Agricultural credit institution

1. Agricultural Credit Institution
Vaibhav

3. Introduction
• Banks are the heart-beat of a nation’s economy and provide an
overview of how the country’s economic growth and financial
activities will perform. All major banks are considered commercial
according to the basic structure as provided in the Reserve Bank of
India Act 1934. However, there are other categories in banking like
Small Finance bank, Payments bank and Co-operative bank under
the scheduled bank category. Commercial banks can further be
categorized into Public Sector banks, Private sector banks, Foreign
Banks, and Regional Rural Banks.
• Commercial banks are regulated under the Banking Regulation Act
1949 and enable a bank to carry out business operations of keeping
money as deposits and grant loans to the public, corporates and the
government itself.

4. Co-operative Banking
•A Co-operative bank is a financial entity which belongs to its
members, who are at the same time the owners and the
customers of their bank.
•Co-operative banks in India are registered under the States
Cooperative Societies Act. The Co-operative banks are also
regulated by the Reserve Bank of India (RBI) and governed
by the
• Banking Regulations Act 1949
• Banking Laws (Co-operative Societies) Act, 1955.

5. Features of Cooperative Banks:
• Customer Owned Entities: Co-operative bank members are both
customer and owner of the bank.
• Democratic Member Control: Co-operative banks are owned and
controlled by the members, who democratically elect a board of
directors. Members usually have equal voting rights, according to the
cooperative principle of “one person, one vote”.
• Profit Allocation: A significant part of the yearly profit, benefits or
surplus is usually allocated to constitute reserves and a part of this
profit can also be distributed to the co-operative members, with legal
and statutory limitations.
• Financial Inclusion: They have played a significant role in the financial
inclusion of unbanked rural masses.

7. Advantage of Cooperative Banking
• Cooperative Banking provides effective alternative to the traditional
defective credit system of the village money lender.
• It provides cheap credit to masses in rural areas.
• Cooperative Banks have discouraged unproductive borrowing personal
consumption and have established the culture of productive borrowing.
• Cooperative credit movement has encouraged saving and
investment, instead of hoarding money the rural people tend to deposit
their savings in the cooperative or other banking institutions.
• Cooperative societies have also greatly helped in the introduction of
better agricultural methods. Cooperative credit is available for purchasing
improved seeds, chemical fertilizers, modern implements, etc
• Cooperatives Banks offers higher interest rate on deposits.

8. Problems with Cooperative Banking in India
• Organisational and financial limitations of the primary credit societies considerably
reduce their ability to provide adequate credit to the rural population.
• Large amounts of overdues restrict the recycling of the funds and adversely affect
the lending and borrowing capacity of the cooperative.
• Most of the benefits from the cooperatives have been covered by the big land
owners because of their strong socio-economic position.
• Cooperative Banks are losing their lustre due to expansion of Scheduled Commercial
Bank and adoption of technology. They are also facing stiff competition from payment
banks and small-finance banks.
• Long-term credit extended by them is declining.
• Regional Disparities: The cooperatives in northeast states and in states like West
Bengal, Bihar, Odisha are not as well developed as the ones in Maharashtra and
Gujarat. There is a lot of friction due to competition between different states, this
friction affects the working of cooperatives.
• Political Interference: Politicians use them to increase their vote bank and usually get
their representatives elected over the board of director in order to gain undue
advantages.

9. Case of Punjab and Maharashtra Cooperative (PMC) Bank
•Restrictions imposed by RBI on withdrawals of money from
PMC bank highlighted the strong case of malfunctioning in dual
regulatory system in urban cooperative banking system.
•In above PMC case, there are three major problems- financial
irregularities, failure of internal control and system, and
underreporting of exposures.
•PMC Bank has extended 73% of its assets to HDIL which
created a panicky situation for depositors.
•Since, PMC has deposits from other smaller cooperatives
banks, the financial irregularities which includes governance
and transparency issues will likely to have multi-dimensional
impact.

11. Commercial banks in India
• Commercial banks in India are the backbone of all major economic activities in the country, whether
it is for the citizens to keep their hard-earned money safely or get loans whenever they need funds
for important things like a home, wedding, a car or for business. It won’t be an analogy to say that
banks and businesses run hand in hand, as without adequate credit support, businesses find it hard to
flourish, and vice versa.
• Scheduled and Non-scheduled Banks:
• Scheduled banks are those banks which are listed in the second schedule of the RBI Act 1934. These
banks are licensed after they fulfil certain statutory conditions such as a paid-up capital of minimum ₹
50 Lakh and must satisfy the CRAR norms as prescribed by the RBI.
• On the other side, non-scheduled banks are mainly the local area banks, and there are very few of
them. These banks are not under any obligation to fulfil CRAR norms or keep reserves. They work on
the lines of a cooperative society and help people in need with mutual aspirations. A few local area
banks are: Coastal Local Area Bank Ltd (Vijayawada), Capital Local Area Bank Ltd (Phagwara),
Subhadra Local Area Bank Ltd (Kolhapur) and a few others.
• Now, if we talk about the major categories that fall under the commercial bank, here are a few details
regarding the same
• Public Sector Banks
• Private Sector Banks
• Foreign Banks
• Regional Rural Banks

