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Ministry of Agriculture

RECOVERY PERFORMANCE OF INSTITUTIONAL FARM CREDIT
IN RAJASTHAN AND ANDHRA PRADESH
Agro-Economic Research Centre, Waltair

INTRODUCTION

Institutional farm credit has expanded very rapidly in India, especially, after the nationalisation of major commercial banks in the country. It has reached even to the remotest villages which were hitherto, neglected with regard to the supply of formal farm credit. Institutional finance came to play a significant role since the seventies with the entry of Commercial banks, rural banks, the NABARD etc. into the credit market to support the cooperatives that were already in the field. Concurrent to the unprecedented increase in the disbursement of both production and investment credit there has been an undesirable increase in the quantum of farm credit overdues.

The staggering overdue position among all the credit institutions in the formal sector, namely, commercial banks, regional rural banks (RRB's) and Cooperatives has seriously hampered the expansion of agricultural credit, both for production and investment purposes. The poor recovery performance, which has averaged 50% is seriously threatening the basic viability of these institutions causing grave concern to the Government. The Ministry of Agriculture, Government of India, has entrusted a common study on "Recovery Performance of Institutional Agricultural Credit" to the AER Centres of Vallabh Vidyanagar and Waltair to conduct the study in Rajasthan and Andhra Pradesh respectively with the following objectives:

OBJECTIVES

  • 1) To study the factors responsible for delay in repayment assessed through a sample study of defaulting farmers;
  • 2) To examine the impact of delay in recovery on the credit cycle of the Cooperatives, Commercial and rural banks;
  • 3) To make a comparative analysis of the recoveries made by commercial banks, regional rural banks, and cooperatives with regard to agricultural lending; and
  • 4) To suggest a strategy for improving recovery, including administrative measures as well as changes in legal framework and machinery for recovery.

SAMPLING DESIGN

Bharatpur district Cooperative Central Bank, the bank of Rajasthan Limited, Alwar Bharatpur Grameena Bank and Rajasthan State Land Development Bank (PLDB) from Kaman and Nadhari tehsils in the Rajasthan State and State Bank of Hyderabad, Nagarjuna Grameena Bank and District Cooperative Central Bank in the Venkatapuram Block of Khammam District in Andhra Pradesh have been selected for the study.

A total of 150 sample households in each State covering all the lending institutions, have been drawn for household study in Rajasthan and Andhra Pradesh and a single point survey has been conducted with 93-94 as the reference year.

BORROWINGS BY THE SAMPLE HOUSEHOLDS

While the DCCB has provided only crop loans, the PLDB has provided only term loans to the sample farmers in Rajasthan. The Commercial bank and RRB have provided both crop loans and term loans to the sample households. Similarly, while the DCCB has concentrated on crop loans, the SBH and RRB have distributed both crop loans and term loans to the farmers in Andhra Pradesh. Besides, private agencies like money-lenders and traders have advanced considerable amount of loan to the sample households in both the States during the reference year. Table 1 gives the institutionwise per household borrowings of sample households in the two States.

Table 1: Per Household Institutionwise Borrowings of the Sample Households
(Amount in Rs.)

Name of the Institution Rajasthan Andhra Pradesh
1. Co-op. Land Development Bank 2077 -
2. Regional Rural Bank 621 3176
3. Commercial Bank 1990 2276
4. Dist. Co-operative Central Bank 2285 1954
5. Private Agencies 1093 1318
Average 3161 3511

 

 While the average per household borrowings from all the institutions including private agencies of the Rajasthan sample households is reported to be Rs.3161 during the reference year, the amount is reported to be around Rs.3511 among the Andhra Pradesh sample households. However, considerable institutional variations are observed in the disbursement of loans to the sample households in both the States.

Among the institutions, while the RRB has advanced the highest per household amount of Rs.3176 in Andhra Pradesh, its counterpart in Rajasthan has disbursed the lowest amount of Rs.621 to the sample households. Similarly, the DCCB in Rajasthan has disbursed the highest amount of Rs.2285, while its counterpart in Andhra Pradesh has distributed the lowest amount Rs.1954 per household loan to the sample households. However, the Commercial bank and private agencies in Andhra Pradesh have an edge over their counterparts in Rajasthan in advancing loans to the sample farmers. The Land Development Bank in Rajasthan has advanced considerable amount of loan (Rs.2077) to the sample households.

