Agriculture Finance in India:Issues and ChallengesSubmitted By:Pratibha Mishra (16020242030)MBA Agribusiness 2016-18Symbiosis Institute of International Business Under the guidance ofDr. Nisha Bharti (SIIB, Pune)Contents1. Acknowledgement 22.
Introduction 33. Nature and scope: 44. Review of Literature 55.
Objective 86. Hypothesis 97. Methodology 98. Data collection and interpretation 9Table 6.1. Problem faced by marginal and small farmers (Rank wise) 10Table 6.2.
Problem faced by medium farmers (Rank wise) 10Table 6.3. Problem faced by big farmers (Rank wise) 10Table 6.4. Total Agricultural Advances (in crores) 109.
Conclusions and findings 111. AcknowledgementThe project on “Agriculture Finance: Issues and challenges” would not have seen the light of the day without the accompanying individuals and their extremely valuable support and participation.It is indeed a moment of immense gratification for me to express my deepest gratitude to Mrs. Asmita Chitnis, Director of Symbiosis Institute of International Business and Dr. Nisha Bharti for providing me with an opportunity to carry out this project and for her guidance and encouragement, to study and help me create this report.Regardless of their bustling calendar they generally discovered time to guide me all through. I am additionally thankful to them for resting trust in my capacities and giving me the opportunity.
Thank You!2. IntroductionAgriculture plays a vital role in the overall growth of the Indian economy. More than 72% of the Indian population is directly or indirectly dependent on the agriculture. Agriculture Finance is one of the important inputs of the agriculture. So, to boost the Indian economy and contribute more to the GDP, it is important to enhance the condition of the agricultural finance. This report would cover a brief of all the challenges and issues faced by the rural people and the farmers of India in order to avail the agricultural credit and the loans.With the progress of the Indian economy, exceptionally after the focus is on the attainment of sustainable progress, there must be an attempt to include maximum number of participation from all the sections of the society. But the lack of awareness and commercial literacy among the rural population of the state is affecting the development of the economy as rural population does not have access to formal credit.
So, to overcome such barriers, the banking sector came up with some technological innovations such as automated teller mechanisms (ATM), credit and debit cards, internet banking, etc. Nevertheless introduction of such banking technologies has brought a change in the country, rural population is still unaware of these adjustments and is excluded from formal banking.Measures such as SHG-bank linkage program, use of business facilitators and correspondents, easing of Know Your Customer (KYC) norms, electronic benefit transfer, separate plan for urban financial inclusion, use of mobile technology, bank branches and ATMs, opening and encouraging ‘no-frill-accounts’ and emphasis on financial literacy have played a significant role for increasing the use of formal sources for availing loan/ credit. Measures taken by the government include, opening customer service centres, credit counselling centres, Kisan Credit Card, Mahatma Gandhi National Rural Employment Guarantee Scheme and Aadhar Scheme.
Agricultural credit needs can be classified in three categories:1. Short term2. Medium term3. Long termShort term needs varies between 3 months to 15 months it is seasonal and for purchasing of seeds, fertilizers, pesticides and payment of wages and operational expenses. This type of need is mostly required by all farmers. Medium term needs varies between 15 months to 5 years for the purchase of cattle, small agricultural implements, repairs and constructional wells etc.Long term needs are required for the permanent improvement on lands , digging tube wells, purchase of larger agricultural implements and machinery like tractor, harvesters etc and repayment of old debts .
The period of such credit extends beyond 5 years. Commercial banks provide two types of loan i.e. crop loan and investment loan. Crop loan is a short term loan, stands due for repayment immediately after the harvesting of the crop whereas investment loan is a long term loan required for the purposes of capital formation on land.
Sources of agricultural creditsThe various sources of agricultural credit can be classified in two groups.1) Non Institutional Agencies2) Institutional AgenciesNon institutional agencies include the local village money lender and their agents andlandlords. Institutional agencies includes cooperatives societies, commercial banks regionalrural banks and NABARD3. Nature and scope:Agricultural finance is studied at both micro and macro level. Macro finance deals with different sources of raising funds for agriculture as a whole in the economy. It is also concerned with the lending procedure, rules, regulations, monitoring and controlling of different agricultural credit institutions. Hence macro-finance is related to financing of agriculture at an aggregate level. Micro-finance refers to financial management of the individual farm business units.
And it is concerned with the study as to how the individual farmer considers various sources of credit, quantum of credit to be borrowed from each source and how he allocates the same among the alternative uses with in the farm. It is also concerned with the future use of funds. Therefore, macro-finance deals with the aspects relating to total credit needs of the agricultural sector, the terms and conditions under which the credit is available and the method of use of total credit for the development of agriculture, while micro-finance refers to the financial management of individual farm business.
