CHAPTER III ROLE OF PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS IN AGRICULTURE DEVELOPMENT IN KARNATAKA AND PROFILE OF STUDY AREA

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1 CHAPTER III ROLE OF PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS IN AGRICULTURE DEVELOPMENT IN KARNATAKA AND PROFILE OF STUDY AREA INTRODUCTION In the early years, rural development was considered synonymous with the growth of agriculture, allied sectors and infrastructural facilities. Over the years, rural development has emerged as a strategy design to improve the economic and social life of the rural poor. It involves extending the benefits of development to the rural areas. The term rural development involves a process in which the rural society, at large, moves from one step of the economic ladder to the next, thereby enhancing its social and economic status. According to S. Gariayappa, rural development involves developing the rural economy, so as to raise the standard of living of those rural people who are poor and require upliftment. Lele defines rural development as Improving the living standards of the mass of low income population residing in rural areas and making the process self sustaining. However rural development is a process concerned with the improvement of economic, social and political conditions of mass rural population particularly those who are below the poverty line. The villages in India have to grow well because of three reasons: a) About 70% of the population in India and 69% in Karnataka live in villages and over 40% of them are below the poverty line, b) The most valuable resources for countries and state economic development are concentrated in villages but not in a few cities, and c) Each and every village in the country and the state is a market for goods manufactured either in urban or semi urban areas as well as agricultural commodities grown in rural regions. The role of banks in the process of development is absolute, because of the fact that they provide one of the most essential inputs, namely credit. In the process of growth finance is a crucial element. It requires not only effective mobilization of public savings but also proper deployment of available scarce resources so as to create conditions for further generation 43

2 and mobilization of resources. It might be rather difficult in the absence of well designed and integrated institutional apparatus. Thus development as Gurley and Shaw assert involves finance as well as goods. Capital plays a significant role in the theory of development. Capital plays a significant role in the theory of development. Capital is regarded by Kindleberger not only as central to the process of development but also as strategic. Economic development requires and depends on inputs of capital. The process of development involves savings to create a surplus for the capital investment. In the logistic of growth mechanism, the role of banks was recognized long back as in an under-developed economy. R.M. Saksena who recognized the importance of bank finance for the economic development of a country, observes that the banks are conceived as instrument for increasing the rate of growth of the economy so fast that it surpasses the rate of growth of population, increase per capita real income and help the economy leap forward into the phase of self generating and self sustained growth. In the perspective of the history of economic developed countries, banking was necessary for development of developed countries, banking was necessary for development and not merely a pre-requisite. Banking as a tool for development is a multipurpose tool and depending upon the value system of the society, its uses are capable of vide variations. In the modern economy bankers are to be considered not merely as dealers in money but more realistically leaders in development. Similarly banks are not just the store house of the country s wealth but are reservoirs of resources necessary for economic development. However in a developing country like India, scarcity of financial resources is admittedly one of the constraints for accelerating the pace of economic growth. Hence an efficient and responsive banking system is of utmost importance. The contribution of banks to economic development is remarkable in terms of mobilization of deposits, expansion of branches and advancement of credit etc. in rural as well as urban areas. In rural areas about 10% of the population has surplus savings, but they are not prepared to save with banks as they do not have the knowledge of banking and they are not convinced about the security of their deposits. Thus the rural savings has to be collected tactfully and carefully. However, as 44

3 majority of the rural people are poor, it is not possible by them to save first a certain amount of deposits and then undertake investment in land or allied activities. Thus, it would be more appropriate first to help them with a loan and invest in their familiar sector, so as to enable them to raise their productivity and income. The bank then recover loan from the increased income. Any way banks are to deploy credit mainly in productive fields so that income of loaners will increase beyond subsistence level and contribute something more to the savings. The additional income of households due to bank loan investment may also improve the deposit potentially of the banks in rural areas. EVOLUTION OF AGRICULTURE AND RURAL DEVELOPMENT BANKS IN INDIA In India till the advent of 20 th century there were no institutional agencies for catering credit to agriculturist. Over 90% of farmers were mainly dependent on private money lenders and other non institutional agencies for capital for their agricultural operations and social obligations. The non-institutional agencies used to exploit the farmers in 3 ways namely a) Charged exorbitant rate of interest on loan amount, b) Forced the farmers to sell their produce at un remunerative prices during harvest season for recovering loan and c) Forced agriculturist to sell their land to them (money lenders) at lower prices for recovering the loan. Then agriculture was not so profitable occupation to earn and to liquidate old debts. The indebtedness of the farmers went on increasing and reached an alarming level by the end of 19 th century. The establishment of regular law courts in the 19 th century gave an easy handle to creditors to pursue debtors to the bitterest end and exact the last pie. To help the agriculturist under such circumstances several schemes for organizing agricultural banks and similar institutions, the one by Sir William wedderburn in 1882 were submitted to government. But none of them found acceptance at the hand of the Government. Government, however, set up their own machinery for advancing loans to agriculturist, and with that end in view the Land Improvement Loans Act and the Agriculturists Loans Act were passed in 1883 and 1884 respectively. These were only enabling legislation and empowered state Governments to advance loans from state funds and 45