The credit institutions have advanced both crop and term loans to the sample households in both the States. Institutionwise crop and term loans particulars are given in Table 2.

Table 2:
Institutionwise Per Household Crop and Term Loans of Sample Households
(Amount in Rs.)

Name of the Institution

Rajasthan

 

Andhra Pradesh

  Crop
loans
Term
loans
  Crop
loans
Term
loans
 
Co-op. Land Development Bank - 8198   - -
Regional Rural Bank 69 2246   3531 2050
Dist. Co-operative Central Bank 3061 -   1532 12500
Commercial Bank 113 7524   - 2276
Private Agencies 784 2003   1318 -
Total 4027 19971   6381 16826

 

The Cooperative Land Development Bank (Rs.8198) and Commercial bank (Rs.7524) have advanced high amounts as term loans compared to the Regional Rural Bank (Rs.2246) and Private agencies (Rs.2003) in Rajasthan. Similarly, the DCCB has advanced the highest per household amount of crop loans (Rs.3061) compared to the RRB (Rs.69), Commercial bank (Rs.113) and private agencies (Rs.784) in Rajasthan.

In the case of Andhra Pradesh, the DCCB has disbursed the highest per household term loan (Rs.12500) compared to the RRB (Rs.2050) and Commercial bank (Rs.2276). However, the RRB has advanced the highest amount of crop loan (Rs.3531) compared to DCCB (Rs.1532) and private agencies (Rs.1318).

PURPOSE OF BORROWINGS

While the crop loans are meant for raising seasonal crops in both the States, the purpose of term loans varies widely among different institutions in the two States. While the Commercial bank has advanced term loans for the purchase of plough bullocks, sheep and goat units and land development, the DCCB has given few loans for purchase of borewells in Andhra Pradesh. The RRB has advanced term loans for the purchase of plough bullocks and petty business in the State.

Similarly, while the Cooperative Land Development Bank provided loans mostly for the purchase of irrigation equipment like diesel/pumpsets and tractors, the Commercial bank provided term loans mostly for dairy animals, tractors and camel carts in Rajasthan. The RRB has advanced loans for the purchase of irrigation equipment, dairying and camel carts during this period in the state.

REPAYMENT OF LOANS

Considerable extent of variation existed among the various credit institutions in the recovery of crop and term loans. While 100% recovery of crop loan is ensured by the commercial bank in Andhra Pradesh, its record in the recovery performance of term loans is dismal as it could ensure only a per household amount of Rs.34 as repayment constituting about 1.49% of the total borrowings. The performance of commercial bank is much better in Rajasthan as it could ensure a better per household recovery per of Rs.118 of crop loan and Rs.467 of term loan during the reference year.

The RRB recorded a per household recovery of Rs.475 of crop loan constituting about 13.45% and Rs.446 of term loan constituting about 21.76% of the total borrowings in Andhra Pradesh. While no recovery of crop loan is reported by the RRB, a per household amount of Rs.915 is reported as the term loan recovery in Rajasthan.

However, in the case of Cooperative banks, the recovery performance is much better in Andhra Pradesh compared to Rajasthan. In the case of DCCB, while the per household amount of repayment of crop loan is Rs.604 constituting about 43.34%, the amount of repayment of term loan by the sample households is Rs.11900 accounting for 95.20% of the total borrowings in Andhra Pradesh. In the case of Rajasthan, while the per household amount of crop loan repayment is only Rs.116, the repayment of term loan amount is Rs.893 to the Cooperatives. Institutionwise recovery particulars of the sample households are given in Table 3.

Table 3:
Institutionwise Per Household Crop and Term Loans of Sample Households
(Amount in Rs.)

