Volume 4, Issue 2 (February, 2017) Online ISSN-2347-7571 Published by: Sai Om Publications Sai Om Journal of Commerce & Management INSTITUTIONAL CREDIT TO FARMERS: OVERVIEW OF PUNJAB STATE CO-OPERATIVE BANK Harpreet Kaur Sandhu Research Scholar, Department of Economics Punjabi University, Patiala, India Email: harpreet18in@yahoo.co.in ABSTRACT The objective of the present paper is to analyze the Co-operative Credit Structure in Punjab. Under this discussed about the various terminology and their explanation used through which banks provide credit to farmers. For the analysis, we highlight about the growth profile of Punjab State Co-operative Bank of Punjab, through which farmers gets credit on short term basis. Under this, the growth profile of Punjab State Co-operative Banks in which membership of the banks, working capital and the loans advancement were discussed. Punjab State co-operative Banks Provide Credit to Central Co-operative Banks through which farmers get credit. In the end, discussed about purpose wise loan- advancement of Punjab State Co-operative Bank to Central Co-operative Bank. Keywords: term credit, loan advancement, Punjab State Co-operative Banks INTRODUCTION The co-operative credit structure regarding short, medium and long term credit in Punjab. As mentioned in the introductory chapter, short term and medium term credit is provided by a three tier structure with the State Co-operative Bank at apex level, Central Co-operative Banks at the district level and Primary Agricultural Credit Societies (PACS) at the village level. Long term credit structure is a two tiered system which provides credit for modernisation of agriculture. The farming business is subject to many uncertainties, uncontrollable biological and natural calamities and requires a flexible adjustment programme (Kaur, 1983). Farmers need short term credit for their working capital needs, while long term loans are needed for implementing new techniques, tools and innovations to secure the farm produce from natural calamities. Short term, medium term and long term credit of co-operative credit structure. The Short term credit is one which provides farmers with the working capital to run their farms efficiently, to obtain the crop in the best possible manner, to carry on agricultural expenses until the produce is sold in the market. Thus, short term loans are given for purchasing of seeds, manure, fodder, payment of labour charges, fertilisers, pesticides etc. at subsidised rates by the Primary Agricultural Credit Societies (PACS). The period of short term credit does not exceed 15months.The medium term credit is required for purchase of farm machinery and livestock. This type of credit is also used for construction of wells/tube-wells or for conversion of soil etc. The medium term credit is issued for longer period in comparison to the short term credit for over 15 months but not exceeding 5 years. And, for the Long term credit is also known as term loan. The term loan is a contract under which borrowers agree to make a series of interest and principal payments for a specific time to a lender.these loans are used for purchasing costly agriculture equipments like harvesters, tractors, other harvesting tools, making permanent land improvement, sinking of wells, purchasing of land etc. These loans are given for a period of five years but not exceeding fifteen years. The long term credit is issued by Land Development Banks (LDBs) which were previously known as Land Mortgage Banks (because borrowers often had to mortgage their land while taking such loans). On 29 th April 1986, Land Development Banks in Punjab have been renamed as Punjab State Co-operative Available online on www.saiompublications.com 4
