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Unit 14: Rural Credit and Marketing

purchase of plough animal, etc. are provided. These term loans account for about 35 to 37 per cent of Notes
the total loans disbursed by commercial banks.
Finally, commercial banks extend loans for such activities as dairying, poultry farming, piggery, bee
keeping, fisheries and others—these loans account for 15 to 16 per cent. Regionwise, Southern region
accounts for the bulk of the credit disbursed by commercial banks viz., 52 per cent of the total credit
extended.
Commercial Banks and IRDP

Since October 1980, the Government has extended the integrated rural development programme
(IRDP) to all development blocks in the country and has asked the commercial banks to finance
IRDP. The leading banks have to prepare banking plans, and allocate the responsibility of financing
the identified beneficiaries among the participating banks. It has been found that commercial banks
have not implemented IRDP enthusiastically. But commercial banks have valid reasons for their
lukewarm attitude.
In the first place, commercial banks have been asked to finance all economically and backward people
identified by government agencies. Commercial banks have found that most of the affluent farmers
have managed to get their names inserted in the beneficiaries list through paying the Government
officials or through using political pressure. In other words, all the prospective borrowers are not
really economically backward and banks have the responsibility to find out the eligible beneficiaries.
Secondly, commercial banks have found that all the beneficiaries do not utilise the loans for which
they are granted. In many cases, the farmers may use the bank loans for unproductive purposes but
may produce receipts of purchase of buffaloes through bogus sellers (who may oblige for a
commission). Commercial banks have to ascertain the credibility of sale-purchase transactions before
disbursing loans.
Finally, small and marginal farmers are fleeced by petty government officials, veterinarians, local
politicians and panchayat samiti members before they could become beneficiaries of bank loans.
Ultimately it is the banks which suffer due to heavy overdues. Accordingly, banks are reluctant to
finance IRDP.
Indirect Finance by Commercial Banks

Even though the scope for direct financing by commercial banks would be limited for some years to
come, there is considerable scope for indirect financing by commercial banks. For instance, commercial
banks are financing co-operative societies to enable them to expand their production credit to the
farmers. More especially, they increasingly finance co-operatives engaged in the marketing and
processing of agricultural produce or in activities ancillary to agriculture such as dairy farming,
poultry farming etc. In this connection., the State Bank of India and its subsidiaries are already playing
an active role in financing co-operative marketing and processing.
Commercial banks are providing indirect finance for the distribution of fertilisers and other inputs.
Commercial banks extend credit to manufacturing or distribution firms and agencies and co-operatives
engaged in the supply of pumpsets and other agricultural machinery on a hire-purchase basis. They
finance the operations of the Food Corporation of India, the State Government and others in the
procurement, storage and distribution of foodgrains.
Finally, commercial banks increasingly subscribe to the debentures of the central land development
banks and also extend advances to the latter. This enables land development banks to expand their
medium and long-term advances to farmers for purposes of land improvement and land development.
Commercial Banks and Small Farmers
It has been estimated that nearly 70 per cent of farmers owning less than 2 hectares of land are not
getting bank credit; only large landowners have been found creditworthy and suitable for bank
advances. But such a situation cannot continue for long. Under the direction of the Planning
Commission, Small Farmers Development Agencies (SFDAs) have been set up to identify small farmers
and work out economically viable schemes of agricultural development. Commercial banks have to
group them into various categories for credit support so as to enable them to become viable cultivators.

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