 100,000 were primarily agricultural credit cooperatives. By the late 1980s, because regional rural banks were doing more lending, the number of agricultural credit cooperatives had decreased to 87,300. By 1988 there were 93,000 primary agricultural credit societies operating in rural areas, with a membership of 89.8 million. The societies aimed for universal membership in order that poorer members of society could join cooperatives and use their services. Total loans advanced by such societies amounted to nearly Rs36.9 billion during FY 1987. These agricultural credit societies had a share capital of about Rs10.1 billion at the end of June 1988.

Cooperatives played a significant role in the production and distribution of agricultural inputs. For example, during FY 1988 nearly 3.5 million tons, representing more than 33 percent of total fertilizer (less cow dung), were distributed through a network of 76,000 cooperative retail outlets. Cooperatives also distributed other inputs, such as seeds, pesticides, and agricultural implements.

The overall control of rural credit for the development of agriculture and the rural sector is under the control of the National Bank for Agriculture and Rural Development, which was established in July 1980. It was chartered to oversee the workings of regional rural banks, and in the mid-1990s was slated to establish a rural infrastructure development fund to provide loans to state governments and state-owned corporations to enable completion of irrigation, soil conservation, watershed management, and other rural infrastructure projects in progress. By June 1991, there were 14,522 regional rural banks in India.

Public-sector banks, including commercial and regional rural banks, increased their activities in the countryside after the nationalization of banks. Many bank branches were opened in rural areas. One indicator of increased availability of credit through public-sector banks was the increase in the number of accounts. The number went from 164,000, with outstanding loans of Rs1.6 billion, to nearly 21.8 million accounts, with an outstanding balance of nearly Rs165.2 billion in March 1990.

In economic terms, the growth in credit supply has been satisfactory, but the growth in deposits has not kept pace with credit supply and there has been a high rate of loan defaults. Field-level rural financial institutions have increased, however, even though there are fewer primary agricultural credit societies. The large increase in the number of branches of commercial banks in the rural areas and the expansion of regional rural banks led to the reduction.

Data as of September 1995