4 invested them with powers to frame rules governing the issue of such loans. Under the Land Improvement Loans Act, long-term loans for improvement were granted, while under the Agriculturists Loans Act, short-term loans were given for current agricultural needs. The actual working of the Acts shows that loans under the Agriculturists Loans Act were advanced during times of emergency only or on the occurrence of natural calamities like famine, flood, etc., while the facilities offered under the Land Improvement Loans Act were not availed by the agriculturists to any appreciable extent due to their ignorance, dilatory way in which applications for loans were handled by the Revenue Departments through which loans were administered and general apathy of the farmers to deal with governmental agencies. Further, the loans for redemption of prior debts for which long-term loans were largely required by farmers were excluded from the purview of the Act in most of the states under the rules framed by them. With the introduction of the Co-operative Movement in 1904 it was felt that it would be in a position to provide both the long-term and short-term credit needs of the farmers. Credit societies were permitted to advance long term loans along with short-term loans to the extent prescribed by the Registrar for each society or class of societies. However, it was soon realized that ordinary credit societies were entirely unsuited to undertake this type of business. Primary societies depended for their working capital on central banks, but these banks were able to attract short term deposits only. It was not possible for societies to advance long- term loans with short term deposits and whenever they did so, they courted only trouble and ruin. Moreover, primary societies were not in a position to assess the values of real estate s correctly or examine their titles and were not in a position to meet their outside obligation when borrowers were unable to pay. Wholesale eviction of borrowers from lands, forced sales, etc, brought only more troubles in their train, as in a period of depression no buyers could be found for the properties purchased by societies. Thoughtful co-operators and administrators, therefore, came to the wise conclusion that separate institutions were necessary for the dispensation of long- term credit. 46

5 ALL INDIA RURAL CREDIT SURVEY REPORT (1954) The All India Rural Credit Survey Committee (1954) appreciated the role of land mortgage banks in the development of agriculture The more important of the recommendations of the Committee in respect land mortgage banks are summarized below: (i) Each state should have a central mortgage bank. The state governments should review their tenure and tenancy laws and take steps to eliminate such features in them as, without being essential to policy, are hindrance to the development of land mortgage banking. Where land reforms necessitate restrictions on the mortgaging of title, the scope of such restrictions should be the minimum necessary. Further, any special procedure for registration of mortgages under the land reform acts (and the general procedure for registration of mortgages of land) should be made simple, cheap and expeditious. Similarly the provisions of the law should ensure that title passed is as clear and as secure as possible. (ii) Central land mortgage banks should issue debentures for varying periods in conformity with the purpose of the loans. Further, to fit in with the requirements of rural investment, central land mortgage banks should float Rural Debentures. The Reserve Bank of India and the State Bank of India should take positive steps for the creation of an effective market for the debentures of the land mortgage banks. There should be provision for issue of special development debentures which may be purchased in whole or part by the Reserve Bank of India from out of its National Agricultural Credit (Longterm Operations) Fund. (iii) The government should contribute to the share capital of central land mortgage banks at least up to 51 percent to enable them to borrow and to lend adequately. (iv) Land mortgage banks should orient their operations to production and should give first priority to applications for loans for improvement, reclamation and development of land, purchase of agricultural machinery and equipment and other productive purposes. The banks should evolve a machinery for achieving co-ordination of credit with planned agricultural development, 47

6 assessment of technical soundness of projects and verification of use of credit. There should be proper arrangements for supervision of the utilization of the loans granted by the banks. (v) Apart from the different forms of state assistance already mentioned, there should be: (a) provision of staff for valuation of land, examination of schemes for land improvement, assessing technical soundness, etc., (b) provision of overdraft facilities, (c) exemption of stamp duty, registration fee, etc., (d) special legislation for facilitating working of land mortgage banks and (e) special assistance to land mortgage banks in the underdeveloped areas with reference to their administrative costs in order to enable them to function on economic basis. SECOND STAGE: LAND DEVELOPMENT BANKING The second stage began when the All India Rural credit Survey Committee in 1954 recommended that the Banks should concentrate on providing long term loans for productive purposes in the farm sector in the context of planned development envisaged under the five year plan beginning from In pursuance of the recommendations of the All India Rural Credit survey Committee (1954), Central Land Development Banks were organized in all the major states of the country and also in some of the smaller states and union territories. As on , there were central Land Development Banks in 18 states and 1 union territory out of the total of 21 states and 9 union territories. In addition there were separate land development banking sections in the state co-operative banks of 2 union territories. The number of central land development banks increased from 10 in to 19 in During the same period membership of CLDB increased from 30,000 to 18,40,000, owned funds from ` lakhs to ` lakhs, deposits and other borrowings from ` lakhs to ` lakhs, debentures outstanding from ` lakhs to ` lakhs, working capital from 48

