Volume : 3, Issue : 5, May - 2014

Determinants of Demand for Credit in Agriculture

Dr. S. Gandhimathi, Dr. P. Ambigadevi,

Abstract :

The present three–tier system of co–operative institutional structure for short and medium term loans and a separate co–operative institutional set up for long term loan came to be permanently established in the late thirties. But the co–operatives could not meet even one–tenth of the credit needed by the farmers in 1951–52 as estimated by All India Rural Credit Survey Committee (1951 52). This led to the intensification of the co–operatives’ credit activities during the first three five year plans. Despite intensive efforts, the institutional sources met only 18.70 per cent (co–operatives 15.5 per cent) of credit needs of farmers in 1961 62. In 1969, the government made a significant shift away from a single agency approach to the multi–agency approach involving commercial banks on a large scale in the provision of institutional agricultural credit. Commercial banks, which were following urban – centered lending policy, were to involve in the process of rural development through their lending to the priority sector. A mandate to this effect was given by the nationalization of 14 major commercial banks in July 1969 and another six banks in April 1980. Subsequently, the regional rural banks were established in 1975 to focus special attention on the marginal and small farmers, agricultural labourers and rural artisans. Further the National Bank for Agriculture and Rural Development (NABARD) was set up in 1982 to refinance all institutional agencies such as commercial banks, Regional Rural Banks and co–operative banks. To strengthen the existing rural credit delivery system, the Service Area Approach (SAA) to rural lending was accepted as the National Policy in 1989. The kisan credit card system was introduced in 1997 to increase the flow of agricultural credit to the farmers. Due to the above policy measures, the institutional credit had increased considerably. The formal sector consisting of co–operatives, commercial banks and the Regional Rural Banks is the main conduit for providing agricultural credit. To conclude, higher amount of crop loan demand was noticed for small farmers. The marginal farmers had demanded for higher amount of investment loan. Hence the size of land holding had negative relationship with the demand for credit. The higher the size of land had reduced the demand credit.