About Regional Rural
Banks
Nature of rural
credit requirement:
Agriculture is the life blood of the Indian Economy,
and is the most important industry in India
Finance is
the life blood of agriculture. The flow of credit is very much like the
circulation of blood in human body. Just as the circulation of blood has to be
smooth and uniform throughout all the organs of te human body, so also credit
should flow steadily through various sectors of the economy. If credit-flow is
artificially plugged or arrested, it would do irreparable harm to the economy
just as clotting of our blood vessels would lead to fatal results.
One of the
most of important factors affecting the development of Indian agriculture is
non-availability of adequate, timely and cheap finance for various credit
requirements.
Types of credit
needs:
The credit
needs of Indian cultivators are commonly classified on the basis of : I Nature
of Credit needs and Its term of Credit.
I.
nature of Credit needs:
Agricultural
credit needs can be further classified as:
a)
Productive
or Positive Credit.
b)
Maintenance
or Neutral Credit.
c)
Unproductive
or negative credit.
d)
Consumption
credit.
e)
Credit
for social and other purposes.
II.
term of credit:
a)
Short
term credit.
b)
Medium
or intermediate term credit.
c)
Long
term credit.
I. NATURE OF CREDIT
NEEDS:
a) Production or
Positive credit:
Productive
credit enables the cultivator to produce a net surplus above cost enough to
repay the principal and interest on debt and to improve his living standards.
b) Maintenance or
Neutral credit:
This type of
credit is often necessary because drought, low prices, lack of demand and other
calamities beyond his control and springing from ineluctable providence often
weaken the agriculturist. Such credit needs result in barely enough return to
meet repayment of loan and interest charges besides maintaining the borrower/
cultivator at the earlier subsistenance level.
c) Productive or
Negative Credit:
This type of
credit fails to produce enough to cover repayment of principal and payment of
interest on loan. Such credit is not provided with the ideas that it would be
unproductive. It is often the result of lack of competence of the financing
institutions in discovering the factors that cause losses and to supervise utilization
of loans properly. Crop failures, live stock epidemics, fires and other
calamities against which insurance covers are not available may also lead to
negative results.
d) Consumption
Credit:
It includes
loans for living expenses whether these be for nondurables such as groceries
and clothing or for durable like housing and household goods. Consumption
credit often becomes very important when a small farmer takes to highly
profitable but long gestating agricultural operation such as orchard cropping.
e) Credit for social
and other needs:
Rural people
also need credit to meet unforeseen social expenditure e.g. for a funeral, for
rituals and for illness and for useful purposes like education and training.
II. TERM OF CREDIT:
Another
classification of agricultural credit is based on the period, such as short
term, medium/ intermediate term and long term credit. Short term credit is for
a period not exceeding 15 months, medium term credit is for a period between 15
months and 5 years and long term credit is for a period of 10 years or more
often ranging upto 20 or even 25 years. All these types of credit is varied
quantum are required by the farmers at one or the other stage of farming or
even simultaneously.
RURAL CREDIT
AGENCIES:
In India
I) Government.
II) Private non-institutional agencies, and
III) Institutional agencies.
I) Government:
All borrowings as provided by government through
various departments and under various schemes are such as:
a)
The
grow more campaign and the scheme for rehabilitation of displaced persons.
b)
The
land improvement loan Act 1883 and
c)
Agriculturists
loan Act of 1884 has been included in borrowings from the government.
The government
provides rural credit both for short term and long term which is also known as
‘Taccavi loans’. Taccavi loans are generally granted at the time of natural
calamities like drought and flood etc. It has further potential role to play in
relation to areas or classes of people that are backward. Such loans are repaid
in easy installments along with land revenue.
In practice,
taccavi loans form a small proportional of total rural credit. It would not be
far from the truth to say that the record of taccavi is a record of
inadequacies. These may be considered in their different aspects which are:
a)
Inadequacy
of amount, inequality of distribution and inappropriateness of bases of
security.
b)
Inconveniences
of timing, incidental delay and imposition of various stiff conditions on the
borrowers.
c)
Inefficient
supervision and imperfect coordination among various schemes.
The
government of taccavi loans are ridiculously inadequate – far too inadequate as
compared to the genuine needs and so on. It has been observed that: The system of taccavi as conceived and
administered by government is not a system of finance at all, but one of casual
advances.
Thus
government or taccavi loans have not been very popular in India
II) PRIVATE NON
INSTITUTINOAL AGENCIES:
Private non-institutional agencies include
moneylenders, both professional and agricultural, traders and commission
agents, relatives and friends, landlords and others.
From the
very beginning, rural financing had been, well dominated by the private non-institutional
agencies which though providing finance easily and without much formalities
were charging a very high rate of interest. A major part of the credit
requirement of agriculture is provided by these private agencies. These private
non-institutional agencies exploit the rural cultivators from different angles.