7 ` lakhs to ` lakhs, fresh advances from ` lakhs to ` lakhs, recoveries from `99.49 lakhs to ` lakhs, loan outstanding from ` lakhs to ` lakhs and over dues from `31.46 to ` lakhs. The number of primary Land Development Banks increased from 304 in to 855 in In the same period the membership increased from 2,65,000 to 21,83,000, owned funds from `96.25 lakhs to ` lakhs, deposits and other borrowings from ` lakhs to `43, lakhs, working capital ` lakhs to `51, lakhs, fresh advances ` lakhs to `10, lakhs, recoveries `60.59 lakhs, to ` lakhs, loan outstanding `878 to `44, lakhs, and over dues from `16.06 lakhs, to ` lakhs. AGRICULTURAL REFINANCE CORPORATION AND LAND DEVELOPMENT BANKS All India Rural credit Survey Committee (1954), the committee on Cooperative Credit (1960) and RBI s erstwhile standing Advisory Committee on Agricultural Credit (1961) stressed the Central Government and RBI for the establishment of an institution for stimulating long term investment in irrigated belts and community development project area. They felt that the existing institutions could not provide finance for schemes of land development under the Command Areas of Major and Minor Irrigation projects and Schemes. As a result of it the Government of India and RBI took initiative and a bill was placed and passed in the Parliament to that effect and institution came into existence on lst July This Corporation gave a fillip to the financing operations of LDBS as it was the major beneficiary. NABARD National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India having headquarters based in Mumbai (Maharashtra) and other branches are all over the country. The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD), set up by the Reserve Bank of India (RBI) under the Chairmanship of Shri B. Sivaraman, conceived and recommended 49

8 the establishment of the National Bank for Agriculture and Rural Development (NABARD). It was established on 12 July 1982 by a special act by the parliament and its main focus was to uplift rural India by increasing the credit flow for elevation of agriculture & rural nonfarm sector and completed its 25 years on 12 July It has been accredited with "matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India". RBI sold its stake in NABARD to the Government of India, which now holds 99% stake. NABARD is active in developing financial inclusion policy and is a member of the Alliance for Financial Inclusion. HISTORY OF NABARD NABARD was established on the recommendations of Shivaraman Committee, by an act of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). It is one of the premier agencies to provide credit in rural areas. Nabard is India's specialised bank. ROLE OF NABARD NABARD is the apex institution in the country which looks after the development of the cottage industry, small industry and village industry, and other rural industries. NABARD also reaches out to allied economies and supports and promotes integrated development. And to help NABARD discharge its duty, it has been given certain roles as follows: Serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas Takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc. 50

9 Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation Undertakes monitoring and evaluation of projects refinanced by it. NABARD refinances the financial institutions which finances the rural sector. The institutions which help the rural economy, NABARD helps develop. NABARD also keeps a check on its client institutes. It regulates the institution which provides financial help to the rural economy. It provides training facilities to the institutions working the field of rural upliftment. It regulates the cooperative banks and the RRB s, and manages talent acquisition through IBPS CWE. NABARD's refinance is available to State Co-operative Agriculture and Rural Development Banks (SCARDBs), State Co-operative Banks (SCBs), Regional Rural Banks (RRBs), Commercial Banks (CBs) and other financial institutions approved by RBI. While the ultimate beneficiaries of investment credit can be individuals, partnership concerns, companies, State-owned corporations or co-operative societies, production credit is generally given to individuals. NABARD has its head office at Mumbai, India. NABARD operates throughout the country through its 28 Regional Offices and one Sub-office, located in the capitals of all the states/union territories. Each Regional Office [RO] has a Chief General Manager [CGMs] as its head, and the Head office has several Top executives like the Executive Directors[ED], Managing Directors[MD], and the Chairperson.It has 336 District Offices across the country, one Sub-office at Port Blair and one special cell at Srinagar. It also has 6 training establishments. NABARD is also known for its 'SHG Bank Linkage Programme' which encourages India's banks to lend to self-help groups (SHGs). Because SHGs are composed mainly of poor women, this has evolved into an important 51

10 Indian tool for microfinance. As of March lakh SHGs representing 3.3 crore members had to been linked to credit through this programme. NABARD also has a portfolio of Natural Resource Management Programmes involving diverse fields like Watershed Development, Tribal Development and Farm Innovation through dedicated funds set up for the purpose. THE THIRD STAGE: AGRICULTURE AND RURAL DEVELOPMENT BANKING () The third stage Commenced when CRAFICARD recommended in1980 that Agriculture and Rural Development Banks should broad base their operations and extend Investment Credit for rural development in all its aspects including non-land based and non-agricultural activities and the banks in the subsequent years diversified their activities including non-farm sector financing. As on there were 20 Central Agricultural and Rural Development Banks in the country. Table No.3.1 indicates the progress made by primary co-operative agriculture and rural development banks in the country At the time of independence i.e. on 15th August 1947 there were two Land Mortgage Banks in West Bengal, viz. Birbhum Land Mortgage Bank and Burdwan Land Mortgage Bank. With these two Long Term Coop. Credit Institutions West Bengal started its journey in the long term cooperative credit sector. The West Bengal Land Mortgage Bank, which is presently called The West Bengal State Cooperative Agriculture & Rural Development Bank Ltd. (WBSCARDB Ltd.) is the Apex Long Term Coop Credit Institution. It was registered on having the Registration No. 1 of The Bank started its operation in the same year. The Bank was engaged in providing long term and medium term credit under farm, non-farm and housing sector. Gradually, 22 Land Mortgage Banks were established in different districts / sub-divisions enhancing the total no. to 24. In two districts viz. Darjeeling and Purulia no Land Mortgage Banks were set up and long term cooperative credit was routed through the branches of the Apex Bank in those two districts. The Land Mortgage Bank with the change of time and 52

