Previous Year Question

India’s institutional agricultural-credit system principally consists of Scheduled Commercial Banks, Cooperative Banks and Regional Rural Banks. Commercial Banks have accounted for the largest share of agricultural-credit disbursement.

Around the period relevant to the question, institutional credit disbursed to agriculture and allied activities during 2010-11 was approximately:

• Commercial Banks—₹3.46 lakh crore.

• Cooperative Banks—₹0.78 lakh crore.

• Regional Rural Banks—₹0.44 lakh crore.

• Total institutional agricultural credit—₹4.68 lakh crore.

Commercial Banks therefore contributed approximately 74%, Cooperative Banks about 17%, and Regional Rural Banks about 9–10%.

Important reasons for the dominant share of Commercial Banks include:

• A relatively large nationwide branch network.

• Inclusion of agriculture under Priority Sector Lending.

• Credit for farm machinery, irrigation, dairy and other allied activities in addition to crop loans.

• Short-term working capital through Kisan Credit Cards.

• Presence of Public Sector Banks in rural and semi-urban areas.

• Agricultural-lending targets prescribed by the Government and RBI.

Examination of the options:

Option (a): Commercial Banks—Correct

Public Sector Banks, Private Sector Banks and other Scheduled Commercial Banks collectively provide the largest share of agricultural credit.

Option (b): Cooperative Banks—Incorrect

Cooperative Banks are important in short-term rural credit. Their structure includes State Cooperative Banks, District Central Cooperative Banks and PACS, but their share in total disbursement was lower than that of Commercial Banks.

Option (c): Regional Rural Banks—Incorrect

RRBs were created specifically to serve small and marginal farmers, agricultural labourers and rural artisans. Nevertheless, their relatively smaller size resulted in a lower share of total agricultural credit.

Option (d): Micro-finance Institutions—Incorrect

MFIs and the Self-Help Group–Bank Linkage Programme are important for financial inclusion, but their share in total credit to agriculture and allied activities was substantially below that of Commercial Banks.

Qualification: Higher aggregate agricultural-credit disbursement does not necessarily imply equal access. Small and marginal farmers, tenant farmers and oral lessees may face difficulties obtaining formal credit because of collateral and land-record requirements.