WHAT ARE THE DIFFERENT TYPES RURAL CREDIT (MARKS 3/8)

CLASSIFICATION OF CREDIT BASED ON PERIOD, PURPOSE AND SECURITY

1. Short – term Loans

The loans is granted normally for a period of 18 months on the basis of the crops
raised. It is intended for meeting the expenses of seasonal agricultural operations
such as purchase of seeds, manures and insecticides and other day-to-day expenses.

2. Medium – term Loans

This is also referred to as development loans. The duration of the loan is normally 3
years. In certain cases, it is granted upto 5 years. It is granted for repairing wells ,
purchase of cattle, improve agricultural implements , and construction of farm –
house , cattle shed etc .

3. Long – term Loans

These loans are granted for period of 5 to 15 years. The objective of this type of loan
is to introduce some permanent improvements on land such as reclamation of land ,
repayment of old debts, digging of irrigation canals, purchase of tractors , installation
of pump sets , etc. For giving long-term loans they are separate co-operative
institutions.

EXPLAIN STRUCTURE OF CO – OPERATIVE AGRI-CREDIT(MARK 8)

Co- operative Credit

ST & MT LT
LOANS LOANS

State Co – operative Bank

Kerala State Co – operative
Agricultural and Rural
Development Bank
District Co – operative bank

Primary Co – operative
Primary Co- operative Credit Agricultural and Rural
Societies Development Bank

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THREE TIER AND TWO TIER CREDIT (MARK 3/8)

Three Tier Structure

1. Primary Credit Structure
At the village level there are Primary Credit Societies having only individuals as their
members. Their primary function is the creation of funds to be lent to the members.
These societies form the base of the movement and provide direct access to the
peoples. Just as the stability and strength of the building mainly depends on its
foundation, the soundness of the three-tier credit structure depends of the Primary
Credit Societies at the base. If the primaries are weak, we cannot normally expect
sound working at the District Co-operative Banks or State Co-operative Bank level.

2. District Co-operative Bank

The District Co-operative Bank is a federal society of the Primary Credit Societies in a
revenue district. Usually , societies not individuals, are the members of District Co-
operative Bank. The aim of the District Co-operative Banks is to give loans and other
financial help to the affiliated member societies.

3. State Co-operative Bank

The District Co-operative Banks further organise themselves into an Apex Bank which
has jurisdiction all over the State. The difference between an Apex Bank and the
Central Co-operative Bank is one of degree and not of kind. Both are organised to
facilitate the operations of the affiliated units. The bank acts as a liaison between the
co-operative movement in the state and NABARD which finance the co-operative
credit movement. It is the highest body in the co-operative credit structure.

Two Tier Structure

1. Primary Co-operative Agricultural and Rural Development Bank
A primary Agricultural and Rural Development Bank is a co-operative institution
advancing long term loans to the agriculturists who were members, on the security of
landed assets. Before 1963, they were known as Land Mortgage Banks. It has a two
tier structure – Primary Land Development Banks in each subdivision and State Co-
operative Land Development Bank at the state level . In Kerala, they are called Primary
Co-operative Agricultural and Rural Development Bank.

2. Kerala State Co-operative Agricultural and Rural Development Bank

It is the apex federation of Primary Co-operative Agricultural and Rural Development
Banks in the state. Before 1984, the Bank was known as the Kerala Co-operative
Central Land Mortgage Bank. It also changed as Kerala State Co-operative Agricultural
Development Bank on 29th August 1984. The name of the bank is again changed as
Kerala State Co-operative Agriculture and Rural Development Bank from 11th May
1990.
EVOLUTION OF PRIMARY CO-OPERATIVE CREDIT SOCIETIES(MARKS 3/8)
The following chart shows the evolution of primary co-operative credit societies.