11 need mutated twice. The first mutation took place during mid-seventies and Land Mortgage Banks were renamed as Land Development Banks and thereafter, during mid-nineties they were again renamed as Cooperative Agriculture & Rural Development Banks. Table 3.1 NUMBER OF SOCIETIES AND MEMBERSHIP OF PCARD BANKS Year Societies Membership (`000 no.) Source: National Bank for Agriculture and Rural Development ORGANISATION NETWORK The organizational structure of the Agricultural and Rural Development Banks is not uniform throughout the country. Out of the 19 ARDBS, 8 are purely federal in nature with the state level bank at the apex and affiliated primary agriculture and rural development banks at the lower level. A similar number were functioning as unitary model. Of the remaining, three had adopted a mixed pattern by directly financing their members through branches in certain areas while in other areas loans were routed through ARDBS. In the case of one state namely A.P. in pursuance of the Government s policy to have an integrated rural co-operative credit structure, the SCARDBS loans were issued through the short-term co-operative credit network following the merger of with it. FINANCES OF PCARD BANKS The major sources of funds for the for lending are as follows:- SPECIAL DEVELOPMENT DEBENTURES These debentures are subscribed to by the NABARD to a major extent and the central and state government to a lesser extent. These funds 53

12 raised from this source are used for financing schemes, projects in the farm/non farm sector approved by the NABARD. ORDINARY DEBENTURES These debentures are subscribed to by commercial banks, financial institutions as well as sister ARDBS. The funds raised are used for financing projects/schemes in the farm sector. SPECIAL RURAL HOUSING DEBENTURES These debentures are subscribed to by the National Housing Bank exclusively. These are used for advancing loans to farm-members for construction of houses. N.C.D.C. BORROWINGS These funds raised in the form of loans from the National Co-operative Development Corporation. Funds raised from this source are used for financing construction of rural godowns, market yard etc. In addition, the banks generate internal resources to a certain extent in the form of share capital and reserves which help them to strengthen their reserves base. LOAN OPERATION OF PCARD BANKS The main function of is to grant loans on the security of agricultural properties: Since they grant loans which run for several years, strict rules are laid down with regard to the security against which they can advance loans. Generally, these banks restrict their loans to first mortgage of agriculture property, though in a few cases they may advance loans against the security of second mortgage as well. They generally lend up to 50 percent of the value of the security. In order to assess the value of land against which they lend employ experts who assess the value of land and are conversant with local conditions. In assessing the value of land such factors as the amount of land tax paid, the 54

13 rental value of land, gross and net income from the land, sale value of the land etc., are taken into account. While granting loans the banks consider not only the value of the security offered but also examine the repaying capacity of the applicants. Finally, they are able to lend at fairly low rates of interest and enable the needy famer to secure funds for long periods. provides credit for a variety of purposes such as redemption of old debts, improvement of land, purchase if costly agriculture equipment, construction of wells and erection of pumps and so on. At one time, the redemption of old debts was the most important and, in a sense, the only purpose for which the farmers approached the land development banks. In recent years, however, farmers have borrowing from CARDBs mainly for the purpose of land improvement and development including sinking of wells (56percent) and purchase of agricultural machinery (30 percent) IMPORTANCE OF PCARD BANKS, originally called Land Mortgage banks under the cooperative field played a decisive role in the early sixties, seventies and eighties in helping farmers to acquire capital or productive assets such as tractors, tillers, pump sets, open wells, lift irrigation and in transforming the cropping pattern from food to cash crops. Land development banks in the villages were instrumental in converting agriculture into agri business. have also given loans for non-land based activities subsidiary to agriculture Viz., poultry, sheep rearing, dairy, piggery, sericulture, cattle shed etc. Finance is one of the most important constraints in the growth of agriculture. Credit is an essential and important input for development and production. Agriculture like any other industry also needs capital investment for development and for realizing higher production. Agriculture being the most important occupation of the majority of our people, investment in it assumes more importance in India where 40% of the national income is derived from agriculture. A dynamic programme of agricultural credit is, therefore essential for higher level production. For stimulating the tempo of 55

