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    1 Rural Indebtedness, Assets and Credit: Inter-State Variations in India

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    ashwatinair
    1. Rural credit in India was traditionally dominated by non-institutional lenders like money lenders, as banking and cooperatives were still developing. Rural households needed credit for both productive purposes like farming inputs and fixed assets, as well as unproductive purposes like ceremonies and litigation. 2. While non-institutional lenders still provided most rural credit in the 1950s-60s, nationalization of banks in 1969 and expansion of institutional credit since then has increased rural households' access to formal credit. However, rural areas remain largely underbanked. 3. For banks to be more effective in rural lending, they need to simplify processes, provide insurance against crop failures, and operate more like local money l

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    1 Rural Indebtedness, Assets and Credit: Inter-State Variations in India

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    ashwatinair
    277 views4 pages
    1. Rural credit in India was traditionally dominated by non-institutional lenders like money lenders, as banking and cooperatives were still developing. Rural households needed credit for both productive purposes like farming inputs and fixed assets, as well as unproductive purposes like ceremonies and litigation. 2. While non-institutional lenders still provided most rural credit in the 1950s-60s, nationalization of banks in 1969 and expansion of institutional credit since then has increased rural households' access to formal credit. However, rural areas remain largely underbanked. 3. For banks to be more effective in rural lending, they need to simplify processes, provide insurance against crop failures, and operate more like local money l

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    Rural Credit

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    1. Rural credit in India was traditionally dominated by non-institutional lenders like money lenders, as banking and cooperatives were still developing. Rural households needed credit for both productive purposes like farming inputs and fixed assets, as well as unproductive purposes like ceremonies and litigation. 2. While non-institutional lenders still provided most rural credit in the 1950s-60s, nationalization of banks in 1969 and expansion of institutional credit since then has increased rural households' access to formal credit. However, rural areas remain largely underbanked. 3. For banks to be more effective in rural lending, they need to simplify processes, provide insurance against crop failures, and operate more like local money l

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    277 views4 pages

    1 Rural Indebtedness, Assets and Credit: Inter-State Variations in India

    Uploaded by

    ashwatinair
    1. Rural credit in India was traditionally dominated by non-institutional lenders like money lenders, as banking and cooperatives were still developing. Rural households needed credit for both productive purposes like farming inputs and fixed assets, as well as unproductive purposes like ceremonies and litigation. 2. While non-institutional lenders still provided most rural credit in the 1950s-60s, nationalization of banks in 1969 and expansion of institutional credit since then has increased rural households' access to formal credit. However, rural areas remain largely underbanked. 3. For banks to be more effective in rural lending, they need to simplify processes, provide insurance against crop failures, and operate more like local money l

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    1

    Rural Indebtedness, Assets and Credit: Inter-State Variations in


    India
    1. Introduction
    Till Independence in India, the credit requirements of rural
    households were mainly met from the non-institutional sources, as the
    banking and cooperative movement were in the nascent stages. The rural
    households, both cultivators and non-cultivators, require credit for the
    productive and nonproductive purposes. Even now the purposes remain
    the same. At present, the productive purposes of cultivators include loans
    both working capital and fixed capital. Working capital is used to buy seeds,
    fertilisers, pesticides, etc., and to pay taxes to the government, etc. Fixed
    capital is meant for permanent improvements on land, digging and
    deepening of wells, fencing of land, and for purchasing implements and
    machinery, etc. Non-cultivators also use loans for creation of income
    generating assets in the sense of formation of fixed capital and for
    circulating capital in the sense of working capital. The unproductive
    purposes are the same for both the cultivators and non-cultivators, such as
    celebration of marriages, births and deaths, for litigation, etc.
    Rural credit was dominated by the non-institutional (unorganized or
    private) sector in both 1951-52 and 1961-62 as that sector provided about
    93.0 percent of the total borrowings in 1951-52 and 82.0 percent of such
    borrowings in 1961-62 (Ghatak, 1976). The non-institutional sources were
    mainly agricultural and professional money lenders. Even by the early
    1970s, the studies in Eastern India of Bhaduri (1973), Prasad (1973) and
    Chandra (1975) theorized that prevailing agrarian relations were ofsemi-
    feudalism, as the rural exploiters were operating both as land-owners and
    money-lenders, subjecting the share cropper tenants, marginal farmers and
    agricultural labourers to involuntary exchange in rural credit, land and
    product markets so that they were in perpetual indebtedness. The data of
    village level studies of Bhaduri and Chandra was related to the early 1970s
    in West Bengal and that of Prasad belonged to Bihar of early 1970s. But,
    Bardhan and Rudra (1978) conducted a large scale survey in the East
    India, involving 276 villages from three States viz., West Bengal, Bihar and
    Uttar Pradesh (East) and their study could not find many of the so called
    semi-feudal characteristics. Thus, in this Eastern India syndrome (as aptly
    called by Thorner (1982)), Bardhan and Rudra concentrated on refutation
    of semi-feudal thesis.
    However, after the nationalisation of banks in India, on 19th July
    1969, a lot of change in the operation of institutional credit in rural areas
    has been seen. As per Clive (1990), as shown in Table-1, the shares of
    debt from non-institutional sources came down (i) for total households from
    92.8 percent in 1951 to 82.7 percent in 1961 and then to 70.8
    rural india remains largely unbanked even today.
    financial inclusion and similar high sounding
    initiatives havent made a dent yet. probably because
    bankers have no understanding of the needs of rural
    india. it is definitely not high tech banking that
    villagers are looking for. they arent looking for a
    place to deposit their surplus cash either. as they
    have no cash . they arent fascinated by any time money
    ( ATM ) machines too. what they want is loan to run
    their farms . they are definitely not comfortable with
    paper work and the delay. rural folk are no cheats. if
    they make money they will definitely repay the loan. if
    they lose money the loan is stuck. no choice there. so
    what the banks should do in rural areas is (1) lend
    money . know the customer and just lend . keep the
    procedure simple.(2) put an insurance in place . if the
    farmer lose money for genuine reasons waive the debt.
    in short banks should imitate the local money lender if
    it is to take root in the rural areas.