Primary Agricultural Credit Society (1904)

Multipurpose Co-operative Society (1945)

Large Scale Credit Society (1956)

Service Co-operative Society (1958)

Farmers Service Society (1972)

Agricultural Co-operative Credit Society

The Co-operative movement in India was started with credit societies. Later diversified its
activities and different types of societies covering various economic fields came into
existence. One co-operative society for a particular purpose, thus, became the pattern of the
co-operative organisations. The credit societies were patterned on the model of the Raiffeisen
Societies of Germany.

Multi-purpose Co-operative Society

The Multi-purpose Co-operative Society should aim at the all round development
of agriculture . At the same time it should work for the betterment of life of villagers.

The Co-operative Planning Committee in 1945 also echoed the same opinion. The
multi-purpose Society seeks to provide not only credit , but also other services such as the
supply of seeds , fertilizers, agricultural implements, and consumer goods and marketing of
agricultural produce. A Multi-purpose Society, therefore, is an organisation in which all
farmers with different economic needs are members.
The Muli-purpose society has been assigned the following functions;
1. To finance agriculture.
2. To supply the inputs such as seeds, manure, agriculture implements, etc.
3. To supply the essential consumer goods like cloth , kerosene , salt , matches etc.
4. To acts as an agent for the sale of agriculture produce.

Advantages
1. As members can get all their requirements, they will have more interest in such a
society.
2. As this society provides a variety of services, it will be able to attract more members.
3. Members have frequent contacts with the society.
4. As the volume of business in a Multi-purpose Society is high , it can employ trained
and well paid staff.
5. It is easier for a person to subscribe shares in one society than in many societies which
carry on different functions
6. Losses in one section of a Multi-purpose Society can easily be made up against profits
of other sections.

Large -Size Credit Societies

Small – size credit societies had been the rule since the inception of movement. Experience ,
however, showed that these societies had been working under a number of handicaps. Due
to small business, their income was small and they could not employ qualified and trained
staff. So also they could not gain the confidence of depositors. Therefore , the Rural Credit
Survey Committee recommended Large-size Credit Societies.

The essential features of these societies , an envisaged by the committee, were following.

1. They should have a large membership covering a group of villages so as to have

adequate business.
2. They should be organised on the basis of limited liability.
3. State participation in the share capital.
4. Crop loan system.
5. Linking of credit with marketing
 6. Full time qualified and trained staff.
7. They should attract sufficient deposits.

Service Co-operative Society

The scheme of large-size credit societies came in for scathing criticism from well-known co-
operators who pleaded for the old of “one village, one society”. The late Prime Minister,
Pandit Jawaharlal Nehru, himself was categorically in favour of small societies. His preference
for small societies was born out of basic philosophy that every village should be served by, a
cooperative society, a panchayath and school. He challenged basic postulates of the Rural
Credit Survey Committee.

Farmers Co-operative Society

The Farmers Service Society is recent origin. It was first suggested by the National Commission
of Agriculture in 1972. Later , accepting its recommendation, the Government of India,
wanted to try it on an experimental basis. Following the example of other states, 36 Farmers
Service Societies were organised in Kerala. A few more societies will also be registered soon.

THREE TIER V/S TWO TIER SYSTEM OF CO-OPERATIVE CREDIT(MARK 3/8)

The co-operative credit structure, as it is evolved in this country, is of a federal type, consisting
of Primary Credit Societies at the base , the Central Co-operative Bank in the middle and the
State Co-operative Bank at the apex. There are some who think that there no need for the
middle tier i.e, the District Co-operative Bank. According to them it is possible to eliminate
this agency which acts like a ‘tollgate’ only to add a bit to the rate of interest. They advocate
direct financing of the Co-operative Primary Societies by the State C-operative Bank by
establishing its branches in the districts so that there can be a reduction in the rate of interest
to the ultimate borrowers.