14 agricultural production, it is imperative that farmers must be given all essential requirements the modern implements, fertilizers, improved seeds, irrigation facilities, marketing facilities, etc. and all these things require adequate and timely credit facilities. Timely availability of credit facilities to the cultivators is of utmost significance for agricultural development especially in an economy where majority of the cultivators belong to the category of small/marginal farmers. In the words of prof. john D. Black of Harvard University, If we are all concerned about increasing total agricultural output in shorter term we must provide credit first and foremost. It will enable them to buy more labour saving equipment, more seeds and fertilizers. In developing countries like India the need for credit is more pressing where farmers are almost without liquid resources, credit on reasonable term is needed to finance the preparation for their next crop, to enable them to make a modest start in adopting improved methods of farming, and often to enable them to avoid selling at a very low prices ruling immediately after the harvest. One of the very important reasons as to why agricultural productivity is low in developing countries like India, is that average farmers have hardly any finance to effect improvement in land. Therefore, these farmers need capital in right quantity, at right time and at reasonable rate of interest from financial institutions for improving their agricultural production, income and social status. However, the technological breakthrough (i.e. Green revolution) which took place in Indian agriculture during 60s, demanded more credit for agricultural inputs like fertilizers high yielding variety of seeds, pesticides, irrigation and other modern implements. Drought in several blocks of the country over the years has also created heavy demand for credit for the development of minor irrigation. Since 1969, government has also realized the significance of credit and began to provide adequate attention to the farmers through its various credit agencies. Farmers need short, medium and also long term credit for permanent agricultural implements. The short and medium term requirements are met by the commercial banks and other agencies like the co-operatives. In order to meet the long term needs of the farmers, land development banks were established all over the country. The LDBS provide long term loans to the 56

15 farmers on the basis of the security of land. Formerly the banks were meant to provide long term loans for unproductive purposes like debt redemption but at the seminar of the chief executive officers of the central Land Development Banks held in 1969 it was decided that LDBS should advance 90% of the loans for productive purposes, of which at least 70 percent should be for easily identifiable productive purposes. During pre multiagency approach to rural credit land development banks played a decisive role in providing long term loans for agricultural development. Even during the post multiagency period also the PCARD Banks as exclusive rural investment banks have played a vital role in advancing funds to agricultural and other rural economic activities. The long term loan meant for acquiring or creating capital assets is to assure and stabilize agricultural production and give the farmers a better sense of security than he had before he made such investments. The creation of capital assets either by installation of pump sets, sinking of bore wells or acquisition of tractor/tiller is to raise the level of this agricultural practices resulting in better production. Such farm investment further enables the cultivator to practice extensive as well as intensive farming, example, if a pump set has been installed he may bring additional area in the ambit of his cultivation. Availability of water enables him to conduct more intensive farming and produce two or three crops than he did before. Availability of water also enables him to grow certain crops which need heavy water such as sugarcane, paddy, areca, etc. The intensive farming and raising of two or three crops in a year increases farm activities and ultimately increase more employment for his family as well as wage - labour. It may also generate other secondary activities. PCARD BANKS IN KARNATAKA The primary Co-Operative Agriculture and Rural development Banks which are functioning in Karnataka are individual autonomous bodies and members of the Karnataka State Co-Operative Agriculture and Rural Development Bank. These banks borrow funds from KSCARD Bank and lends directly to the agriculturist. The first was come into 57

16 existence on 10 th July 1930, at Bhimana Khone in shimoga District. At present there are 177 spread over all the 177 taluks in the state of which two are under liquidation. provides investment credit for activities such as minor irrigation, farm mechanization, horticulture and plantation, land development, animal husbandry, fishery, farm forestry and Non-Farm sector. The loans are provided for different periods ranging between 3-16 Years according to types of investment, life of assets and repaying capacity of the borrowers at administered interest rates determined by the RBI/National Bank. The present interest rate is in the range of 3 to 10 percent. The finance primarily farmers for development of agriculture. However, these Banks have diversified their activities to non-farm lending since This would mainly provide employment opportunities for rural and others to earn an additional income. There are 177 functioning in Karnataka CONSTITUTION AND MANAGEMENT The membership of is confined to farmers, agricultural laborers, rural artisans and small rural entrepreneurs. As are voluntary form of associations, there is no compulsion on anybody to become the member of the Bank. The keep their doors open for the admission of farmers, agricultural laborers, rural artisans and small rural entrepreneurs. Management of consists of a) The General Body and b) The Board of Directors. THE GENERAL BODY The ultimate authority of the administration of the lies in the General Body which comprises the members of. The meeting of the General Body is generally held once in a year, under the direction of the Board, the manger of the bank convenes this meeting. Generally in that meeting the progress of the bank, suitable solutions to the existing problems, amendment of bye -laws and other issues are discussed and take decisions. 58

17 Each member of the General body has one vote. The General Body is empowered to elect the Board members in accordance with rules. The elected members of the Board, among themselves. elect the President and vice- President The main functions of the Board are appointing executive committee and look after the management of the Bank. The executive committee has power to admit members, sanction of loans, investments, borrowing, taking steps in case of defaults, etc., The organizational structure of is depicted in the following chart: Chart 3.1 ORGANIZATION CHART General Body Board of Directors President Vice-President Vice-President Chart 3.2 OFFICE ADMINISTRATION CHART Manager Accountant Field Officers Assistants D Group Workers Source: Branch Office of Jagalur, Davangere Dist. 59