Agricultural and Developments Banks (PSCADBs). The farmers get short term credit from Central Co-operative Banks and Primary Agricultural Credit Societies which is routed through Punjab State Co-operative Banks. The Punjab State Co-operative Bank is the apex bank of short term co-operative credit structure in the state. It was established on August 31, 1949 at Shimla vide registration number 720, as a principal institution of the co-operative movement in the state. In 1951, its headquarters were shifted to Jalandhar, and is presently located at Chandigarh since 1963. The main objective of the Punjab State Co-operative Bank is to serve as a balancing centre for co-operative societies in Punjab under Co-operative Societies Act 1961. Secondly, it promotes the economic interest of the members of the banks and co-operative societies in the state in accordance with co-operative principles and to facilitate the development and funding of any co-operative society registered under the said Act. Lastly, its main objective is to carry on banking and credit business. The membership of the Central Co-operative Banks, Industrial Co-operative Banks and apex co-operative institutions such as Punjab State Co-operative Supply and Marketing Federation Limited (MARKFED), The Punjab State Federation of Co-operative House Building Societies Limited (HOUSEFED), Punjab State Federation of Sugar Mill Limited (SUGARFED) etc. are eligible to become members of the Punjab State Cooperative Bank. The membership is also open to the urban co-operative banks. The Government is also a member of Punjab State Co-operative Bank. In the year 2007-08 membership of PSCBs was 52 which increased to 54 in 2012-13 and which remained the same in 2011-12. The management of the co-operative bank comprises of a board of directors having a term of five years. It constitutes one director from each central co-operative bank; two directors are to be appointed from amongst the representatives of affiliated co-operative societies other than Central Co-operative Banks and three nominees of directors which are nominated by government. In the management of co-operative bank, there is a Registrar or his nominee not below the rank of Additional Registrar. The representative of National Bank for Agriculture and Rural Development (NABARD) regulates funds for co-operative banks. A Chairman and a Vice-Chairman is selected by the members of the Board of Directors from the elected members. The main functions of Punjab State Co-operative Bank (PSCB) are to coordinate and guide the working of Central Co-operative Banks and help in promoting the lending activities of the Primary Agricultural Credit Societies. Secondly, Punjab State Co-operative Bank serves as the lenders of co-operative movement in the state. Lastly, PSCB can purchase and sell government promissory notes and other trustees securities. The Sources of funds of Punjab State Cooperative Bank can be divided into two types i.e. internal and external sources. Internal sources constitute owned funds which consist of paid up share capital from public, banks and reserves created by banks which are important internal sources. The PSCB is the first to introduce the locker services and other subsidiary services like payment of electricity and water bills of the customers. The main external source of funds is the Reserve Bank of India (RBI), National Bank for Agriculture and Rural Development (NABARD) and the National Co-operative Development Corporation (NCDC). These borrowings constitute an important part of the working capital of the bank. THE PUNJAB STATE CO-OPERATIVE BANKS Table 1.1 gives an account of the progress made by the Punjab State. Co-operative Bank (PSCB) in the field of working capital, loans advanced, and recovered during the year 1999-2000 to 2013-14 Table 1.1: Growth Profile of Punjab State Co-operative Bank (PSCB) Years Membership (Numbers) Working Capital (Rs. in lakhs) Loans Advanced (Rs. in lakhs) Loans Recovered (Rs. in lakhs) 1999-2000 55 181408.00 142471.79 95725.00 2000-2001 52 196131.65 156535.31 113688.00 2001-2002 52 221521.26 170556.29 111235.00 VOL. 4, ISSUE 2 (February 2017) 5