Credit needs in Agriculture: Agricultural credit is one of the most crucial inputs in all agricultural development programmes. For a long time, the major source of agricultural credit was private moneylenders. But this source of credit was inadequate, highly expensive and exploitative. To curtail this, a multi-agency approach consisting of cooperatives, commercial banks ands regional rural banks credit has been adopted to provide cheaper, timely and adequate credit to farmers. The financial requirements of the Indian farmers are for, 1.
Buying agricultural inputs like seeds, fertilizers, plant protection chemicals, feed and fodder for cattle etc. 2. Supporting their families in those years when the crops have not been good. 3. Buying additional land, to make improvements on the existing land, to clear old debt and purchase costly agricultural machinery. 4. Increasing the farm efficiency as against limiting resources i.e.
hiring of irrigation water lifting devices, labour and machinery.4. Review of LiteratureRBI (2005) proposed financial inclusion based on the business facilitators, adapting the Brazilian success story in India. In 2005, efforts were made by RBI for enabling banking services to reach the rural areas through credit facilities.
Kamath (2008) attempted to understand the impact of Micro-Finance Institution (MFI) loans on daily household cash flows by analysing cash inflow and outflow patterns of borrowers of MFI and comparing with non-MFI households. MFI was proved to be the most important and easy money lending platform for the rural population.Kannan, E (2011), Researcher discovered that the disbursement of credit across established origins had a great impact on improving agricultural productivity. Though, it points at its inadequacy and thereby urges for widening its coverage both in terms of the number of credit and the coverage of more marginal and small farmers.
CRISIL (2013) measured the extent of financial inclusion in India in the form of an index. It makes use of the non-monetary aggregates for calculating financial inclusion. The parameters used by the CRISIL Inclusix took into account the number of individuals having access to various financial services rather than focusing on the loan amount. The three parameters of the index were branch, deposit and credit penetration. These parameters were updated annually and based on the availability of data, additional services such as insurance and microfinance were added.
The key findings of the report were as follows: one in two Indians has a savings account and only one in seven Indians has access to banking credit.RBI (2014a) focused on the provision of financial Services to the small businesses and low income households. Among the main motives of the committee included designing principles for maximum financial inclusion and financial deepening and also framing policies for monitoring the progress in the development of financial inclusion in India. Thus, in order to achieve the goal of maximum financial inclusion and increased access to financial inclusion the committee proposed the following measures: provision of full-service electronic bank account; distribution of Electronic Payment Access Points for easy deposit and withdrawal facilities; provision of credit products, investment and deposit products, insurance and risk management products by formal institutions. The main findings of the report highlighted the following key issues.
First, the majority of the small businesses were operating without the help of formal financial institutions. Second, more than half of the rural and urban population did not have access to bank account. Third, savings in terms of GDP have declined in 2011-12. To address these issues, the Committee recommended that each individual should have Universal Electronic Bank Account while registering for an Aadhar card.
The committee also proposed for setting up of payments banks with the purpose of providing payments services and deposit products to small businesses and low income households. Also banks should purchase portfolio insurance which will help in managing their credit exposures. Further, the Committee recommended for setting up of a State Finance Regulatory Commission where all the state level financial regulators will work together. For the interest of the bank account holders, the committee recommended for the creation of Financial Redress Agency (FRA) for customer grievance redress across all financial products and services which would coordinate with the respective regulator. RBI (2014b) presented a report to study various challenges and evaluate alternatives in the domain of technology that can help large scale expansion of mobile banking across the country. The report divided the challenges into 2 broad categories – Customer enrolment related issues and Technical issues. Customer enrolment related issues include mobile number registration, M-PIN (mobile pin) generation process, concerns relating to security as a factor affecting on-boarding of customers, education of bank’s staff and customer education.
On the other hand, technical issues include access channels for transactions, cumbersome transaction process, and coordination with MNOs (Mobile Network Operators) in a mobile banking eco-system. The report has a detailed comparison of four channels of mobile banking – SMS (Short Message Service), USSD (Unstructured Supplementary Service Data), IVRS (Interactive Voice Response System) and Mobile Banking Application, and evaluates each one of them based on accessibility, security and usability. To resolve the different problems identified, the report suggests to develop a common mobile application, using SMS and GPRS channels, for all banks and telecom operators. The aforementioned application should enable the user to perform basic mobile banking operations such as enquiring his/her account balance, transfer and remittance of money. The application is expected to be developed in such a way that it provides a simple menu driven, interactive interface to the user. Such an application can be developed by combined efforts of telecom operators and banks.
The application can be embedded on all new SIM cards, so that any person buying a new card has a preinstalled application. For customers already using SIM cards, the application can be transferred “over the air” (OTA) using a dynamic STK (SIM Application Tool Kit) facility.Siddharth Mishra (2014), the researcher studies that trend of agricultural finance by commercial banks: A case study of Union Bank of India, Bank of Baroda and State Bank of India. This study is based on secondary data. The researcher evaluate that the performance of UBI has not been satisfactory as the agricultural advances. The advances given by BOB and SBI had increased, during the study period.Seena P.