18 SOURCE OF FINANCE The resources of finance of comprise the owned and the borrowed funds. The components of the farmers are a) share capital b) Reserve fund and other reserves and c) Membership and other fees. The latter consists of a) Deposits b) Borrowings from the state Co-Operative Agriculture and Rural Development Bank. C) State Government share contribution d) Grants and subsidies and e) Cash credit. Share capital Reserve fund and other reserves Membership and other fees Deposits Borrowings from the KSCARD bank Grants and subsidies Cash credit Interest income Credit deployment A sound agricultural credit policy strengthen the farm economy. In other words, the modern commercial farm enterprise is hinged on the sound credit policy in the sense adequate wherewithal in right time for right purpose in easy terms of repayment. The provision of agricultural credit should be aimed at: To improve the living standard of the farmers; To augment the famers to adopt strengthening farm economy; agricultural production and thereby To encourage the farmers to adopt new agricultural techniques; To develop the resourcefulness of farmers. CREDIT POLICY To fulfill the above said aim of the agricultural credit, an efficient credit policy corresponds to the basic postulates of rural credit. In other words, the credit policy should have facility and safety. Facility means the credit is ready to provide against proper security, timely and adequately. Safety means the 60

19 credit should assist and not endanger the borrowers stability and productive power. And this phenomena guides discipline and the borrower with which minimize, if not possible to eliminate completely, the evasion of lone amount. Thus, the cycle of lending and recovery enables the financing institutions in reloaning program. 1. Viewing the postulates of credit the Reserve Bank of India in its circular letters asked the cooperative banks financing agriculture to follow the production-oriented system. The features of the production-oriented system are: Fixing of the scale of financing adequately to meet the cost of project for different purposes Proposed production of the project on which credits to be advanced becomes security Assessing the repayment capacity of borrowers based on the cropping pattern of their farms Determining the eligibility of loans with reference to repaying capacity. Repaying capacity is calculated out of the incremental income Fixing of the period of the loan with reference to the repaying capacity of loanee but does not exceed the life of asset created out of the loan. 2. At the instant of the Reserve Bank of India the representatives of the central cooperative agricultural development banks meeting held in Bombay on 8 th February, 1973 had agreed that from the year onwards, the loans to small farmers should not be less than per cent of total loans.to this effects the Reserve Bank of India issued a circular. In 1975 the National Cooperative Land Development Banks Federation advised the central cooperative agricultural development banks that the loans to small farmers should provide 50 per cent of total disbursements. 3. Post-sanction follow-up measures should be taken up to ensure that the provided credit is: Not misutilised ; 61

20 Fully utilized ; and Recovered by persuasion. 4. Credit is made available to the farmers for agricultural purposes which are classified into: Identifiable productive purposes (loans to purposes which are directly linked with increase in production) ; Non-identifiable productive purposes (loans for purposes which are productive but not directly connected with increase in production. Say, land levelling, bunding, embankment, soil conservation, etc.) ; Non-productive purposes (loans for repayment of old debts, purchase of ownership rights etc.). The non-identifiable productive purposes were to be allowed as identifiable productive purposes were to be allowed as identifiable productive purposes from 1 st November, 1972 if loans for them provided under the schematic basis and executed by the State Government or the technical agency. As consequent the distribution of per cent of loan should go for productive purposes of which at least per cent for identifiable purposes. The loans are made available to following purposes. They are: Land improvement ; Conversion of dry land into wet land ; Digging and repairs of wells inclusive of tube wells ; Purchase of oil engines, electric motors, pump sets ; Purchase of tractors and their accessories ; Purchase of power tillers, sprayers and other farm machinery ; Purchase of milch cattle ; Subsidiary occupations namely sheep and goat rearing, poultry, piggery, pisciculture ; Construction of farm houses, cattle shed ; and 62

21 Horticulture, sericulture, gobar gas plants. 5. To rectify the imbalances between the rich and the poor, it has been decided that per cent of total loans should be advanced to the small and weaker section farmers of which per cent and 6.00 per cent should necessarily go to scheduled castes and scheduled tribes. 6. The financial discipline is being imposed on primary cooperative banks. If the primary cooperative banks non-overdue-cover, which means dues by primaries to the central cooperative banks does not exceed per cent. Then only the former is eligible to get cent per cent reimbursement from the latter. Overdues arise due to natural calamities. The cooperative bank is to be permitted to segregate overdues of five years and more into a separate account called blaked account and excluded the same from demand. But, to the extent of per cent of this blacked account is to be treated as demand for the year. Rescheduling of loans is another method which may be adopted by the cooperative bank as an alternative to the above. In calculation of rescheduling of loans, over dues rose due to natural calamities other than the farmers over dues which mentioned below, are taken into account: Those farmers who perennial source of irrigation ; Those who pay income tax ; and Those who borrowed loans for tractors. 7. Credit Dimensions The measures which are related to the credit policy and which make it more effective are discussed hereunder: Security: Agricultural land is the main security for advances by the primary cooperative agricultural development banks. The primary cooperative agricultural development bank accepts the below mentioned properties as advance loans. The property mortgaged in favour of the primary cooperative agricultural development bank is assigned to the apex bank 63

