Professional Documents
Culture Documents
established Institutions until the eighteenth century. Realising the need for banking concerns,
first attempts to start banks were made during the last quater of eighteenth Century. However,
the establishment of modem banking Institutions took place in the beginning of nineteenth
institutions and the Imperial Bank of India was formed in 1921. The beginning of the twentieth
century proved a turning point in the development of Indian Banking Institutions. However, the
role of commercial banks in promoting economic development was lower due to the fact that
they had no good security to offer. After 1950s the banking functions were diversified and an
important feature of this act has been the banks' increasing participation in medium and long
term financing In the form of subscription to the equity capital of specialised institutions. All
Gradually an awareness was growing that the development of branch banking in the
country has been lopsided with some areas enjoying more than adequate banking facilities while
the others were sadly lacking in them. The pace of branch expansion slackened in 1960,
although there has been a continuously rising tempo in the proceeding six years. The annual
report on Trend and Progress of Banking for 1962 notes that the growth has not been
commensurate with the needs of the situation of undertaking branch expansion in a properly
coordinated manner1. Two expansion programmes, one from August 1965 to July 1967 and the
other from August 1967 to December 1970 were adopted. Meanwhile, the Reserve Bank further
Commercial banks were asked to draw up another expansion programme and open at
least one third more branches. At least 50 per cent of the total branches were to be in the rural
and semi- urban areas. Again 50 per cent of the total were to be at unbanked centres^. As a
result of these policies, during the period 1950-69, scheduled banks have increased by 6779.
From the year 1955 onwards scheduled banks were given more licences than the other non-
2
scheduled banks. This Is due to the liberalised attitude in branch licencing policies of Reserve
Bank of India. Further, the nationalisation of Imperial Bank of India also gave an impetus to the
commercial banking In the field of branch expansion. The total number of offices increased by
scheduled commercial banks during the period 1955-68 was 4605, of which 1231 (27 per cent)
were in the rural areas, 1649 (39 per cent) in semi-urban centres and 1725 ( 37 per cent) in
urban centres3.
Recognising the persistent lacunae in banking development and its investment pattern
between states and regions, the Government of India has nationalised the 14 major commercial
banks in 1969 and 6 more banks in 1980 with the avowed objective of achieving the balanced
regional development by extending their activities to rural areas. In order to reduce the
imbalance in the bank credit-deposit (C-D) ratios, RBI advised all scheduled commercial banks
to achieve a C-D ratio of atleast 60 per cent In respect of their rural and semi-urban branches by
1979 and subsequently to 70 per cent by 1989. The branch licensing policy announced by the
Reserve Bank of India In December, 1981 provides a programme to ensure that all community
development blocks are served by the commercial banks by the end of dune, 1981.
The Reserve Bank advised various bankers in the country to select unbanked centres in
deficit districts while taking up the implementation part of the programme announced by the
Reserve Bank of India. The new branch licencing policy, From January 1982 to March, 1985
continued to be strongly in favour of opening offices in rural and seml-urban centres. Special
attention was paid to the covering of unbanked pockets in less accessible areas of different
states. While selecting such centres for branch expansion, potential for mobilisation of deposits
and grant of advances, availability of banking facilities nearby and their special features of the
region were considered. The State Governments were consulted regarding the location of
branch offices in rural and semi-urban areas a well as the types of bank offices, Commercial,
rural or co-operative suited for the centres. Regional Rural Banks (RRBs) were given priority for
opening branches in districts where they have been set-up or are proposed to be set-up.
3
According to the banking policy adopted during 1985 - 90, hilly trades, sparsely populated
regions and tribal areas were given special consideration and expansion in such areas was
allowed on a comparatively liberal basis. Priority was continued to be given to Regional Rural
unnecessary concentration of various branches at one place and the consequent wasteful
competition among them too. Thus, they tried to help themselves in getting equally the benefits
of different potential centres particularly under the "Lead Bank Scheme". These banks darted
conducting Impressionistic surveys for planning their future branch expansion in accordance with
the needs of the economy. In order to provide commercial banking service to rural and smaller
areas where fullfiedged brand) offices were not economically desirable for the time being, some
sort of Innovative schemes of one man Office, Mobile banking office, Satellite office, etc.,
have also been started by some of these banks. Besides, some banks Induding the State Bank
of India group, opened Agricultural Development branches and other banks also started rural
branches in areas where fullfiedged branch offices were economically undesirable for providing
banking service to the rural people and for promoting economic adivities in such areas/centers.
