Problems faced by banks in Agricultural

Finance

9151 Nutan Shingare

9169 Pranali
Mutadak
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Introduction
Professional money lenders

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Types of credits
On basis of TIME
 Short term(For periods up to 15 months )
 Medium term(from 15 months up to 5 years )
 Long term(above 5 Years)

On basis of purpose
 Productive
 Consumption
 Unproductive

Institutional agencies do not grant credit for unproductive and

consumption purposes
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Problems faced by farmers
Dependence on unpredictable monsoon
The instability of farm output and prices
 Small size of holding
Seasonality of operations
Large time required in getting loans granted

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Problems faced by Banks
1. Structural problems
2. Problems of communication and control of rural branches
3. Cost and profitability of rural branches

 Creation of charge on land as there may be many names in

land records
 Valuation of agricultural produce
 Different laws in different states
 Government policies
 Lack of knowledge of various schemes

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Poor Recovery

Required for the flow of credit and credit programs

Working capital remains frozen
 Intuitions become a Burdon rather than incentive
Result of overdue volumes of credit gets thinner
Number and amounts of loans outstanding may
remain the same or increase

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Required reforms for Poor Recovery
 Flexible and imaginative policy towards
repayment

 Varying slab of repayment acc. to the

productivity of the loan should be planned

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4 essential principle
1. Principle sum of the loan should ordinarily amortized
completely during the term of the loan
2. Repayment should be scheduled over sufficiently long
period of time to enable the farmer to erect ordinarily the
schedule payment without sacrificing
3. Term of loan should not be long enough to make the
interest cost excessive in relation to the annual principle
amortization payment
4. Date of principle and interest payment should coincide
with the time at which sales of farm products are likely to
be large

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Credit worthiness
Difficulties in assessing Credit worthiness in small
scale agricultural units
Farmers don’t have no other security than land
Long and tedious delays in investigations and
classification of title
Finance institutions face with the choice of being
owner of large areas of land for administrating or
selling the land at loss
Small farmer have less tangible insecurity, lower
technical capacity, and less ability to present his case.

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New concept of Credit worthiness
Terms and conditions relating to security should be flexible.
Lending should be production oriented. E.g.. The size of the
loan being related to the outlay on the crops.
Life insurance policies
Cattle insurance policies
Machinery mortgage
 Group Guaranty Scheme
In the absence of tangible security Personal Security Income
ability as security and moral security(Japanese experiment)

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Interference by Local Big-wigs

Loans are given to the farmers who are not in need and
farmers who are in need get less amount of loan or less
because of local leaders
Due to this cost of the agricultural loan becoming
overdue
Wrong channeling of funds reduces the degree of
utilization
This is decreasing the faith of the common man on
banking system

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PROBLEMS FACED BY CREDIT CO-
OPERATIVE BANKS
Heavy dependence on outside funds.
Problem of high level of over dues.
High level of NPAs.
Substantial losses.
PACS are too small in size to economical and viable.
Greater benefits to Larger landowner.

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COMMERCIAL BANKS
Rapid Expansion and Diversification.
Large no. of small advances.
Reduction of margin available.
Bad recovery position.
Decline in credit deposit ratio.
Reduction of loan to small farmers.

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REGIONAL RURAL BANKS.

RRB to supplement the efforts of the commercial

banks and cooperatives.
Act as an device which combined the local feel and
familiarity with the rural problems.
Rural credit is to be provided at lower cost.
Staff of RRBs was to be recruited from the
neighboring area.

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Problems of RRB.
Organizational Problem.
Problems of recovery.
Mounting losses leading to Non-Viability.
Management Problems.

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Functions of NABARD
It took over from RBI all functions of rural credit
Works as an apex body.
Provides short term credit (up to 18 months).
Provides medium term credit (18 months to 7 years).
Provides long term assistance in the form of loans.
Responsibility of inspecting District and state
cooperatives RRBs.
It maintains R&D funds to be used to promote
research in agriculture.

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 Conclusion
No banker can be successful in agriculture who takes
merely conventional view of bank business.

Only that banker can succeed who can be more than

banker In other words non banking functions of the
banker that will make his banking succeed

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Thank you

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