22 Lands having well irrigation; Wet land with permanent irrigation; Dry land; Garden land. Loan sanctioning power: The do not have any sanctioning power. KSCARD Bank and its district branchs are empowered to sanction loan. up to `10 lakhs, the branchs sanction and if, the loan amount is above lakhs, the head office sanctions. All the loan applications essentially pass through two levels. In the first level, loan applications received by the are verified, scrutinized and appraised the and in the second level with its recommendation refers to either apex bank or district branches for sanction. To avoid delay at primary level, the power of recommending loan is delegated to executive committee, consisted of president, secretary, directors and manger of the. Down Payment: The concept of down payment was introduced by since 1971, for getting the borrower involved in the project. At present down payment amount ranges between10% to 20% of the project cost. Loan disbursement: The sanctioned loan amount is disbursed either in one lump sum or in installment depending upon the purposes for which loans are sanction. In case of loans for the purchase of tractors, Power tillers, Electric motors and Pump sets, Diesel engines and any other agricultural equipments the disbursement is made directly to the dealer in one lump sum against the invoice and delivery note. In case of loans for development purpose the disbursement is made in three installments representing 30%, 40% and 30% of the loan amount. Subsequent installments are disbursed only after receiving utilization certificate issued by authorized officers. 64

23 Documental Requirement: For getting loan, the applicant has to submit legal and technical documents and certificates issued by competent authorities. LEGAL DOCUMENTS AND CERTIFICATES Title deeds of land offered for security, Records of rights and possession certificate for 3 years. Genealogical tree certificate, Twelve years encumbrance certificate, Payment of land revenue receipts and Latest mutation registers extract. TECHNICAL DOCUMENTS Spot selection letter for well and tube well, Electricity boards sanction letter for supply of power, Technical feasibility report, Registration certificate issued by industrial center, Map and estimation documents, Bills, quotations, technical appraisal report and proposed map and Soil and water testing reports Loan Eligibility and Repaying capacity: In case of loan for development purpose, fifty percent of the assessed value of land is granted as loan, and in case of loan for purchase of tractors, power tillers, and other agricultural equipments, the value of land and cost of equipments are taken together for calculation of eligible amount of loan. However, the loan amount should not exceed the value of land. In case of loan sanctioned under NABARD assisted Schemes, the Government has agreed to guarantee the deficit in security. 65

24 The repaying capacity of the borrower is determined at 90% of the net incremental income. In respect of loans for the purchase of the tractors, and other equipments the incremental income is determined at 30% of the existing net income and in cases of loan for construction of farm house, etc., The repaying capacity is fixed by calculating the surplus income available after meeting family and other expenditure out of his total income. Time Limit for Utilization of Loan: The KSCA&RD Bank Ltd. has prescribed time limits for utilization of loans for different purpose. Loans for the purposes of sinking of wells, installation of pump sets and for reclamation of lands should be utilized within three months of the disbursement of each installment. In the case of plantations, one year has been fixed as time limit for the utilization of the loan installments from their respective dates of disbursement. Seasonality in Lending: In order to prevent the borrower from diverting the loan amount for unproductive purposes, the have been strictly instructed by Karnataka State Co-operative Agriculture and Rural Development Bank not to disburse the loan amount to a borrower when the possibility of its utilization does not exist. In other words, the are required to observe the seasonality in lending in closed periods. The Regional Joint Registers of Co-operative societies have fixed such closed periods for different areas during which the banks are not permitted to disburse loans. Annual lending Programmes of : The annual lending Programmes of the are fixed by the KSCA&RDB on the basis of their actual lending performance and their Non-performing Assets (NPAs) position at the close of preceding co-operative year. This means that unless the are successful in the recovery of loans already granted their NPAs are within manageable limits, they cannot embark upon any ambitious lending programme during any current year. Therefore, the power of the to entertain fresh applications for loans is irrevocably linked to their NPAs position. 66

25 PURPOSE SHIFT-WISE FLOW OF CREDIT The purposes for which loans issued by are as given under: I) Minor irrigation/land Development Sinking of new wells. Construction of new tanks to conserve water for wet cultivation. Boring and Deeping, reconstructions or repairs to old wells and Deeping, reconstruction or repairs to tanks. Purchase and installation of pump sets (Electrical, Diesel, Kerosene), construction of pump houses. Lying pipe line. Installing sprinklers. Drip irrigation. Land leveling and fencing. Banding and reclamation of lands. Preparation of land for plantation etc., II) Sericulture Development Karnataka, Sericulture Project. Purchase of sericulture equipment. Construction of Raring house. III) Horticulture/Plantation Coconut development scheme. For growing mango. For growing Areca nut. For Saputo, pomegranate, Pineapple, Leman, grape, cashew, cardamom cocoa, orange, oil palm, Rubber, Vanilla, coffee, currileaf, Jasmine, and Rose etc., 67

26 IV) Diversified Activities For running poultry farm. For Sheep rearing. For Pig rearing. For fish rearing. Dairy development scheme. Purchase of Bullock and Bullock cart. V) Non-Farm Sector Activities United Schemes-Handicrafts, Rural Industry, Leather Industry, Pottery Paper Products, Printing Products, Glass Products, Rubber Products, Wooden items, Chemical Products, Plastic Products, Simple carving, Electrical and Mechanical carving, Sports Materials, etc., Integrated scheme-for running flour mill, T.V. cap Cable operation, T.V. repair, Saw mill, Xerox etc., For minor transport vehicle. VI) Rural Housing For new house construction. For house repairs/renovation. II) General Schemes For construction of cattle sheds, godowns, etc., For putting stone fencing. For installing gober gas plant. Etc., The details of scale of finance, repayment period and minimum development area are stated in the following table