2002-2003 52 266371.13 217570.82 107403.00 2003-2004 52 279389.75 306354.08 143450.00 2004-2005 52 297931.06 238731.59 127240.00 2005-2006 51 330670.55 268148.03 181323.00 2006-2007 51 411484.52 340390.92 192958.00 2007-2008 52 503754.47 412303.09 190311.00 2008-2009 52 635195.94 47293628 300364.00 2009-2010 52 615326.26 462357.28 342435.00 2010-2011 53 703511.13 532479.09 326442.00 2011-2012 53 798880.51 629566.36 411792.00 2012-2013 54 895645.12 710107.14 493845.00 2013-2014 54 972492.73 783072.85 567744.00 Source: Statistical Abstract of Punjab, Annual Report of Punjab State Co-operative Bank, Chandigarh Figures in table 1.1 shows that in 1999-2000, there were 55 members which decreased to 54 in the year 2013-14. It can be clearly observed from the above table that Punjab State Cooperative Bank has substantially declined during the period of last fifteen years in terms of working capital, memberships, and loans advanced and recovered. In the year 1999-2000 loans advanced were Rs.142471.79 lakhs and Rs.783072.85 lakhs in 2013-14 (Statistical Abstract 2015). Loan Operations The lending activities of PSCB are very large because of its diverse functions. It plays a vital role in policy making and programmes for lending. The PSCB provides loans for different sectors of production and consumption apart from agriculture. PSCB provides short and medium agriculture loans to Central Co-operative Banks which are passed on to the farmers through PACS. Under this, agriculture credit is given under the crop loan system. In this the distribution of fertilisers is considered as an important function of PSCB. The PSCB provides credit facilities to the Central Co-operative Bank for stocking and distribution of fertilizers, pesticides and seeds through PACS. The Credit Sanctioned by Punjab State Co-operative Banks to Central Co-operative Bank in Punjab The Punjab State Co-operative Bank provides credit not only for agricultural purposes but also extends its credit facilities to its members for other purposes. Credit given for non-farm sector and vehicle loans are given to third party i.e. to concerned agencies from which the goods were purchased. There is different type of purpose wise credit through which farmers can avail credit from the Central Cooperative Credit Bank. Under purpose wise credit first main sector under which bank can sanction credit is Agriculture credit or Farm sector credit was given for the production of crops or for the purchase of agriculture implements etc. There are two types of loans one is short term crop loan and VOL. 4, ISSUE 2 (February 2017) 6
second is medium term loans. Short term credit also called as crop loans which were given for the production of crops for the period of six months at 4 percent rate of interest. Secondly, Medium term credit was given to farmers for the periods of five years for the purchase of poultry, piggery, land reclamation, investment credit for the installation of pump set etc. at 13.50 percent rate of interest. Second main purpose wise credit was Non-farm sector loans are mainly given to the rural youth directly to an individual for self-employment such as bakery units, flourmills, saw mills, consumer electrical, electronic appliances, repair unit engineering, furniture making, sports goods hosiery garment units etc. Some of the institutions which get loans from Punjab State Co-operative Bank (PSCB) are The Punjab State Co-operative Supply and Marketing Federation (MARKFED), The Punjab State Federation of Co-operative House Building Societies (HOUSEFED), The Punjab State Co-operative Milk Producers Federation(MILKFED) and Central Co-operative Banks. The Third type of credit was Consumer Durable Loans, these loans provide facilities to the bank s customers for the purchase of consumer durables such as T.V., refrigerator, furniture etc. The fourth type of credit was Vehicle Loans, Vehicle loans are provided for purchase of mini-trucks, two wheelers etc. for the benefit of farmers and the other members to meet their domestic and agricultural requirements. The fifth type of was Cash Credit Limits, under this scheme, a cash credit limit is sanctioned upto Rs.25 lakhs to small businessmen and traders depending upon their business turnover at 14.5 