1. It is difficult to establish the same intimacy and constant relationship between a

Primary Society and the State Co-operative Bank as between a Primary Society and
the District Co-operative Bank.
 2. The Primary Credit Societies cannot have the same voice and control in the
management of the State Co-operative Bank as they have in the District Co-operative
Bank at present.
3. The distance between the Apex Bank and the Primary Societies may lead to lack of
co-ordination in the structure and create differences and apathy of the primary
societies.
4. A district has been reckoned as a unit for planning and administration in the country.
Therefore, district level institutions are better suited in the co-operative field also. If,
on the other hand, policies and programmes are framed at the state level , they
would be unduly uniform and may not prove suitable to different conditions
obtaining in different areas.
5. The co-operative credit being a controlled credit there is a universal need to guide ,
supervise and control this credit. There efforts of the Co-operative Department
exercise control from outside may not prove successful.
6. A District Co-operative Bank can be quite helpful in the promotion and development
of other types of co-operative institutions in the district. This may be difficult when
the present pattern is changed.

DIFFERENT AGENCIES PROVIDING RURAL CREDIT(MARK 8)

INSTITUTIONAL AGENCIES PROVIDING RURAL CREDIT

1. Money lenders;
2. Government
3. Commercial Banks;
4. Co-operative Credit Societies;
5. Regional Rural Banks

1. Money lenders
Of all the agencies that give rural credit the moneylenders is most important, both
from the point of view of number and business. According to the Rural Credit Survey
Committee Report, about 45% of the credit needs of the farmers are complied to
give a high rate interest for loans. Once they get entagled with the money lenders. It
is very difficult to get rid of them.

2. Government
It is the legitimate duty of any welfare state to come towards for the help of weaker
sections of the community. Yet there are certain limitations to any government help.
It is doubtful whether the government can become a good credit agency due to its
inherent limitations such as red-tapism, cumbersome procedure etc.

3. Commercial Bank
 Commercial Banks are interested in giving loans only to trade and industry since the
loans in this sector are more secure than in agriculture. Therefore until recently most
of the commercial banks were reluctant to give loans to farmers, if all they have, as it
was based only on landed property. But millions of farmers in India are poor and
they have very little landed assets or other credit worthiness. As a result only very
few agriculturist could avail themselves of the loans from commercial banks. But at
present; in tune with the government policy they have also started to issue loans to
farmers on bigger scale.

4. Co-operative Credit Societies

Co-operative credit societies aim at providing loans at a reasonable rate of interest
and getting back loans after harvest. The primary credit societies at the village level
are known as Service Co-operative Societies or Banks. The rate of interest of co-
operative loans will not exceed a normal rate because these societies are functioning
according to certain accepted principles. The members of these societies are farmers
and their management is also vested in them. Profit is not the aim of co-operative
credit societies; they aim at better economic services to their members. The
members are thus not subject to any type of exploitation. There is provision to issue
loans to the cultivators on the basis of the anticipated crops in the fields. They are
allowed to repay the loans on easy instalments.

5. Regional Rural Banks

This agency came to the area of rural credit very late. Regional Rural Banks were set
up by the government in the wake of emergency in 1975. The main object of these
banks is to provide credit facilities to small and marginal farmers, agricultural
labourers , artisans and small entrepreneurs in rural areas. Rural Banks are
sponsored by the nationalised banks. At present there are 196 R.R.B ‘S covering 363
revenue districts. NABARD provides to them concessional refinance facilities on par
with co-operative credit institutions. As an institutional agency for rural credit they
have come to stay in India.

ROLE OF NABARD IN RURAL CREDIT NABARD(MARK 8)

