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Indian Economic Policy

Notes much to the improvement of the financial position of the farmers. A large number of factors are
responsible for the relative ineffectiveness of CARDBs.
Problem of overdues : Mounting overdues in most of the CARDBs have crippled the structure badly,
in recent years. Overdues at the level of PCARDBs have been put between 42 to 44 per cent. Overdues
have caused innumerable financial problems besides limiting the capacity of these banks to lend and
operate as viable units. The financial discipline imposed on the banks in the matter of eligibility to
undertake fresh lending based on recovery performance has been the main limiting factor for
quantitative growth of credit operations. To some extent, the banks them-selves are to be blamed for
this predicament due to faulty loaning policies, inadequate supervision, over-utilisation of loans,
ineffective measures for recovery etc. Which have contributed to the deterioration in recovering the
loans. Even when the wilful defaulter’s lands are attached and auctioned under the provision of law,
the banks find few coming forward to purchase such lands. Various suggestions for making the
coercive measures effective have largely remained unimplemented at the levels of State governments.
With large overdues, restricted lending eligibility and financial problems, the operations of the banks
in a few states have come to a standstill. Unfortunately, there are neither permanent arrangements to
rehabilitate borrowers and banks, nor any credit stabilisation arrangements take care of overdues
affected by national calamities and other factors beyond the control of CARDBs and the borrowers.
Overdues, however, are not peculiar to CARDBs alone. The position is equally bad in other sectors of
rural credit. Some serious thinking is called for to remedy the situation at the higher levels before the
institutional rural credit arrangements are put out of gear.
Future of CARDBs

Since the Seventh Plan, the CARDBs were the main institutional agency to implement the minor
irrigation programmes. Apart from minor irrigation, the CARDBs are also stepping up their credit
assistance to several other agricultural development activities and for various subsidiary occupations.
The integrated rural development programme now covers the entire country to improve the rural
economy and institutional agencies including the CARDBs are involving themselves effectively to
support various productive activities which, besides supplementing the income of the people, result
in creating employment potential in rural areas.

Commercial Banks and Rural Credit
An important argument in support of bank nationalisation was that commercial banks had kept
themselves aloof from the problems of agriculture and had remained largely indifferent to the credit
needs of farmers for agricultural operations and land improvement. When social control of banks
was introduced in 1967, a rapid expansion in bank branches in rural areas was started. By July 1969,
all commercial banks had over 1,860 branches in rural and semi-urban areas; this number had increased
to over 30,585 by June 2006. There were 3,07,17,195 million agricultural borrowing accounts with
commercial banks amounting to ` 3,08,087 crores (2007-08), as compared to only 0.2 million accounts
with total outstanding advances to the extent of about ` 160 crores in June 1969. A large number of
village co-operatives are among the borrowers, some of them borrowing from other financial agencies
as well.
Direct Finance by Commercial Banks

At the time of bank nationalisation, it was clearly conceded that the commercial banks did not have
the necessary experience or the personnel to deal with the farmers directly, while the co-operatives
had been specialising in rural credit since the beginning of the century. Even then, the nationalised
banks were expected to go vigorously in support of the farmers in general and the small cultivators
in particular. In the initial stages, for obvious reasons, the nationalised banks concentrated their
attention on large cultivators and other special category farmers such as those engaged in raising
high-yielding varieties of foodgrains. At present short term crop loans account for nearly 42 to 45 per
cent of the total loans disbursed by the commercial banks to farmers. Term loans for varying periods
for purchasing pump sets, tractors and other agricultural machinery, for construction of wells and
tube-wells, for development of fruit and garden crops, or levelling and development of land for the

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