Agricultural credit institution

Agricultural credit institution

1. Agricultural Credit Institution Vaibhav

2. 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.  

3. 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 .

4. 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 .

5. 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 .

6. 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 .

7. 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 .

8. 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

9. 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 .

10. 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.

11. 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.

12. 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.

13. 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.

14. 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

15. 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.

16. 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 .

17. 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 .

18. 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).

19. 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 ;

20. 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 .

21. 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

22. 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.

23. 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.