Institutional credit to Indian agriculture: defaults and policy options

By: Contributor(s): Material type: TextTextSeries: NABARD Occasional paper no.23Publication details: Mumbai National Bank for Agriculture and Rural Development 2002Description: xiv, 71 pSubject(s): DDC classification:
  • 332.710954
Summary: The rural credit market appears to be confronted with a paradox. The informal sources of finance, be they local money lenders, landlords, traders, etc. charge more than 20 % rate of interest, often keep land as collateral against loan, and still have a very high recovery rate. On the other hand, rural financial institutions (RFIs) charge almost half of this interest rate, do not take land as collateral for most of the crop loans, and still face high defaults. Therefore, it is queer to find out what stands in the way of fast mobilization of formal credit in the rural areas. Several Committees and Task Forces have identified major inhibiting factors to be increasing incidence of overdues or non-performing assets (NPAs) in the rural credit system, high transaction costs, regulated interest rates, inability of the financial institutions to cater to the changing demands of the agricultural sector, inherent limitations of the RFIs in inequitable distribution of loans and limited reach. The net outcome is that while informal finance still holds a prominent place in rural finance, the RFIs, especially, cooperatives are heading towards a state of financial unsustainability. It is, thus, recommended that the RFIs should be strengthened so as to accelerate the flow of credit to meet the credit demands of the agricultural sector and enhance overall development of the rural economy. https://www.nabard.org/demo/auth/writereaddata/File/OC%2023.pdf
List(s) this item appears in: agriculture finance | agriculture finance_Keyword
Tags from this library: No tags from this library for this title. Log in to add tags.
Star ratings
    Average rating: 0.0 (0 votes)
Holdings
Item type Current library Item location Shelving location Call number Status Date due Barcode
Books Vikram Sarabhai Library Rack 20-A / Slot 741 (0 Floor, West Wing) General Stacks 332.710954 G8I6 (Browse shelf(Opens below)) Available 155486

The rural credit market appears to be confronted with a paradox. The informal sources of finance, be they local money lenders, landlords, traders, etc. charge more than 20 % rate of interest, often keep land as collateral against loan, and still have a very high recovery rate. On the other hand, rural financial institutions (RFIs) charge almost half of this interest rate, do not take land as collateral for most of the crop loans, and still face high defaults. Therefore, it is queer to find out what stands in the way of fast mobilization of formal credit in the rural areas. Several Committees and Task Forces have identified major inhibiting factors to be increasing incidence of overdues or non-performing assets (NPAs) in the rural credit system, high transaction costs, regulated interest rates, inability of the financial institutions to cater to the changing demands of the agricultural sector, inherent limitations of the RFIs in inequitable distribution of loans and limited reach. The net outcome is that while informal finance still holds a prominent place in rural finance, the RFIs, especially, cooperatives are heading towards a state of financial unsustainability. It is, thus, recommended that the RFIs should be strengthened so as to accelerate the flow of credit to meet the credit demands of the agricultural sector and enhance overall development of the rural economy.

https://www.nabard.org/demo/auth/writereaddata/File/OC%2023.pdf

There are no comments on this title.

to post a comment.