These branches were opened with a view to eroding the infrastrudure of Institutional credit for
supplementing the efforts of co- operative credit societies in finandng the agriculture sedor.
The key to economic growth and development is the transfer and better utilisation of
resources from consumption to capital investment. In other words, the central fad of economic
mobilisation, In the main, are domestic savings and foreign capital. The Commercial Banks play
a crucial role in effeding the transfer of funds from savers to investors and thereby fatilitate the
process of economic development through capacity creation and income generation. Infad,
Banks provide the basic financial infrastrudure necessary for eliminating the marled
4
imperfections for better utilisation of scarce resources. Commercial Banks Provide both saving
allocated to finance investment In the economy. This process brings about consistency between
the asset preferences of the households, the ultimate savings units and the liability preferences
of business firms, the fundamental investing units. "Money- market intermediation" includes the
provision of standby financing of large scale non-finandal organisations that do not have direct
access to ?he Central Bank of a country. The development of commercial banking helps the
money market to grow, for Its progress would be the progressive expansion of the money
requires the real savings of the community to be invested in the production of capital goods. It is
here that commercial banks can play a pivotal role as intermediaries by bridging the gap
between savings and investment. Banks, as depositories of people's savings, mobilise small and
scattered savings of the community and channelise the savings so mobilised into the production
of capital goods and thereby facilitate capital formation. Thus, commercial banks provide
lucrative opportunities of investment to the savers, funds for investment to the entrepreneurs and
and flexible amount of credit4. The basic function of credit is to enable business firms and
individuals to purchase goods and services ahead of their ability of their desire to pay.
Commercial banka, the major suppliers of credit act as residual suppliers. They act as primary
suppliers of credit when they meet all the credit needs of individuals as well as business firms
when the latter have little saving of their own. A well established commercial banking system
provides more credit than its primary resources through the process of credit creation,of course,
within the limits set by the volume of primary deposits, the necessary liquidity requirements and
5
the size of the money market. Commercial banks, through this process of creation of credit,
bridge the gap between actual savings and desired savings warranted for a rapid rate of
economic development.
The absence of desired savings otherwise would have limited the productive activities in
the economy to the extent that the savings are actually available for investment. Apart from this,
the gap is also bridged by mobilising savings of the community which would otherwise be
reduced due to imperfections in the financial markets and the consequent immobility of funds
including small and scattered savings lying either idle or spent on luxury goods, Jewelry, etc5.,
and hence remaining uprodutive. The banks, as suppliers of credit, monetise credit by granting
loans, buying investment securities, discounting bills, etc. More so, they bring about the
maximum use of actual savings of the community with the minimum idle balances without
sacrificing very much the liquidity of funds of individuals, firms and institutions. Through these
functions the economic process of production, distribution and consumption of goods and
Mobilisation of resources for capital formation results in the increase in production when
the entrepreneurs utilise the capital investment productively. In other words, the productivity of
resources depends upon the ability of the entrepreneurs to take calculated risks with confidence
so as to make an enterprise a success. Commercial banks play an important role in this field by
providing timely and adequate amount of credit to those with technical skills and entreprenurial
talents who are not coming forward on a higher economic plane for want of sufficient capital; and
by absorbing risk in arranging capital needed for their plans to be implemented. The availability
of bank credit enables entrepreneurs to harness innovations by bringing about new combination
of productive resources, drawing resources away from their existing comparatively low yielding
commercial banks in a way help to generate more employment opportunities and ensure better
and fuller utilisation of productive resources including human ones. Besides, by employing many
educated unemployed In their offices, they further help to mitigate the problem of
unemployment.