27 Sl No I II Table 3.2 DETAILS OF PURPOSE-WISE SCALE OF FINANCE AND REPAYMENT PERIOD OF PCARD BANKS Scale of Project/ Purpose Finance Rs. Minor Irrigation Open well Minimum Development area Grace Period Repayment Period Small Big Farmers Farmers 2-3 acre 23 Months 15 Yrs 9 Yrs Bore Well acre 11 Months 9 Yrs 9 Yrs Water storage tank (3.5X3.5X2.5 meters) acre 11 Months 5 yrs 5 Yrs Pump House acre 11 Months 9 Yrs 9 Yrs (2.5X2.5X2.1 meters) Submergible Irrigation 1 H P acre 11 Months 9 Yrs 9 Yrs 2 H P acre 11 Months 9 Yrs 9 Yrs 3 H P acre 11 Months 9 Yrs 9 Yrs 5 H P acre 11 Months 9 Yrs 9 Yrs 7.5 H P acre 11 Months 9 Yrs 9 Yrs Diesel Pump Set 3 H P acre 11 Months 9 Yrs 9 Yrs 5 H P acre 11 Months 9 Yrs 9 Yrs Kerosene Pump set 11 Months 9 Yrs 9 Yrs a) 1.9 H P acre 11 Months 9 Yrs 9 Yrs b) 3 H P acre 11 Months 9 Yrs 9 Yrs Pipe line (63 meters) acre 11 Months 9 Yrs 9 Yrs Sprinkler a) Field Crops acre 11 Months 9 Yrs 9 Yrs b) Coffee Plantation acre 11 Months 9 Yrs 9 Yrs c) Areca plantation acre 11 Months 9 Yrs 9 Yrs Drip Irrigation acre 11 Months 14 Yrs 9 Yrs Land development scheme CADA area acre 12 Months 12 Yrs 12 Yrs Fencing a) Dry land Rs. 75/- 2.5 acre 11 Months 9 Yrs 9 Yrs per meter b) Wet land Rs. 75/- 1 acre 11 Months 9 Yrs 9 Yrs per meter Electrical Fencing acre No 7 Yrs 7 Yrs Rain Harvesting storage pond a) 10x10x3 meter acre 23 Months 7 Yrs 7 Yrs b) 8x8x3 meter acre 23 Months 7 Yrs 7 Yrs Farm pond (Areca acre No 4 Yrs 6 Yrs 69

28 III IV V VI plantation) Horticulture per acre Coconut acre 8 Yrs 12 Yrs 12 Yrs Areca nut acre 8 Yrs 12 Yrs 12 Yrs Coffee acre 7 Yrs 10 Yrs 10 Yrs Oil palm acre 6 Yrs 9 Yrs 9 Yrs Rubber acre 10 Yrs 14 Yrs 14 Yrs cashew acre 7 Yrs 12 Yrs 12 Yrs Cardamom acre 4 Yrs 9 Yrs 9 Yrs Pepper acre 3 Yrs 9 Yrs 9 Yrs Cocoa acre 6 Yrs 10 Yrs 10 Yrs Grope acre 3 Yrs 8 Yrs 8 Yrs Mango acre 6 Yrs 11 Yrs 11 Yrs Pomegranate acre 4 Yrs 7 Yrs 7 Yrs Vanilla acre 1 Yrs 6 Yrs 6 Yrs Rose acre 1 Yrs 6 Yrs 6 Yrs Jasmine acre 3 Yrs 10 Yrs 10 Yrs Sericulture development Karnataka sericulture acre 1 Yrs 4 Yrs 4 Yrs Project Equipment acre 1 Yrs 3 Yrs 3 Yrs Rearing house acre 1 Yrs 6 Yrs 5 Yrs Shoot feeding acre 1 Yrs 8 Yrs 6 Yrs Diversified (Animal husbandry) Dairy Cow acre dry/1/2 6 Months 5 Yrs 5 Yrs acre wet Sheep raring a) acre dry/1/2 1 Year 5 Yrs 5 Yrs acre wet b) acre dry/1/2 1 Year 5 Yrs 5 Yrs acre wet Piggery Suff. Security 1 Year 5 Yrs 5 Yrs Goat raring a) acre dry/1/2 1 Year 5 Yrs 5 Yrs acre wet b) acre dry/1/2 1 Year 5 Yrs 5 Yrs acre wet Pair Bullock acre No 4 Yrs 4 Yrs irrigated Pair of the Buffalo acre No 4 Yrs 4 Yrs irrigated Bullock Cart acre No 4 Yrs 4 Yrs (Wooden) irrigated Tire Cart acre No 4 Yrs 4 Yrs Goober Gas plant irrigated 70 No 4-7 Yrs 4-7 Yrs