Because of
the absence or inadequacy of institutional agencies like commercial and
cooperative banks in rural area, money-lenders had played in the past an
important role in Indian rural finance. They still continue to play an
important role even though a number of steps have been taken to curb their
activities. Money lenders are going strong even today in most of the rural part
of India
The
inadequacy of credit is the bane of less developed agrarian economies. Hence,
the non-institutional agencies – particularly, the village money-lenders
continue to be the main source of rural credit. The money-lender exhibits
greater flexibility in terms of amount and timeliness of credit and mode of
repayments. The money-lender has been everywhere and at all times to exploit
the rural poor people.
Any agency
that fulfills the following criteria can be considered as the most suitable
financial agency for catering to the credit needs of our rural farming
community:
a)
Promptness
in sanction and disbursement of credit.
b)
Adequacy
of funds made available.
c)
Timely
availability of credit facilities.
d)
Lowest
possible cost of lending.
Private
money-lenders satisfy these requirements to a great extent: but the overall
cost of credit in the form of exorbitant rates of interest and other charges
levied in addition to other malpractices followed by them in rendering the
credit, in most of the cases, a cause for the ruin of the borrowers.
Not denying
the positive role played by the money-lenders in the village economy and the
strength possessed by them in operating their business, the real problems
resulting from their virtual monopoly in supplying rural credit is that they
can and often do resort to several questionable practices due to the ‘helplessness,
ignorance and the necessity of the borrower’2.
III. INSTITUTIONAL
AGENCIES:
The need for institutional credit agencies arises
because of the defects of the private non-institutional credit agencies, in
supplying credit in rural areas. Non-institutional credit is defective because:
a)
It
is based on profit motive and therefore, it is always exploitative.
b)
It
is very expensive and is not related to the productivity of land.
c)
It
does not flow in to the most desirable channels and to the most needy persons.
d)
It
is not available for making agricultural improvements.
e)
It
is not properly integrated with the cultivators’ other requirements.
Institutional
credit is by nature, not exploitative and the basic motive is productivity and
maximization of his income through the application of credit in agricultural
production and investment for allied purposes while private institutional
agencies extend credit for consumption and social purposes also.
Objectives:
Institutional
agencies have some specific objective which can be summed up as under:
a)
To
provide larger volume of institutional credit to agriculture sector for rural
development.
b)
To
direct larger share to weaker sections of society through various schemes like
Integrated Rural Development Programme (IRDP) and Twenty Point Economic
Programme (TPEP) etc.
c)
To
reduce the regional imbalance in the availability of rural credit.
d)
To
bring proper coordination among various institutions working in the field to
achieve credit planning.
e)
To
improve the recovery position and to ensure continuous recycling of funds.
f)
To
bring about transformation of agriculture from subsistence farming to
industrial venture, and
g)
To
accelerate the process of second phase of green revolution.
All the
working groups, commissions and committees, which have dealt with the problem
of rural or agricultural credit have recommended enlargement of institutional
credit agencies base to provide rural credit.
Institutional Rural
Credit Structure:
This can be
classified in two constituents – one being the cooperative constituent which
comprises of cooperative agencies and the other constituent comprises of
commercial banks.
The
co-operatives which have been operating in the area of rural credit for several
decades, developed certain structural problems over the years, and this
prevented them from discharging their role effectively as a premier rural
credit agency. Simultaneously the credit requirements of agriculture,
particularly since the early sixties, increased sharply owing to improvements
in the methods of cultivation and the increased use of inputs such as power and
fertilisers. The co-operatives, it became evident, could not meet this rising
demand for institutional finance and this, as also other developments,
culminated in the entry of commercial banks in rural finance Besides correcting
the historical distortion, the commercial banks were expected to bring in the
much needed professionalism and vast resources to meet the growing demand for
rural credit. However, the culture and organisation of commercial banks
differend from those of the cooperatives.
The banks
with all their new found enthusiasm, were still new to rural lending. The staff
of banks with their urban orientation had problems of adjustment in a rural
setting.
As against
these, they had, on the positive side, vast resources at their command and
professional ability to deploy them. The co-operatives, on the other hand, were
very much rooted in rural ethos and enjoyed decades of experience in
agricultural finance But as a financial agency, they were quite weak due to
various problems such as low level of efficiency, delays, politicisation,
overdues, etc. Besides the volume of credit required, spatial diversities and
social complexities of rural life called for a multi- agency approach to rural
credit and the need for a third financial agency in rural areas was keenly
felt. Given the rising demand for rural credit and the need to replace
moneylenders with institutional agencies, there existed scope for another
agency. This agency would combine the advantages of both the co-operatives and
the commercial banks leaving out the disadvantages of both. This, then was the
background in which the Working Group on Rural Banks headed by Narasimhain
recommended the settinup of RRBs in 1975. According to the working group, “what
is needed is an institution which combines the local feel and familiarity with
rural problems which the co-operatives possess and the degree of business
organisation, business ability to mobilise deposits; access to central money
markets and ‘modernised’ outlook which the commercial banks have”. The law
relating to RRBs was/ first promulgated as an ordinance on September 26, 1975
which was replaced by the RRBs Act 1976.
iii) COOPERATIVE CREDIT AGENCIES:
The problem of rural finance attracted the attention
of the government in the closing year of the last century in view of large
scale discontent among the village peasantry streaming from heavy indebtedness
leading to a life of virtual serfdom inflicted by the usurious money-lenders.