Economic growth demands stability of prices of goods and services. Commercial banks,
through their decisions to provide or not to provide credit, play an important role in the
stabilization of prices, it is a fact that the direction of the flow of credit has an important bearing
on price stability. Credit, which stimulates production has one type of impact and credit, which
raises the levels of consumption has another. Even the credit whit* goes to production
purposes can have different repercussions depending on the time lag between the increase in
demand and the Increase In supply which the credit generate. If too much credit goes to longer
One of the important considerations for stabilising prices is the supply of cheap and
timely credit. Availability of cheap credit helps producers in getting things produced at lower
cost, which is one of the important considerations for stabilising prices. Besides, it also helps to
balance demand and supply conditions and reduces disequilibrium in these conditions, thereby
reducing price fluctuations. A growing economy needs increasing supply of money but its supply
should be elastic to the extent that is geared to the seasonal demands of business; otherwise it
would have adverse effects on the general price line. Thus, commercial bank serve as shock
Banks provide credit to the Government through various methods like direct credit to the
government and various government undertakings; and through subscribing to public debt and
investing money in various government securities. This process of credit supply enables the
and popularising the use of credit instruments by the public, they help the government in
Agriculture is the primary sector in Indian economy and hence the prosperity of
Agriculture determines the development of Indian economy. Agricultural sector, along with Its
allied activities provides livelihood to 66 per cent of Indian population, contributes to nearly 45.00
per cent of foreign exchange earnings. Further, industrial inputs like cotton, Jute, sugar, tobacco
etc. are supplied by Agriculture sector. Proper utilisation of agricultural resources, allied
factors to augment agriculture leading to industrialization. The All India Rural Credit Review
Committee observed that The agricultural sector alone would act as a catalyst in breaking the
vicious circle of poverty.6. The development of infrastructure facilities like banking, marketing,
storing, water channels, manpower and transportation covering all the potential villages call for a
several Inputs needed, the important input that enable the farmers to use the other inputs is the
capital or credit. It is not only a primary and paramount factor but all the other factors are being
utilissed properly with the help of it. The problems or hindrances, if any, of the agricultural sector
would be solved easily provided adequate and timely credit is available. Credit is a key input in
adopting new technology and also in achieving expected production result. "Rural India will,
remain poor so long as new techniques of farm production are not adopted widely, adequate
capital in the form of loans for adoption of the new techniques is not provided, and efficient
marketing arrangements for the produce are not made. All these will have to be provided
simultaneously in a package7.
Agriculturist in India needs credit for a variety of reasons and the most important among
them are : 1) farmer's capital is locked up in his land and stock, 2) nearly two-thirds of his
average income is used for consumption, 3) the interest of both the borrower and lender sets the
8
cycle of borrowing who Is to follow the repayment and 4) the emergence of new agricultural
technology which calls for combined and optional application of several inputs. Along with
agriculturists, people engaged In allied sectors and the agricultural labourers also need credit and
infact, the credit needs of these classes are immense as they try to supplement their meagre
earnings by taking up the activities like dairy, sheep- rearing, poultry etc. Equally are the
Immense needs of rural artisans like the workers that thrive on the copper and other metal work,
pottery, glass ceramic work, carpentry, painting, printing on textiles, engraving, block-making,
dyeing, basket making, brick-laying, plastering, cement finishing, toys, sports goods, weaving,
bamboo-making etc.
agencies. According to the Banking Company's Act the institutional agencies are amenable to
control but not the non-institutional agencies. The cooperatives, the commercial banks and the
regional rural banks form the former, whereas money lenders, rich land-lords, commission
agents, etc., form the latter. Among the non-institutional agencies, the money lenders occupy a
prime place in lending credit to rural people by charging exorbitant rate of interest and have a
complete control over them in the villages. The Agricultural Finance Sub-Committee has stated;
"The money lender often resorts to and takes the advantage of helplessness, ignorance and
Considering the strength and weakness of the rural credit system dominated by the non-
institutional agencies, the Government of India took steps for institutionaiistion of rural credit.
The institutional agencies have to take up the services in rural areas with the spirit of social aim.
