In modern farming, credit has become one of the crucial inputs. The co-operative credit societies was, in the past and even now, the most important source of credit to the farmers. Since 1969, commercial banks are also financing agriculture because of `social control'. There has been tremendous increase in the bank branches in the rural areas, Govt. has adopted the policy of `multi-agency approach' in agricultural credit,. At present, primary agricultural co-operative societies, land development banks, commercial banks and regional rural banks are financing agriculture. National Bank for Agriculture and Rural Development (NABARD) is providing refinance to the commercial banks. In order to reduce the competition amongst the commercial banks in the rural areas, a policy of "Service Area Approach" has been adopted since 1988. As per this policy, each bank has to adopt few villages and they are required to meet credit.

Farm Credit in the Past and the Present:

In the past, farming was carried out in a traditional way. It was a subsidence farming and was more or less self sufficient Credit needs of the farmers were limited and were met with mostly by the money lenders, relatives, friends and to some extend by Taccavi loans from Government. Money lenders used to exploit the farmers in various ways like exorbitant rates of interest, false documents, etc.

After independence and particularly after the Green Revolution, agriculture entered the era of modernisation and the credit needs of the farming community started increasing. In the present day market oriented farming, the credit has become one of the crucial inputs.

Co-operative Credit:

Co-operative Credit Societies Acts of 1904 and 1912 was the first important land mark in the agricultural credit policy in India. In the subsequent period, the co-operative credit became more and more significant. It became the most important source of farm credit in the country. It was the result of the policy to have progressive institutionalization for supply of cheaper and adequate credit to agriculture. Slowly, the importance of money lenders was reduced.

Social Control on Commercial Banks (1969):

The agricultural credit policy took another significant turn in 1969. In this year, Govt.of India nationalised 14 major commercial banks and imposed `Social Control' on them. Hitherto the commercial banks were not financing agriculture. As per the new policy, they were made to provide finance to agriculture on priority basis. Consequently, many commercial banks opened their branches in the semi-urban and rural areas.

Multi-agency approach:

Another important feature of the credit policy since independence is the "multi-agency approach". Farmers are a liberty to avail finance from any of the credit institutions. At present, the major institutional agencies supplying credit to farmers and rural weaker sections are -Commercial Banks, Primary Agricultural Co-operative Credit Societies, Land Development Banks and Regional Rural Banks. In addition, National Bank for Agriculture and Rural Development (NABARD) is refinancing in a big way the banks for different agricultural development projects like lift Irrigation Schemes, etc.

The success of agricultural production programme depends upon the supply of credit. Under the strategy of multi-agency adopted by the Government, the above named credit institutions are providing credit to cultivators in general and weaker sections in particular. Because of this, the activities of the money lenders and their exploitation particularly of the weaker sections in the rural areas has been drastically reduced in the recent years.

Classification of credit:

Agricultural credit has been classified into three categories viz.short-term credit (crop loan), medium-term credit and long-term credit. This classification is based on the periods for which the loan is given. This is to meet the varying needs of the farming community. The short term loan which is also known as the crop loan, is provided for 15 month period and is meant for meeting the needs like seed, fertilizer, labour, cattle feed, etc. The farmer can repay the loan after harvest of the crop. The period for medium term loan is from 15 months to five years. These loans are provided for meeting the expenses on land improvements, digging of wells, purchase of implements and machinery, farm animals, etc. These items require relatively more investment and as such the period for repayment is kept upto 5 years. The long term credit as the name indicates is for longer period than 5 years. This type of credit is given for activities requiring heavy investment. The Land Development Banks provide only the long term finance; while the Regional Rural Banks give loans only to the weaker sections like small and marginal farmers, agricultural labourers, village artisans, etc.

The Problem:

Mounting overdues is the serious problem faced by these financing institutions in the rural areas. This is an obstacle in the recycling of funds with the credit institutions.

New Policy in the Rural Credit for Banks:

As indicated earlier, after 1969, there was a rapid spread of branches of commercial banks in the rural areas. As a result, there was duplication of efforts and scattered lending over wider areas. In order to avoid this, a new policy was adopted in 1988 which is known as the"Service Area Approach". Under this policy, each semi-urban and rural branch of commercial bank is assigned a specific area comprising of a cluster of villages within which it will operate. Thus, the compactness in the area of operation will make it easy for the clientele to approach the bank for credit. It will also help the bank in credit planning and monitoring of the Funds. The banks are supposed to prepare annual credit plans for all the adopted villages.

TYPES OF CREDITS

The Credit requirements of agriculture are of three types viz.
1. Short -Term
2. Medium - Term
3. Long- Term (LT)

We shall deal with long-term credit in this article.

Long Term Credit :
The period of long-term credit is generally 5 to 20 years or even more in some special cases. In any industry, long-term investment is necessary, to create permanent assets which give returns over a period of time. The permanent investment is not only necessary for a particular industry but even for the country. Because for continuity of production and progress of the country. This applies to agriculture also. In Agriculture, long-term investment comprises of sinking well, land levelling, fencing and permanent improvements on land purchase of big machinery like tractor with its attachments including trolleys, establishment of fruit orchard of mango, cashew, coconut, sapota (chiku), orange, pomogranate, fig, guava, etc. There are many other items of long-term capital investment. Investment once made in the beginning continious to give returns over a long period. Fruit orchards particularly do not give any income in the first 4 - 5 years as in case of other seasonal crops. So the expenditure incurred in the first 4-5 years becomes a capital cost.