The discontent and dissatisfaction manifested itself in revolts and riots in
many places.
The first
institutional agency to function as an alternative and deterrent to the
exploiting agency of private money-lender was conceived in the form of
cooperative agency. The first cooperative society was organized at the turn of
century with the enactment of the Cooperative societies Act of 1904, which was
replaced by another Act in 1912. The cooperative were not to be merely agencies
for supplying finance but an influence for all round development of agriculture
and the betterment of the life of villagers.
The
cooperative credit structure is based on a three tier system of credit
consisting of an apex body at the State level. State Cooperative Banks (SCBs),
an intermediary layer of District Central Cooperative Bank (DCCB) at the
district level and the primary credit societies at the base that is village
level. The Primaries have been further divided into Primary Agricultural Credit
Societies (PACS) and Primary non-agricultural Credit Societies. The latter are
designed to meet the needs of rural credit for non-agricultural purposes. PACS
are further classified into ‘Small-sized agricultural Credit Societies’ and
‘large-sized agricultural credit societies’.
Within this
cooperative structure for rural credit, a clear distinction is made between two
types of cooperative agencies, namely, cooperative credit agencies which would
provide short and medium term loans and ‘Land Development Banks (LDBS) which
would specialize in providing only medium and long term loans for agricultural
and rural development.
These
cooperative institutions are governed by the cooperative laws of the concerned
state and are administered and supervised by State Governments.
The country
wide comprehensive review of rural credit undertaken by the All India Rural
Credit Survey Committee (AIRCS) in 1951-52, revealed that after five decades of
existence cooperatives catered to barely 3.1 percent of rural credit needs. The
committee felt that although the performance of cooperatives in the sphere of
rural credit was deficient in more than one way, the cooperative agency still
remained, in many respects, by far the least unsatisfactory channel of credit
to the cultivator. The Committee whose report has been hailed as a monumental
work on rural credit problem came to the conclusion that.
“Cooperation
had failed but cooperation must succeed”
It suggested
strengthening of the cooperative credit structure.
The cooperative
credit system was refurbished in the mid-fifties in the wake of the
recommendations of the AIRCS Report. Following it, the Government of India
(GOI), provided its active support through the State Government and the Reserve
Bank of India (RBI) to create a stronger cooperation credit structure.
The
government policy for cooperatives followed since the fifties bears
unmistakable imprints of this committee’s recommendation. Among the various
recommendations, the committee had recommended an integrated scheme of rural
credit, the major element of which was the development of the cooperative
structure with active state partnership. As a result of these various measures,
since 1951 cooperatives have improved their performance.
Since then
and particularly from 1970, when under multi-agency approach cooperatives also
received financial and non-financial support from GOI, State Government, RBI
and Agricultural Refinance and Development Corporation (ARDC).
Role of RRB’s:
The RRB’s
started making their presence felt on the rural credit requirements in the
Indian agrarian as well as rural society of the country. In this part we
attempt to review the role that has been conceived by various individuals and
institutions. For eg. In the year 1975, the Narasimhan Committee was
established by RBI and it was mainly to suggest the role to be played by RRB’s.
Hence, it is to be considered as the basis for not only establishment but also
enhancement of the activities or function of RRB’s in th ecountry.
Similarly,
considering the nature of rural setup and requirements of rural activities
Charan Wadhava5 suggested that there should be separate banks –
called as rural banks to meet the rural credit needs this author is of the view
that the RRB’s should be made as rural peoples bank. In other words it is the
rural people whose money should be mobilized in the form of deposits and should
be able to give credit to different rural activities including the agriculture.
The important non-agricultural activities which need credit, according to him
are the rural artisan, fisherman, weaver and footwear makers. These sections of
the society needs to be given credit for their efficient operation. Besides
Wadhava also suggested that the rural banks (RRB’s) should provide credit to
the activities such as dairy, poultry, animal husbandary etc. In particular he
felt that the rural banks should meet the needs of various farming activities
such as purchase of seeds crop loans, crop protection, crop harvesting and crop
marketing activities. Further he also emphasized the exponded role of RRB’s so
that they should provide credit to buy tractor, trollys and other tools and
implements including machinariers.
Similarly,
RBI committee appointed during 1981 too recommended that besides the credit to
agriculture are rural activities the RRB’s should promote, though in a small
way the rural industries in particular the household and cottage industries,
the carpentary, making agricultural tools and implements suiting to the needs
of farmers. The RRB’s should also extend credit to the development of
sericulture, plantation and the establishment of bio-gas plants in the rural
areas.
Mr. Sivaram
B. than the Financial Secretary and member of the RBI committee argued in his
special note that there is need for not only enhancement of the quantity of
credit but also provide the credit at a convenient rate of interest.
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