    Lending by Commercial Banks


    . With greater autonomy and private sector participation in public
    sector banks, the institutional structure of branch network should
    not be diluted.
    . As most new banks lack the capacity to either appraise or effec-
    tively supervise lending, specialized support agencies need to be
    developed or earmarked on sectoral as well as regional basis to
    help them meet their mandatory lending requirement
    efficaciously.
    . The banks should recruit agricultural graduates for rural
    branches
    and should take the help of local NGOs, self-help groups or
    village development functionaries in the appraisal of loan applica-
    tions to save time and cost.
    . Banks should tie up with the corporate sector, processors,
    contractors under contract farming arrangements and related
    firms
    for funding farmers and thereby linking marketing with credit.
    For establishing such linkages banks should also take the
    initiative
    in organizing the farmers into homogeneous groups.

    Lending by RRBs
    . RRBs should be given greater autonomy and flexibility in
    planning
    and lending policies, to restore their comparative advantage in
    rural lending.
    . They should take the initiative in organizing farmers into homo-
    geneous groups or farmers. companies for linking credit with
    input supply and output marketing.
    Lending by Cooperatives
    . The cooperative credit system should be rejuvenated by
    recapitaliz-
    ation and giving the cooperatives greater autonomy and infusing
    greater professionalism. A package of Rs. 15,000 crore, as recom-
    mended by the Task Force (submitted in January 1995) should
    be expeditiously implemented.
    . States should be allowed to borrow from RIDF for meeting their
    share for recapitalization of cooperative banks.
    . For imparting greater autonomy and accountability to coopera-
    tives, states should adopt the Model Bill suggested by the
    Chaudhary Brahma Prakash Committee. Also, cooperative banks
    should be brought under the supervisory control of
    RBI/NABARD.
    . The cooperative credit system should be de-layered, i.e. where
    district central cooperative banks (DCCBs) are weak, state
    cooperative banks (SCBs) should finance directly to primary
    agriculture credit societies (PACSs), and where PACSs are weak,
    primary cooperative agriculture and rural development banks
    (PCARDBs) should be liquidated. Also, weak DCCBs should be
    taken over by SCBs.
    . States should be persuaded to take folow-up action on the Multi-
    State Cooperatives Act, passed in 2002.
    . PACSs should be asked to mobilize deposits, conduct open forum
    meetings, take initiatives in nurturing self-help groups of their
    areas and introduce a system of audit by professionals.
    . While the term-lending credit structure and short-term
    credit
    structure within cooperatives should be integrated, care should
    be taken that the already weak long-term credit structure does
    not weaken the short-term credit structure. Several options are
    available. One is to permit short-term credit institutions to
    disburse
    long-term credit. Two, strong long-term institutions can be
    merged
    with short-term institutions. Three, very weak long-term
    institutions
    may be liquidated. Four, to those long-term institutions which
    are neither too weak nor strong, three to five years package may
    be given to improve; when they become viable, they may be
    merged with short-term institutions.

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