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Unit 14: Rural Credit and Marketing

worth ` 2,900 crores in 2005-06 and the amount of loans outstanding at the end-March 2006 was ` Notes
17,710 crores.
The Structure of CARDBs

The long-term credit structure consists of the central land development banks generally one for each
State and are now called State Cooperative Agricultural Rural Development Banks (SCARDBs) and
Primary Cooperative Agricultural Rural Development banks (PCARDBs). In some States, there are
no primary land development banks but in their place, there are branches of central land development
banks. In Madhya Pradesh, the State Co-operative Bank itself functions as a central land development
bank through a separate land development banking department. In Andhra, Kerala and Maharashtra,
there are more than one central land development banks and efforts are being made to integrate
them into a unified bank for the whole State. Similarly, there are considerable differences in the
organisation of PCARDBs in different States.
Finances of CARDBs
CARDBs obtain their funds from share capital reserves, deposits and issue of bonds or debentures.
However, the last is the most important. Debentures are long-term loans which are issued by SCARDBs,
carrying fixed interest and for fixed periods, generally up to 20 years. These debentures are guaranteed
by State Governments in respect of payment of interest and repayment of principal. They are
sub-scribed by the LIC, the commercial banks, the State Bank of India and its subsidiaries and by the
Reserve Bank of India. Besides ordinary debentures, SCARDBs float rural debentures for periods up
to 7 years which are subscribed by farmers and panchayats and by the Reserve Bank of India (up to
66 per cent of the value of the rural debentures). In recent years, the substantial refinance facilities
provided by NABARD to SCARDBs have helped enlarge the lending operations of these banks.
Loan Operations of CARDBs

The main function of CARDBs is to grant loans on the security of agricultural properties :
(a) Since they grant loans which run for several years, strict rules are laid down with regard to the
security against which they can advance loans.
(b) Generally, these banks restrict their loans to first mortgage of agricultural property, though in
a few cases they may advance loans against the security of second mortgage as well.
(c) They generally lend up to 50 per cent of the value of the security. In order to assess the value of
land against which they lend they employ experts who assess the value of land and are
conversant with local conditions. In assessing the value of land such factors as the amount of
land tax paid, the rental value of land, gross and net income from the land, sale value of the
land etc., are taken into account.
(d) While granting loans the banks consider not only the value of the security offered but also
examine the repaying capacity of the applicants.
(e) Finally, they are able to lend at fairly low rates of interest and enable the needy farmer to secure
funds for long periods.
CARDBs provide credit for a variety of purposes such as redemption of old debts, improvement of
land, purchase of costly agricultural equipment, construction of wells and erection of pumps and so
on. At one time, the redemption of old debts was the most important and, in a sense, the only purpose
for which the farmers approached the land development banks. In recent years, however, farmers
have been borrowing from CARDBs mainly for the purpose of land improvement and development
including sinking of wells (56 per cent) and purchase of agricultural machinery (30 per cent).
Problems of CARDBs
Land development banking is yet to take strong roots in India barring a few States. However, CARDBs
have contributed in large measure to agricultural development by lending specially for minor
irrigation. All their loans are for productive purposes benefiting mostly the small farm holders. Though
land development banking has made considerable progress in recent years, it has not really contributed

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