percent rate of interest. There is some other type of credit under which banks can sanction loans. These loans are also provided for rural housing, purchase of plots/flats, construction of building or repair of old buildings etc. All these loans are treated as unproductive loans. The Sixth and the most important type of credit was Revolving Cash Credit. The Revolving cash credit is given to the farmers against the mortgage of their land to meet credit requirements. RCC scheme helps farmers for purchase of inputs, farm investments, consumptions and social requirements in order to reduce their dependency on informal lenders or moneylenders. Mainly, this scheme envisages providing cash credit limit to the farmers against the mortgage of their land for all credit requirements of the farmers. It aims at freeing farmers from the clutches of traditional money lenders. A cash credit limit of one lakh per acre subject to a maximum of six lakhs is provided to the farmers for fulfilling their socio-economic liabilities. Table 1.2 depicts purpose wise loan outstanding of the Punjab State Co-operative Bank to Central Cooperative banks in Punjab during the study period. The table shows the amount of different types of loans like agriculture loans, vehicles loans, cash credit limits and others. In absolute terms, it can be observed that the total loans advancements of the PSCB increased from Rs 142471.79 lakhs in 1999-2000 to Rs.783072.83lakhs in 2013-14 respectively, registering a growth rate of 12.03 percent. Revolving cash credit has supplemented inadequate availability of production credit besides creating provisions for consumption credit. Therefore, its role is complementary to the institutional credit available to farmers for agricultural purposes. In case of Revolving Cash Credit, the percentage share of loans advancements in the year from 1999-2000 to 2013-14 was 4.75 percent increased to 31.89 percent, for Non-farm sector it was declined from 2.23 percent to 1.25percent, vehicle durable loans were 0.41 percent in 1999-2000 which slightly increased to 0.76 percent in 2013-14. Similarly, in case of Cash Credit Limit was 0.68percent in 1999-2000 which declined to 0.03 percent to 2013-14. Table 1.2: Purpose- Wise Loans Advancement of Punjab State Co-operative Bank to Central Co-operative Banks in Punjab Year Agriculture RCC NFS Consumer Durable Loans 1999-2000 64019.07 (44.93) 6771.00 (4.75) 1854.93 (2.23) 638.12 (0.45) Vehicle Loans 588.74 (0.41) Cash Credit Limits 967.02 (0.68) Others 67632.91 (47.47) (Rs in lakhs) Total 142471.79 VOL. 4, ISSUE 2 (February 2017) 7
2000-2001 68751.58 (43.92) 6810.00 (4.35) 3456.89 (0.65) 580.94 (0.37) 405.48 (0.26) 981.32 (0.63) 75549.10 (58.26) 156535.31 2001-2002 72438.00 (42.47) 12400.00 (7.27) 538.90 (0.32) 478.46 (0.28) 272.93 (0.16) 971.82 (0.57) 83456.18 (48.93) 170556.29 2002-2003 79526.22 (36.55) 19371.00 (8.90) 11143.90 (13.40) 362.23 (0.17) 192.06 (0.09) 880.74 (0.40) 106094.67 (48.76) 217570.82 2003-2004 80361.32 (26.32) 22495.00 (7.34) 14122.77 (16.99) 284.36 (0.09) 148.32 (0.05) 787.96 (0.26) 188154.35 (61.42) 306354.08 2004-2005 102602.66 (42.98) 21767.00 (9.12) 10184.34 (12.25) 312.19 (0.13) 120.19 (0.05) 727.35 (0.3) 103017.86 (43.15) 238731.59 2005-2006 112458.81 (41.94) 26360.00 (9.83) 9511.95 (11.44) 326.72 (0.12) 104.19 (0.04) 751.12 (0.28) 118635.24 (44.24) 268148.03 2006-2007 173881.91 (51.44) 33896.00 (9.96) 7231.17 (8.70) 332.94 (0.10) 86.67 (0.03) 596.88 (0.18) 124365.35 (36.54) 340390.92 2007-2008 228585.00 (55.44) 46221.90 (11.21) 6555.55 (7.89) 485.97 (0.12) 130.05 (0.03) 485.28 (0.12) 129839.34 (31.49) 412303.09 2008-2009 361441.90 (76.43) 11931.43 (2.52) 5391.66 (6.49) 598.18 (0.13) 195.61 (0.04) 323.4 (0.07) 93054.10 (19.68) 47293628 2009-2010 304801.48 (65.93) 49026.00 (10.60) 7447.72 (8.96) 798.89 (0.17) 286.54 (0.06) 319.39 (0.07) 99677.26 (21.56) 462357.28 2010-2011 368000.00 (69.02) 36270.77 (6.81) 5698.89 (1.07) 966.85 (0.18) 447.05 (0.08) 241.36 (0.05) 120854.17 (22.67) 532479.09 2011-2012 447000.00 (71.00) 44145.00 (7.01) 