CREDIT ANALYSIS
4RS, 5CS AND 7PS OF CREDIT, REPAYMENT PLANS
The principles of farm finance are stated as ‘three Cs’, viz,
1) Character
2) Capacity, and
3) Capital.
The application of these principles facilitate largely the lending agencies, in the sense that the character of the borrower ...
COMMERCIAL BANKS
The industrial sector is relatively more organized and less dependent on natural factors
than agricultural sector. Hence, the commercial banks tended to concentrate more on industrial
sector than agricultural sector. The Indian Central Banking Committee (1931), the Agricultural
Finance Sub-committee (1945), the Rural Banking Enquiry Committee (1950), the All India
Rural Credit survey committee (1951), the All India Rural Debt and Investment Survey (1961-
62) and the Informal Group on Institutional Arrangements for Agricultural Credit (1964) - all
these expert committees were of the opinion that co-operatives and not the commercial banks
were the suitable credit agencies for agriculture.
Financing agriculture by commercial banks was not significant until 1950. However, the
Rural Banking Enquiry Committee (1950) recommended that banking facilities should be
extended to rural areas. The commercial banks were reluctant to enter the field of agricultural
finance as they felt that it would be risky and costly. The Imperial Bank of India was established
in 1921 by the amalgamation of the Presidency Banks (Bank of Bengal, Bank of Bombay and
Bank of Madras). Until the establishment of the Reserve Bank of India in 1935, the Imperial
Bank of India was the sole banker to the government. As there was no branch for RBI, the
Imperial Bank of India acted as an agent of the RBI for the purpose of transacting businesses of
government.
In 1955, the state Bank of India Act was passed and Imperial Bank India was named as
the State Bank of India. In 1959, State Bank of India (Subsidiary Banks) Act was passed and
seven Associate Banks or Subsidiary Banks of SBI were started functioning. They are:
State Bank of Mysore
State Bank of Travancore
State Bank of Sowrashtra
State Bank of Hydrabad.
State Bank of Bikanir and Jaipur.
State Bank of Patiala.
State Bank of Indore.
The role of commercial banks in rural credit was negligible until the sixties as is evident
from the All India Debt and Investment survey Report, 1961-62 and 1971-72. They had shown
little interest in direct financing of agriculture and had confined their financing activities to the
movement of agricultural produces only.
,To serve better the credit needs of rural society, fourteen commercial banks with deposits worth
Rs.50 crores or more were nationalized on July 19, 1969. In her broadcast address of July 19,
1969 on bank nationalization, Prime Minister Mrs. Indira Gandhi stated that nationalization was
meant for an early realization of the objectives of social control which were spelt out as:
i) removal of control of money market by a few,
ii) provision of adequate credit for agriculture, small industry and export,
iii) encouragement of a new class of entrepreneurs and
iv) strengthening the professional banking management system.
The nationalized banks were:
1. Central Bank of India
2. Bank of India.
3. Punjab National Bank
4. Bank of Baroda.
5. United Commercial bank.
6. Canara Bank.
7. United Bank of India
8. Dena Bank
9. Syndicate Bank.
10. Union Bank of India
11. Allahabad Bank
12. Indian Bank
13. Bank of Maharashtra
14. Indian Overseas Bank
This was followed by nationalization of six more commercial banks in April 1980. They were:
1. New Bank of India.
2. Vijaya Bank.
3. Corporation Bank.
4. Andhra Bank.
5. Punjab and Sind Bank.
6. Oriental Bank of Commerce.
This institutional change was effected to pursue the goals of growth and social justice.
Functions of Commercial Bank
,The objectives of the changes in the banking structure and the main policies since the
nationalization of commercial banks were:
i) wider territorial and regional spread of branch net work;
ii) faster mobilization of savings through bank deposits; and
iii) deployment of bank credit in favour of neglected sectors the economy.
In order to achieve these objectives, the commercial banks involved in the following activities:
i) Commercial banks provide both direct and indirect finance to farmers. Banks provide direct
finance to farmers for the purchase pump-sets, tractors and other agricultural machineries,
for sinking and deepening wells, for land development, for raising crops, and for setting up
of dairy, sheep / goat, poultry, fishery, piggery, sericulture units. Commercial banks also
provide indirect finance, which includes loan for distribution of fertilizers and other inputs,
loan to electricity boards, loan to Primary Agricultural Credit Societies and subscribing to
debentures of Land Development Banks.
ii) They extend financial assistance to small / marginal farmers identified by District Rural
Development Agency (DRDA)
iii) They established specialized branches exclusively for rural lending
iv) They finance Primary Agricultural Credit Societies ceded to them and organize Farmers’
Service Societies since 1973-74
v) They have set-up Regional Rural Banks, F.S.S and LAMPS in selected areas to cater to the
credit needs of the weaker sections.
Policies and Performance of Commercial Banks
i) Branch Expansion
The branch expansion policy for 1982-83 aimed at achieving a coverage of one bank
office, on an average, for a population of 17000 in the rural and semi-urban areas (as per 1981
census) in each block and also to eliminate spatial gaps in the availability of banking facilities so
that a rural branch was available within a distance of 10 km and would serve an area of about
200 square kilometres. The population norm has been relaxed from March 31, 1990 to 10,000
with regard to tribal / hilly areas and sparsely populated regions.
Southern Region followed by Central Region had more number of commercial bank
branches during 2008-09 accounting for 28.1 and 19.9 per cent respectively. However, in terms
of coverage of population per branch Southern and Northern regions have topped the list with
11 thousand, the all India average being 15 thousand. North Eastern Region had lesser number
branches when compared to all other regions.
, The number of rural branches rapidly increased from 22 percent of the total number of branch
offices in 1969 to 57 percent in 1989 and 40 per cent in 2008-09. The Population per branch
office came down from 65,000 in 1969 to 12,000 in 1989 and 15,000 in 2009. The share of rural
branches in case of RRBs and scheduled banks was 77 and 40 per cent respectively.
Regional Distribution of Commercial Bank Branches
Region No. of Average Population (in
Branches `000) per bank as at
end-June, 2009
NORTHERN REGION (Chandigarh, Delhi, 13,800 11
Haryana, Himachal Pradesh, Jammu and (17.2)
Kashmir, Punjab & Rajasthan)
NORTH-EARSTERN REGION (Arunachal 2,133 21
Pradesh, Assam, Manipur, Meghalaya, (2.6)
Mizoram, Nagaland & Tripura)
EASTERN REGION (Andaman and Nicobar 13,406 19
Islands, Bihar, Jharkhand, Orissa, Sikkim & (16.7)
West Bengal)
CENTRAL REGION (Chhatisgarh, Madhya 16,027 19
Pradesh, Uttar Pradesh & Uttarakhand) (19.9)
WESTERN REGION (Dadra and Nagar 12,440 14
Haveli, Daman and Diu, Goa, Gujarat & (15.5)
Maharashtra)
SOUTHERN REGION (Andhra Pradesh, 22,563 11
Karnataka, Kerala, Lakshadweep, (28.1)
Puducherry & Tamil Nadu)
ALL INDIA 80,369 15
(100.0)
Number of Rural and Semi Urban Bank Branches in India
Area Number of bank offices
1969 1989 2009
Rural 1833 (22.2) 33014 (57.2) 31,796 (39.6)
Semi-urban 3342 (40.4) 11166 (19.4) 19,119 (23.8)
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