Page 169 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 14: Rural Credit and Marketing

(b) The share of RRBs continue to reamain low (around 10 percent). Notes
(c) The share of commercial banks has been steadily rising and reached 74 percent in 2009-10. It
would be a good idea if cooperative banks and RRBs are made subsidiaries of commercial
banks.
Shortcomings of Institutional Credit
Way back in 1950 the private money-lender reigned supreme in rural India and institutional sources
met no more than three per cent of the credit requirements of farmers. Thanks to progressive
institutionalisation of agricultural credit under the Five Year Plans, over 60 per cent of the required
short-term (including medium-term) production credit is now provided by co-operatives, commercial
banks, and RRBs in many States.
It should, however, be remembered that all the changes and improvements in the last 30 years in the
field of rural credit appear to have failed to make a dent on poverty and provide adequate credit to
improve the economic condition for the bottom 70 per cent of our rural population. In this connection,
it can be safely asserted :
(i) The many new institutions created by the Government and the vastly extended facilities of
rural finance provided by these institutions have generally been appropriated by the top 30 per
cent of middle and affluent farmers in the country.
(ii) Even those credit facilities exclusively created for marginal and small farmers and for
economically backward classes do not reach the target groups but are misappropriated by more
affluent farmers through collusion with government officials and politicians.
(iii) Precious little is being done for the weakest of the rural population consisting of bonded
labourers, landless agricultural labourers, tribals, scheduled castes’ and scheduled tribes, etc.
These people, constituting about 25 to 30 per cent of the total rural population, continue to be
cruelly exploited by the high caste money-lenders and landlords.
This has led to extensive suicides by farmers all over the country, specially in Andhra and
Karnataka.

Problems of Multi-agency Approach
The government was of the view that multi agency approach to rural credit was the real solution to
the emancipation of small farmers from the clutches of money lenders. But the Working Group under
the chair-manship of C. E. Kamath brought out the following problems of multi-agency approach :
(i) There has been a steady declining trend in the share of cooperative banks in the flow of
institutional credit over the years - from 55% in 1984-85 to 40% in 1999-00 and further to 28% in
2004-05. This indicates the need of restructuring and reforming these banks.
(ii) There was no coordination between different agencies operating in the same area and, as a
result, there was multiple financing, over-financing in some areas and under-financing in others.
(iii) Despite the adoption of lead bank scheme and district credit plans, the different agencies often
failed to formulate and develop meaningful agricultural credit programmes in given blocks
and districts.
(iv) Despite guidelines issued by RBI, different agencies adopted different procedures and policies
in the matter of providing loans and in their recovery. The result was unnecessary competition
among the different agencies.
(v) There were practical problems in the recovery of loans when different agencies had lent to the
same persons against the same securities. Ultimately, there were heavy overdues.
The recently introduced “service area approach” (SAA) is definitely an improvement in the credit
delivery system but it does not do away with the weakness of the multiple agency approach.
The major problem faced by the lending institutions, particularly the cooperatives, is the most
unsatisfactory level of overdues. The ratio of overdues to demand is around 40 to 42 per cent in the
case of co-operatives and 47 per cent in the case of regional rural banks. Accordingly, the health of

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