12. Commercial banks
• The commercial banks help the large agricultural sector in developing
countries in a number of ways. They provide loans to traders in
agricultural commodities. They open a network of branches in rural
areas to provide agricultural credit. They provide finance directly to
agriculturists for the marketing of their produce, for the modernisation
and mechanisation of their farms, for providing irrigation facilities, for
developing land, etc.
• They also provide financial assistance for animal husbandry, dairy
farming, sheep breeding, poultry farming, pisciculture and horticulture.
The small and marginal farmers and landless agricultural workers,
artisans and petty shopkeepers in rural areas are provided financial
assistance through the regional rural banks in India. These regional rural
banks operate under a commercial bank. Thus the commercial banks
meet the credit requirements of all types of rural people.

13. Regional Rural Banks
• These banks also fall under the category of scheduled commercial
banks of small scale, the main objective behind the formation of such
banks is to provide credit support to economically weaker sections of
the society like labourers, farmers, rural traders and small business
owners. Most of these banks are regional as the name suggests,
means these banks operate in particular regions and might have
branches in the metropolitans as well.
• These rural banks work on specific lines and serve major functions
like providing financial credit support to rural and semi-urban areas,
provide support for government schemes by processing payments for
the national pension scheme and MGNREGA beneficiaries. These
banks are considered no less as compared to the nationalized banks,
as they also provide card and locker facilities to their customers.

14. Features of RRBs
• As these banks were more suitable for rural development work,
preference should be given to them to open branches in rural banks.
• The eligible business of commercial banks rural branches may be
transferred to RRBs
• The losses in initial years of RRBs may be met by shareholders &
equity capital should also be raised.
• The various facilities provided by sponsor banks should continue for
10 years in each case.
• Concessionary refinance by RBI should be continued.
• The control, regulatory and promotional responsibilities relating to
RRBs should be transferred from the Government of India to RBI or
NABARD.

15. Working of RRBs
•RRBs have done mainly two works:
•Grant of Credit at cheap or concessional
rates
•Lending to individuals belonging to weaker
sections without checking the viability of the
activity proposed to be undertaken.

16. Objectives of Regional Rural Banks
Regional Rural Banks were established with the following objectives in mind:
• i.)Taking the banking services to the doorstep of rural masses, particularly in
hitherto unbanked rural areas.
• ii.)Making available institutional credit to the weaker sections of the society
who had by far little or no access to cheaper loans and had perforce been
depending on the private money lenders.
• iii.)Mobilize rural savings and channelise them for supporting productive
activities in rural areas.
• iv.)To create a supplementary channel for the flow the central money market
to the rural areas through refinances
• v.)Generating employment opportunities in rural areas and bringing down the
cost of providing credit to rural areas.
With these objectives in mind, knowledge of the local language by the staff is an
important qualification to make the bank accessible to the people.

17. Organizational structure
• The organizational structure for RRB's varies from branch to branch and depends upon
the nature and size of business done by the branch. The Head Office of an RRB
normally had three to nine departments.
• The following is the decision making hierarchy of officials in a Regional Rural Bank.
• Board of Directors
• Chairman & Managing Director
• General Manager
• Assistant General Manager
• Regional Manager/Chief Manager
• Senior Manager
• Manager
• Officer
• Office Assistant
• Office Attendant

18. Amalgamation
Currently, RRB's are going through a process of amalgamation and
consolidation. 25 RRBs have been amalgamated in January 2013 into
10 RRBs. This counts 67 RRBs till the first week of June 2013. This
counts 56 as of March 2015. On 31 March 2016, there were 56 RRBs
(post-merger) covering 525 districts with a network of 14,494
branches. All RRBs were originally conceived as low cost institutions
having a rural ethos, local feel and pro poor focus. However, within a
very short time, most banks were making losses. The original
assumptions as to the low cost nature of these institutions were
belied. This may be again amalgamated in near future. With the
third phase of amalgamation of RRB bringing down the number of
such entities to 38 from 56. As of 1 April 2020, there are 43 RRBs in
India.

19. National Bank for Agriculture and Rural Development (NABARD)
• NABARD is a development bank focussing primarily on the
rural sector of the country. It is the apex banking institution
to provide finance for Agriculture and rural development. Its
headquarter is located in Mumbai, the country’s financial
capital.
• It is responsible for the development of the small industries,
cottage industries, and any other such village or rural
projects.
• It is a statutory body established in 1982 under
Parliamentary act-National Bank for Agriculture and Rural
Development Act, 1981.