 

Repayment of loans

Name of the Institution

Rajasthan

 

Andhra Pradesh

 

Crop
loans

Term
loans

 

Crop
loans

Term
loans

 
Commercial Bank

118

467

 

-

24

Regional Rural Bank

-

915

 

475

446

Dist. Co-operative Central Bank

116

-

 

664

11900

Land Development Bank

-

893

 

-

-

Private Agencies

2903

-

 

1502

-

 

Of all the credit sources, repayment of crop loans to the private sources is the maximum in both the States during the reference year. While a per household amount of Rs.1502 is repaid to the private lending agencies in Andhra Pradesh, the amount is much higher (Rs.2903) in Rajasthan. No term loan recoveries are reported by the private agencies from the sample households in both the States.

The pattern of repayment of crop loans by the sample farmers indicates that priority is given to the private lending agencies compared to the public institutions in both the States. Such an impressive recovery performance by the private agencies is largely due to its exorbitant rate of interest which the borrowers cannot afford to prolong coupled with the regular personal contact of the money lenders constantly exerting pressure by reminding them about the repayment. The private agencies also have a tieup with the borrowers to repay the loan in kind, during the time of harvesting of crops which ensures prompt repayment.

Armed with `Revenue Recovery Act' the cooperatives ensure atleast partial recovery of loans by using coercive methods, and auctioning of land and property pledged as security. The Commercial Banks and RRBs do not have either any statutory powers to ensure forced recovery of loans or requisite man power to visit the villages and pursue the recovery work efficiently leaving large amounts of overdues in the banks.

The major sources of money for the sample household for the repayment are current income from agriculture, wage labour from agricultural and non-agricultural sources, and sale of assets by the sample households in both the States.

AMOUNT OUTSTANDING, REPAYMENT AND

OVERDUE BY THE SAMPLE HOUSEHOLDS

The per household amounts of overdue of crop and term loans are much higher in Rajasthan sample households, compared to Andhra Pradesh. Among the various credit institutions, while the highest amount of overdue of crop loan is recorded by the RRB in Andhra Pradesh, the DCCB has recorded the highest per household amount of overdue of crop loan in Rajasthan state. In the case of term loans the Commercial bank recorded the highest per household amount of overdue in both the States. Institutionwise overdue position is given in Table 4.

Table 4:
Lending Agencywise Per Households Amounts Outstanding, Repaid and Overdue

 

Lending Agency

Andhra Pradesh

Rajasthan

 

Crop Loan

Term Loan

Crop Loan

Term Loan

  amount amount amount amount amount amount amount amount amount amount amount amount
  out-
standing
repaid overdue out-
standing
repaid overdue out-
standing
repaid overdue out
standing
repaid overdue
DCCB/LDB
1673
434
1239
9900
50
275
3265
116
3539

20769

893

12176

Commercial 
Bank
-
-
-
1786
-
2123
3156
188
3345

25991

467

13725

Regional 
Rural Bank
4716
348
4368
2287
437
408
2580
-
2890

7112

915

2691

Private 
Agencies
963
904
59
-
-
-
3136
2908
979

-

-

-

 

  REASONS FOR DEFAULT IN REPAYMENT OF LOANS IN RAJASTHAN

Among varied reasons provided by sample households for their failure to repay loans, current household income utilised for household consumption is the most important. The cultivation income is low, partly because of natural factors like uneven and low rainfall (64% of normal rainfall in 1993) and partly because of non-availability of kind component of crop loan on account of District Central Cooperative Bank employees being on strike during 29 July to November, 1993. Lax supervision by bank employees, asset created out of loan turning out to be unproductive, inconvenient loan repayment schedule, diversion of loan for other purposes and inadequacy of availed loan and hence being utilised for other purposes are additional factors leading to the non-repayment of loans.

For smaller land holding group sample households, low household income, lax supervision by bank employees. Income diverted for repayment of debt from other agencies and inadequacy of loan amount, while for upper land holding group households, the created asset tuning out to be unproductive in appropriate loan repayment schedule, the loan amount and the household income diverted for other purposes are some of the important reasons for non-repayment of loans.

In case of crop loan, the important reason for non-repayment of loans is current household income diverted for other purposes which is followed by the low household income.