The government of India set up the National Bank for Agriculture and Rural
Development (NABARD) by a special Act of the Parliament and it started functioning
on 12th July, 1982. The main object of NABARD is to provide credit for the promotion
of agricultural, small scale industries and handicrafts, and for other allied economic
activities in rural area for securing rural prosperity.
Through this bank if of recent origin , the main functions assigned to it are not
new. Previously , these functions were carried on by two important institutions viz .
the Agricultural Credit Department of the Reserve Bank of India and the Agricultural
Refinance and Development Cooperation. Therefore , NABARD is only a successor of
these institutions. NABARD will take over the entire functions of ARDC as well as ACD
of the Reserve Bank. While the former institutions was handling long term
agricultural credit , the letter was dealing in short term and medium term
agricultural credit to farmers.
India being an agricultural county , its central bank has a special responsibility in
providing credit to the agricultural sector. Realising this, the Reserve Bank its very
inception in 1935 , had created a separate department called ACD for promotion of
rural credit.
In the wake of independence , the inadequacy of institutional finance for long
term investments in agricultural was keenly felt . various experts committees also
emphasised the need for and the importance of long term loans on a large scale for
the promotion of agricultural development in the country. But the Reserve Bank of
India could not take up this additional functions ; as its hands were already full with
statutory obligations as the central bank of the county. It was against this
background that a separate institution for the purpose called the “ Agricultural
Refinance Corporation “, was setup by the government of India in 1963. Later, its
name was changed to “Agricultural Refinance and Development Cooperation”.
The third stage in the evolution was reached when the necessity for integration
of the functions of these two agencies was felt, especially after the origin of regional
rural banks in the field of rural credit and realisation of the importance of cottage
and small scale industries in the rural development. These events ultimately
culminated in the birth of NABARD. But the immediate reason for the origin of
NABARD was the CRAFICARD report. CRAFICARD stands for the committee to review
the arrangements for institutional credit for agriculture and rural development,
which was constituted by the Reserve Bank of India in 1979. Sri. B. Sivaraman,
former planning commission member , was the chairman of this committee. One of
outstanding recommendation of the committee was the establishment of NABARD .
According to the provisions of the act , NABARD was set up on a date notified by
the government of India. Its head office is at Bombay; it may be at any other place as
decided by the government . this bank is setup on the lines of the industrial
development bank of India to assist the rural sector in a more organised and
systematic way. This bank has an organic link with the Reserve Bank of India.
 OBJECTS
The main objects of NABARD are the following
i. To co-ordinate the operations of different financing agencies which are engaged in
rural credit.
ii. To maintain an expert staff to study all questions relating to agriculture and rural
development and to make it available for consultations by Central and State
Governments and institutions engaged in rural credit.
iii. To work as an agent for Central and State Governments and Reserve Bank for the
floatation of bonds, debentures ,etc.
iv. To arrange for the training in agriculture and rural development.
v. To conduct research, surveys, etc.

FUNDS
The bank has an initial paid up share capital of Rs.100 crores. As provided in the Act,
shares are allocated to the Reserve Bank and the Government of India on a 50:50
basis.

Under NABARD, three funds are created for the promotion of agricultural and rural
Sdevelopment. They are ;
1. National Rural Credit Long Term Operation Fund.
2. National Rural Credit Stabilisation Fund.
3. Research Development Fund.

1. National Rural Credit( Long-Term Operation )Fund

This fund has been created by transferring the amount from the National
Agricultural Credit Long Term Operation Fund maintained by the Reserve Bank of
India. Over and above this, the amount set apart from the Central Government,
State Governments and the Reserve Bank from time to time will be added to the
fund. Allocations made by the Board of the Bank will also be added to this fund.

i. Rescheduling of Loans to Artisans, Small – scale industries, etc.

Where the National Bank is satisfied that owing to unforeseen circumstances the
rescheduling of any loans and advances made to artisans, small scale industries,
industries in the tiny and decentralised sectors, etc.
Provided that no loan or advance shall be made under this section to a State Co-
operative Bank unless such loan or advance is fully guaranteed as to the repayment
of the principal and payment of interest, by the State Government but such
guarantee may be waived by the National Bank if other security to the satisfaction of
the national bank is furnished, or if, for reasons to be recorded by it in writing, the
National Bank is satisfied that the guarantee or other security is not necessary.
ii. Investment Credit-Medium TermProvided that no loan or advance shall be made
under this section to a State Co-operative bank unless such loan or advance is fully
guaranteed as to the repayment of the principal and payment of interest, the State
 Government but such guarantee may be waived by the National Bank, if other
security to the satisfaction of National Bank is furnished, or if, for reasons to be
recorded by it in writing, the National Bank is satisfied that the guarantee or other
security is not necessary.