C. (2015) this paper describes the management of agricultural credit in India and the impact of various banking sector reforms on agriculture. She concluded that performance of agricultural credit in India reveals that though the overall flow of institutional credit has increased over the years, there are several gaps in the system like inadequate provision of credit to small and marginal farmers, limited deposit mobilization and heavy dependence on borrowed funds .Efforts are required to address and rectify these issues. Banking sector reforms like fixing prudential norms, reduced SLR, CRR, banking diversification all affect the Indian agricultural sector.
Various studies conducted and numerous suggestions were sought to bring effectiveness in the working and operations of financial institutions. Narsimham Committee (1991) emphasized on capital adequacy and liquidity, Padamanabhan Committee (1995) suggested CAMEL rating (in the form of ratios) to evaluate financial and operational efficiency, Tarapore Committee (1997) talked about Non-performing assets and asset quality, Kannan Committee (1998) opined about working capital and lending methods, Basel committee (1998 and revised in 2001) recommended capital adequacy norms and risk management measures. Kapoor Committee (1998) recommended for credit delivery system and credit guarantee and Verma Committee (1999) recommended seven parameters (ratios) to judge financial performance and several other committees constituted by Reserve Bank of India to bring reforms in the banking sector by emphasizing on the improvement in the financial health of the banks. Experts suggested various tools and techniques for effective analysis and interpretation of the financial and operational aspects of the financial institutions specifically banks. These have focus on the analysis of financial viability and credit worthiness of money lending institutions with a view to predict corporate failures and incipient incidence of bankruptcy among these institutions.5. Objectivea) The objective of the study is to study about the challenges and issues faced by the rural India and the farmers for the credit facilities and to understand the agricultural finance in Indiab) Banks are providing rural credit in lesser interest rates but, small farmers are unable to access them because of the inflexibility and delay, high transaction cost, borrower-unfriendly procedures etcc) RBI has also included SHGs under the priority sector lending. The overall objective would be to analyze the problems faced by the rural population and give the proper solutions in order to improve their condition.
The objective would also to study the disbursement activities and process of achieving the target by the Banks and the MFIs.6. HypothesisThe hypothesis of the dissertation would be to check whether there is a significant difference in the agricultural credit and financing system by the actions taken by the government and the financial institutions.7. MethodologyThe study will be based on secondary research. The secondary data has been obtained from the concerned banks through the annual publications, relevant records and the documents. The data has also been collected from the Ministry of agriculture, Census 2011, articles and research papers etc.
8. Data collection and interpretationData are analyzed in three categories A. Problems of marginal and small farmers B. problems of medium farmers C. problems of big farmers.
Almost all marginal and small farmers responded about problems and there high rank problems are – high rate of interest on loan, lack of financial knowledge about bank products and plans and cumbersome process of getting loans and lack of security and collateral.Medium farmers face problems such as cumbersome process of getting loan, lack of financial knowledge and high rate of interest. Sometime bank staffs are also not cooperative.Large farmers also face these problems but less than the small and marginal farmers.Table 6.1. Problem faced by marginal and small farmers (Rank wise)High rate of interest on loan ILack of financial knowledge IICumbersome process of getting loan IIIBank staff is not cooperative IVLack of security of collateral VFear factor about recovery process VITable 6.
2. Problem faced by medium farmers (Rank wise)Cumbersome process of getting loan IHigh rate of interest on loan IILack of financial knowledge IIIBank staff is not cooperative IVFear factor about recovery process VTable 6.3. Problem faced by big farmers (Rank wise)Cumbersome process of getting loan IBank staff is not cooperative IILack of entrepreneurship in agriculture sector IIIHigh rate of interest on loan IVLoan amount is not sufficient VTable 6.4. Total Agricultural Advances (in crores)Year Total agricultural advances (Rs) Total Agricultural Advances (%) Variations2009-2010 14139 100 2010-2011 18309 129.49 29.
492011-2012 19790 139.97 39.972012-2013 18848 133.3 33.32013-2014 24658 174.4 74.
42014-2015 35387 250.28 150.282015-2016 35957 254.31 154.31 9.
Conclusions and findingsThe above table and figure represents the trend percentages of total agriculture advances by CentralBank of India for the period 2009-10 to 2014-15. Here, for the calculation of trend percentage statement, the initial year 2009-10 has been consider as base year. In case of total agriculture advance100% in the base year (2009-10). Which is increased to 254.31% in the year 2015-16. So, from this data, it can be summarised that agricultural advances increased 154.
31% during this period. It indicated that bank should try to provide more advances to agriculture sector.THANK YOU