5050.87 (0.80) 1069.16 (0.17) 663.62 (0.11) 244.87 (0.04) 123810.31 (19.65) 629566.36 2012-2013 530883.17 (74.76) 44225.00 (6.23) 8603.99 (1.21) 1736.61 (0.24) 718.05 (0.10) 253.82 (0.36) 121998.42 (17.18) 710107.14 2013-2014 576735.00 (73.65) 62440.00 (31.89) 9792.63 (1.25) 1927.47 (0.25) 596.66 ( 0.76) 240.18 (0.03) 129672.00 ( 16.56 ) 783072.85 Growth Rate 15.78 15.96 11.73 7.65 0.09-8.87 4.43 12.03 Sources: Annual Report of The Punjab State Co-operative Bank Ltd, Chandigarh, Various issues. Note: 1. R.C.C implies Revolving Cash Credit 2. N.F.S. implies Non-Farm Sector 3. Figures in parentheses indicate percentage to the total loans. During the last few years of study period the share of agricultural loans advanced to total loans advancements grew to 44.93 percent in 1999-2000 to 73.65percent in 2013-14. During this period credit limit of consumer durable loans, cash credit limits and vehicle loans were very low. The growth rate of total loan advancement in agriculture section is registered at 15.78, percent. Non-farm sector (11.73percent), Revolving Cash Credit (15.96 percent), Consumer Durable Loans (7.65percent) vehicle loans (0.09 percent) and other loans (4.43percent) registered positive growth rate, but Cash Credit Limit showed negative growth rates depicted as (-) 8.87 percent. The highest growth rate was achieved by Revolving Cash Credit i.e. 15.96 percent which was followed by agriculture credit i.e. 15.78 percent. VOL. 4, ISSUE 2 (February 2017) 8
Purpose wise loans advancement by PSCB to CCBs Other Loans, 4.43 Cash Credit Limits, -8.87 Vehicles loans, 0.09 Consumer Durables, 7.65 NFS, 11.73 Agriculture, 15.78 RCC, 15.96 Agriculture RCC NFS Consumer Durables Vehicles loans Cash Credit Limits Other Loans Source: Table 1.2 SUGGESTIONS AND RECOMMENDATIONS The Co-operative Banks should increase the amount of loans advanced to Central Cooperative Banks so that farmers can get adequate credit to meet their credit demand for agriculture. Co-operative should provide information to farmers by conducting seminars, workshop etc to encourage them to avail credit from institutional sources as compare to non-institutional sources. CONCLUSION The Punjab State Co-operative Bank not only provide credit to farmers in the form of short-term and medium term loans but also give credit to farmers for consumption purpose. The membership of Punjab State Co-operative Bank was 55 in the year 1999-2000 which was decreased to 54 in 2013-14. The amount of loans advanced was Rs.142471.79 lakhs in 1999-2000 which increased to Rs.78072.85 lakhs in 2013-14. The percentage increase in the growth of loans advanced from 1999-2000 to 2013-14 was 18.65 percent by PSCB. The amount of loans recovered was Rs.95725 lakhs in 1999-2000 which increased to Rs.567744 lakhs in 2013-14 and the percentage increase in the growth of loans recovered from 1999-2000 to 2013-14 was 16.86 percent by PSCB. Similarly, the amount of loans advanced to Central Co-operative Banks further circulated to co-operative branches and Primary Cooperative Societies in the villages of Punjab. The percentage share of growth of agriculture was 15.78 percent and Non-farm sector was 11.73 percent. The percentage share of increase for loans advanced to PSCB to CCBs was 18.19 percent during the year 1999-2000 to 2013-14. Therefore, Punjab State Co-operative Bank plays a significant role in providing credit to farmers not only for agriculture purpose but also for consumption or nonfarm sector. VOL. 4, ISSUE 2 (February 2017) 9
REFERENCES Sai Om Journal of Commerce & Management 1. Annual Report (2004 to 2014), Various issues, The Punjab State Co-operative Bank, Chandigarh. 2. Kaur Gian, Anita Gill (1983), Performance of Co-operative Banks in Short and Medium Term Agriculture in Punjab PSE Analyst, Vol.1, issue no-2, pp-41-60 3. Madan, G.R(1958), Co-operative Development in Punjab, Chand & Company, Delhi.p.5. 4. Statistical Abstract (2005 to 2014), various issues, Economic Adviser, Government of Punjab. [www.esopb.gov.in] VOL. 4, ISSUE 2 (February 2017) 10