National Rural Credit Stabilisation Fund

This fund has been created by transferring the amount from the National
Agricultural Credit Stabilisation Fund created under the Reserve Bank. The funds
received from the Reserve Bank for this purpose every year the amount received
from the Central and State Government, allocations made by the Board of the
Bank will also be added to this fund.
3. Research Development Fund
This fund has been set up by the grants and contributions as well as allocation
from the net profit of the bank. This fund will be utilised for agricultural and rural
development and also for conducting research and giving training.
ROLE PLAYED BY NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION
(N.C.D.C) IN RURAL CREDIT (MARK 8)
Apart from the government, there are certain institutions in this country which
render support and help to the co-operatives. NABARD is one such institution.
But the activities of NABARD are mainly confined to agricultural credit. Hence
there was the necessity for a parallel institution at the national level to extend
help to the non-credit type of societies, such as marketing societies, processing
societies, consumers stores, dairy societies etc. Realising this need and
importance, the Government of India established the National Co-operative
Development Corporation.
The National Co-operative Development Corporation was set up in 1963 by the
Government of India by a Special Act. The Head Quarters of the Corporation is
New Delhi. The N.C.D.C is a successor of the National Co-operative Development
and Warehousing Board, established by the Central Government in 1956 in
pursuance of the recommendation of the All India Rural Credit Survey
Committee NCDC is engaged mainly in the planning and promotion of co
operative production, marketing, processing, storage and also the export and
import of agricultural commodities and notified commodities.
Objects
The main object of the corporation is to plan and promote programmes through
co-operatives for.
(a) The production, processing, marketing, storage, export and import of
agricultural produce and other notified commodities.
(b) Dairy Poultry and Fishery
(c) The collection, processing, marketing, storage and export of minor forest
produce
Funds
It is the custodian of the National Co-operative Development Fund created as
per the recommendation of All India Rural Credit Survey Committee Report.
Role of NCDC in the Development of Co-operatives
To plan and promote programmes for agricultural production through co-
operative societies. is one of the functions of the corporation. For this purpose
the corporation provides funds to the State Governments to enable them to give
managerial subsidy to the co-operative credit institutions at various levels. The
co-operative credit institutions are also provided outright grants towards their
"Special Bad Debt Reserve which is meant for making up the loas sustained on
account of the bad debts of the marginal and sub marginal cultivators According
to this scheme the primary credit societies are given an outright grant of 3% of
additional loans made available to the weaker sections. The Central Co-operative
Banks are also given an out-right grant of 1% for the same purpose.
The additional help given to the federation includes aids given for the
establishment of a promotional cell
1. Co-operative Processing Societies
2. Development of Dairy, Poultry and Fishery
3. Agricultural requisites
4. Supply of Consumer Articles in Rural Areas
5. Development of co-operatives in Tribal areas.
6. Co-operative storage.
7. Strengthening of co-operative Administration

NATIONAL HOUSING BANK (NHB) (WHAT IS NHB(MARK 1),EXPLAIN

NHB,FUNCTIONS,MARK 3,8)
The National Housing Bank has been set up as an Apex Institution under
the National Housing Bank Act 1987 on July 9. 1988 The National
Housing Bank was born of commitment to fulfil the housing needs of the
nation. The basic function of NHB is to operate as a principal agency to
promote housing finance institutions both at local and regional levels
and to provide financial and other support to such institutions and for
matters connected therewith or incidental thereto, NHB's mission
includes establishing and developing institutional infrastructure through
an ongoing system of supervision and support.

Functions of NHB

Following objectives

1. Promoting a sound, healthy, viable and cost effective housing finance

system to cater to all segments of the population and to integrate the
housing system with the overall financial system.

2 Promoting a network of dedicated housing finance institutions for

various regions and different income groups.

3. Making housing credit more affordable.

4. Encouraging the supply of buildable land and also building materials

for housing.

5. Motivating and supporting public agencies to emerge as facilitators

and suppliers of serviced land for housing.