20. Functions
• NABARD’s initiatives are aimed at building an empowered and financially inclusive rural India through specific
goal oriented departments which can be categorized broadly into three heads: Financial,
Developmental and Supervision.
• It provides refinance support for building rural infrastructure.
• It prepares district level credit plans to guiding and motivating the banking industry in achieving these targets.
• It supervises Cooperative Banks and Regional Rural Banks (RRBs) and helping them develop sound banking
practices and integrate them to the CBS (Core Banking Solution) platform.
• Core Banking Solution (CBS) is networking of branches, which enables Customers to operate their
accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he
maintains his account. The customer is no more the customer of a Branch. He becomes the Bank’s Customer.
• It is involved in designing Union government’s development schemes and their implementation.
• It provides training to handicraft artisans and helps them in developing a marketing platform for selling these
articles.
• NABARD has various international partnerships including leading global organizations and World Bank-
affiliated institutions that are breaking new ground in the fields of rural development as well as agriculture.
• These international partners play a key consultant’s role in providing advisory services as well as financial
assistance designed to ensure uplifting of rural peoples as well as optimization of various agricultural
processes.

21. NABARD and RBI
• Reserve Bank of India is the central bank of the country with sole
right to regulate the banking industry and supervise the various
institutions/banks that also include NABARD defined
under Banking Regulation Act of 1949.
• Many developmental and regulatory works are done by RBI and
NABARD in co-operation.
• RBI provides 3 directors to NABARD’s Board of Directors.
• NABARD provides recommendations to Reserve Bank of India on
issue of licenses to Cooperative Banks, opening of new
branches by State Cooperative Banks and Regional Rural
Banks (RRBs).

22. Governance
• NABARD's affairs are governed by a Board of Directors. The Board of Directors
are appointed by the Government of India in consonance with NABARD Act. It is
constituted of following:
• The Chairperson;
• 3 directors from amongst experts in
• rural economics,
• rural development,
• village and cottage industries,
• small-scale industries,
• or persons having experience in the working of co-operative banks, regional rural banks or commercial
banks,
• or any other matter the special knowledge or professional experience which is considered by the Central
Government as useful to the National Bank;
• 3 directors from out of the directors of the Reserve Bank;
• 3 directors from amongst the officials of the Central Government;
• 4 directors from amongst the officials of the State Government;

23. • such number of directors elected in the prescribed manner, by
shareholders other than the Reserve Bank, the Central Government and
other institutions owned or controlled by the Central Government;
• The Managing Director;
• The Chairperson and other directors (except elected ones by share-
holders and officials of the Central Government) shall be appointed by
the Central Government in consultation with the RBI.
• Executive Committees
• The Board of Directors may constitute an Executive Committee consisting
of such number of directors (called Executive Director) as may be
prescribed.
• The Executive Committee shall discharge such functions as may be
prescribed or may be delegated to it by the Board.

24. Financial Contribution
• Long Term Loans: NABARD's long-term refinance provides credit to financial institutions for
a wide gamut of activities encompassing farm and non-farm activities with tenors of 18
months to more than 5 years.
• Rural Infrastructure Development Fund (RIDF): It was set up with NABARD in 1995-96 by the
RBI out of the shortfall in lending to priority sector by scheduled commercial banks for
supporting rural infrastructure projects.
• Long-Term Irrigation Fund (LTIF): The LTIF in NABARD was setup with an initial corpus of Rs
20,000 crore for funding 99 irrigation projects during 2016-17 following announcement in
the Union Budget.
• Pradhan Mantri Awaas Yojana - Grameen (PMAY-G).
• NABARD Infrastructure Development Assistance (NIDA): NIDA has been designed to
complement RIDF.
• Warehouse Infrastructure Fund (WIF): Union government created WIF in the year 2013- 14
with NABARD with a corpus of Rs 5,000 crore for providing loans to meet the requirements
for scientific warehousing infrastructure for agricultural commodities in the country.
• Food Processing Fund
• Direct Lending to Cooperative Banks
• Credit Facility to Marketing Federations (CFF):
• Producer Organizations Development Fund (PODF) for POs & PACS

25. Developmental Contribution
• Kisan Credit Card Scheme for Farmers: The Kisan Credit Card (KCC) scheme was
designed by NABARD in association with the RBI in August 1998 for providing crop
loans.
• RuPayKisan Cards (RKCs): NABARD has been at the forefront of technology
revolution by helping rural financial institutions in providing RuPayKisan Cards
(RKCs) to all their farmer clients.
• Tribal Development: the Tribal Development Programme
• Climate Resilient Agriculture
• Umbrella Programme on Natural Resource Management (UPNRM)
• Microfinance Sector
• EShakti: In a bid to digitise SHGs, project EShakti was launched on 15 March 2015.
• Skill Development: Promoting an entrepreneurial culture among the rural youth
and encouraging them to start enterprises in the rural off-farm sector has been
NABARD’s strategy for over three decades.
• Marketing Initiatives: For providing marketing opportunities to rural artisans and
producers, NABARD has traditionally facilitated their participation in exhibitions
across the country.

26. Conclusion
•More than 75 per cent people of India depend on
agriculture. Rural infrastructure investments help
in raising the socio-economic status of the rural
people through increased income levels and
quality of life.
•NABARD being an apex institution for providing
credit facilities and capacity building to Indian
rural economy, it has great a opportunity for
poverty reduction and socio-economic
empowerment of rural India.