All the long-term investments mentioned above require large amounts of funds. Although they have good potential to give returns in future, individual farmers have no financial capacity to make such costly investments from their own funds because they have no savings or very little savings. Therefore, they have to resort to bank borrowing to meet their such needs. The financial criteria terms and conditons procedures of granting L.T.loans are altogether different from short-term loans : Even the bank or agency providing LT loans is separatedue to its particular mode or system of raising capital and graign.

Land Development Banks :
The special banks providing LT Loans are called Land Development Banks (LDA). The history of LDB's is quite old. The first LDB was started at Jhang in Punjab in 1920. But the real impetus to these banks was received after passing the Land Mortgage Banks Act in 1930's (LDB's were originally called Land Mortgage Banks). After passing this Act LDB's were started in different states of India.

Structure :

These Banks have two-tier structure
1. Primary Land Development Bank at district level with branches at taluka level.
2. Control or State Land Development Bank. All primary Land Development Banks are federated into Central Land Development Bank at the State Level. In some States, there is " Unitary structure" wherein, there is only one State Land Development Bank at the state level operating through its branches and sub-branches at district and below levels.

Raising Funds :
The main function of raising funds is carried out be the Central or State Land Development Bank which can really deal with the money market of the country effectively and advance loans to primary LDB's. The sources of funds of State LDB's are:-
1. Share capital.
2. Issue of debentures
3. Loans from NABARD
4. Reimbursements of subsidies from the Govt.
5. Other funds.

Issue of debentures is the main source of funds for the LDB's. Debentures is a `Bond' conveying and acknowledging the debt and also containing the provision of promise for payment of interest at stipulated rate and return of the principal amount. The period of debentures varies from 7 to 15 years. As LDB's require funds of longer duration to advance LT loans to borrowers, the debenture is a convenient instrument of raising funds. Because it guarantees that funds will remain with the Banks for a specified period.

There are three types of debentures:-
1. Regular debentures
2. Rural debentures
3. Special development debentures.

These debentures are mostly purchased by financial institutions like LIC, Commercial Banks, Co-op. Banks, NABARD, and State Govts. As there is limited response from the public. The State Govt. give incentive subsidies for many development activities by individual farmer including purchase of tractor. The amounts of subsidies are reimbursed to the LDB's.

Interest rate :
The rates of interest for LT Loans are generally low and within the paying capacity of farmers. They are around 11 to 12%.

Loan Procedure :
The Branch offices receive applications from the prospective borrower. Then Agricultural Finance Officer or Inspector scrutinises these applications, they visit places of the application and ascertain the purpose of borrowing, verify the genuineness of the proposal and it economic viability, repaying ability of the farmers, adequacy of security,etc. After completing those formalities, the loan is granted by the appropriate authority at appropriate level depending upon the delegation of powers by the Banks.

CROP LOAN

Crop loan is a short term credit and is generally obtained from primary credit co-op. Society of a village or also from commercial bank. The period of loan is about one year except for sugarcane for which the period is 18 months. There are two criteria for granting crop loan.

1. One third of gross value
2. Cost of cultivation.

1. One third of gross value approach takes into account the yield and price of the crop, its cost of cultivation and family expenditure. If the gross value is more, more amount of loan becomes available. For e.g. Rice.

   	I	II
   Yield (Q.)	20	25
   Price (Rs/Q)	400	400
   Gross value (Rs.)	8000	10,000
   One third (Rs.)	2700	3330

   Thus in second situation farmer is entitled for Rs.3330 per hectare which is higher than in the first situation. Thus this method takes into account the productive aspect of a crop.

2. In cost of cultivation, direct paid-out costs are only considered. They include items, like seeds, manures, fertilizers, pesticides, diesel/electricity, hired labour etc. In this approach, it is expected that all direct costs to be incurred by the farmer should be covered and accordingly he should get adequate credit. If the cost of all these items of input is Rs.3500/-. If the loan is granted according to first approach, then the amount which is short, is spent by the farmer from his own funds. Since crop loan is for one season, its recovery is made in one installment after the harvest of the crop. Crop loan is an annual requirement and farmer has to borrow fresh loan for new crop season every time. Therefore, he has to repay the earlier loan with interest within stipulated time. Since this loan is required every season/every year, the procedure of getting this loan is simple and convenient and it is made available by the District Central Co-op.Banks through the village Co-op. Credit Society. So the farmer gets his loan in the village itself. If the loan is to be taken from commercial bank, it is available from the nearby branch of the commercial bank. As for security, the farmer has to offer his land as a security. There is a three tier structure providing crop-loans through co-operative institutions.

   Appex Bank- State Co-op. Bank.

   District Central co-op. Bank

   Village co-op. Credit Society.

   Crop-loan is the most important need of the farmer to increase and maintain his productive ability. With the help of this loan amount, he can purchase modern costly inputs and adopt new technologies on his farms. So through these loans co-operative banks play important role in the development and prosperity of agriculture. Among the various types of bank loans to agriculture, the share of crop loan is the highest.