SUGGESTIONS OFFERED BY SAMPLE HOUSEHOLDS
FOR IMPROVING RECOVERY OF LOANS

Barring 8% of term loan taking sample households and 20% of crop loan taking households, all other households have offered suggestions for improving the recovery of both production as well as investment purpose loans. Major suggestions are as follows:

1) While sanctioning loan for creation of assets, it is important to verify the income generating capacity of assets created from loan.

2) The rate of interest on loan needs to be brought down.

3) Outside interference, especially political, should not be entertained while sanctioning loan and in deciding number of loan repayment instalments.

4) Achieving targets of advances should not be given overwhelming importance.

PROBLEMS FACED BY INSTITUTIONS IN RECOVERING
THE LOANS IN ANDHRA PRADESH

1) Lack of sufficient field staff to ensure follow-up supervision after the sanction of loan and heavy burden on the existing field staff since they have to cover large number of villages under loan recovery programme.

2) Staff are not willing to go to the rural and tribal areas due to lack of adequate educational and medical facilities and even the staff who are working in these areas do not have any motivation to serve the area.

3) Absence of any statutory powers to the banks to induce prompt repayment by borrowers is another hurdle which is hampering the recovery performance of the institutions. Statutes like the `Revenue Recovery Act' which empowered the co-operatives to recover the loans would have gone a long way in improving the recovery performance of banks.

4) Interference of local politicians is adversely affecting the repayment schedule of the borrowers in the rural areas, as village politics play a crucial role in the functioning of the co-op societies. The Governments populist policy of waiving of loans' has created mass psychology in the rural areas to withhold repayments and wait for some type of loan waiver programme to come to their rescue.

5) Frequent crop failures in the study area have been adversely affecting the repayment schedule of the cultivators. Since most of the cultivated area is unirrigated dry land the income from the crop yields is not sufficient to repay the loans while maintaining their families.

6) The local `Land Transfer Act' which prohibits alienation of land from tribals is another hurdle in executing any court decree of selling the land to recover the loans advanced by the credit institutions.

7) Priority given to the repayment of private loans by borrowers, which are used both for productive and consumption purposes has been adversely affecting the repayments to the banks and Co-ops.

STEPS SUGGESTED FOR IMPROVING THE RECOVERY
POSITION IN ANDHRA PRADESH

1) The Credit Institutions should ensure adequate and continuous supervision and follow-up action after the loan is disbursed. As the present staff structure does not permit this type of activity, the institutions should strengthen the field staff in their rural branches and motivate them towards better work norms and ethics.

2) While identifying the beneficiaries under Government sponsored schemes, a free hand should be given to the bank staff to carefully verify the bonafides, credit worthiness and the repayment capability of the borrower which will ensure a better repayment performance by the borrower.

3) Suitable enactments empowering the credit institutions to enforce recovery of loans from the borrower should be made, especially in tribal areas where normal laws are not applicable.

4) In the case of crop loans, overestimation of incomes from crops should be avoided by making a realistic assessment of the actual production which will reduce the burden of loan to the borrower besides preventing diversion of the excess amounts to other unproductive purposes.

5) As most of the cultivated land of the sample households is unirrigated dry depending on the vagaries of nature, a better cropping pattern suitable to the area should be encouraged by the agriculture department to increase the crop yields which will ensure better repayment by the borrowers.

6) As the entire mandal is located on the bank of perennial river Godavari, lift irrigation system may be developed in the area to irrigate the lands and increase crop production and productivity which will certainly induce the borrowers to repay the loans.

7) As far as possible the Governments at the State and Centre should avoid the populist programmes like `Waiving of Loans' which has adversely affected the psychology of the borrowers in the rural areas and encouraged absenteeism.

8) Frequent interference by local politicians in the functioning of credit institutions in the rural areas, especially, in the running of co-ops. should be discouraged as far as possible as factional politics have been instrumental in increasing the amount of overdues on one plea or the other.

9) Credit institutions should extent consumption loan facilities also to the needy people in the rural areas in order to discourage resort to private loans which are cornering a major part of their earnings towards repayment of private loans on exorbitant interest rates.


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Last Updated On - 01 April, 2005

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