The cooperative banks came into being at the turn of the present century (1904) to meet the
credit needs of the agriculturists. Another institutional agency that entered the area of rural
The 1005 Swadesi movement gave a philip to Indian banking and many banks were
started by Indian businessmen and capitalists. Among the prominent banks started were Bank of
9
India (1905), Indian Bank (1907), Bank of Baroda (1908), Central Bank (1911) and Bank of
Mysore (1913). However, Indian Banks were of the opinion that agricultural finance was not
within their purview and hence they had no responsibility in this regard. Inspite of introducing
innovations in practice in commercial Banking after 1950s, the pattern and direction of bank
urban centres without proper planning, with the result, even during the period of prosperity many
banks failed. The Rural Banking Enquiry Committee noted, "Although from the point of view of
numbers, there has been substantial advancement But the expansion that has taken place in
recent years has not been of a healthy type.9 Besides, banks did not go to rural areas for the
1971 for opening new bank branches in the ratio of one office per urban centre, one office per
metropolitan area and two offices in rural and semi- urban areas. Commercial banks have
opened a number of branches in rural areas to cater the credit needs of agriculture. However, in
their new task of providing agricultural credit, commercial banks In rural areas suffered from high
cost structure and inadequate staff with proper approach and training to deal with the problems
of rural finance.
In 1975 under the chairmanship of M. Narasimham, the working group recommended the
setting up state sponsored, regionally based, and rural oriented financial institutions called
"Regional Rural Banks". The Government of India accepted the recommendations of the
working group and promulgated an ordinance on 26th September, 1975 to facilitate the setting
up of RRBs. Subsequently on 2nd October, 1975 five Regional Rural Bank were established'*0.
The study group of the National Credit Council on Organisational Framework for the
Implementation of Social Objectives set-up in 1968 under the Chairmanship of D.R. Gadgil
identified the gap in the supply of credit to the economy and suggested the manner in which they
might be bridged. The Gadgil group pointed out the uneven development of banking and
10
distribution of credit not only among different regions but also among different sectors of the
economy. The study group recommended, therefore, the adoption of area approach to evolve
plans and programmes for the development of the banking and credit structure11. The Group
further suggested that the commercial banks should undertake this onerous responsibility by their
being allotted particular districts in which they can act as pace -setters providing integrated
The period commencing from 1975 marks the awareness among banks that their own
efforts would not suffice. They realised the magnitude of the task and were convinced that the
co-operation of other agencies was essential. This was a period when they experimented with
agricultural financing through organisations like Farmer service Co-operative Societies, Primary
Agricultural Finance Corporation and National Bank for Agriculture and Rural Development at
the top. Specially devised set -up of rural branches was also evolved during this period like the
Agricultural Development Branch of the State Bank of India and the Grameena vikas Kendra of
Bank of Baroda. They have adopted various innovations like adoption of specific villages,
Differential Rate of Interest Scheme, Group loan system, crop loans and simplification of loan
application procedures.12
REVIEW OF LITERATURE
The All India Rural Debt and Investment Survey 1961-62 studied the role of commercial
Banks and estimated asset group-wise loans per rural household taken from commercial banks
for all states and all India13 It was found that the contribution of commercial banks was
In its Report, the All India Rural Credit Review Committee 1969 observed that, even
after the commercial banks had overcome their earlier reluctance to carry banking facilities to
small centres and had derived deposits from these centres which grew steadily, they had not, till
11
recently, made any significant progress in fulfilling the complementary responsibility of meeting
A Committee (1969) appointed by the Reserve Bank of India to review the working of
Lead Bank Scheme14 in the States of Gujarat and Maharashtra, has critically reviewed and
come to the conclusion as "besides offering suggestions for effective functioning of the- lead
the Reserve Bank of India to critically examine the overall progress of the scheme." The Study
group (1969) on organisational frame-work concludes that "the hitherto working as watertight
compartments without any understanding the relationship even In common areas and activities,
the onus of bringing together and their operations lies with lead bank."
The Study Group (1969) observed on the basis of important indicators of commercial
banking development such as population per bank office, per capita deposits, per capita
advances, credit-deposit ratio and ratio of deposits and advances to state income, that the
banking facilities were generally more developed in those states which were economically and
socially advanced and less developed in those states which were relatively backward.
Development (Feb.9 to 12, 1970) discussed the theme of 'Banking and Development in terms
of commercial banking and development, specialised financial agencies and central banking and
development. The seminar provided a forum for an exchange of views and a comparison of
mutual experiences on problems that arose in the process of adaptation and orientation of the
banking and financial system in developing countries to the new and varied needs of
development.
The Banking commission 1972 In its Report examined the inter- state variations in the
growth of co-operative and commercial banking in the country and suggested the scheme of co-
12
ordination between the two in the sphere of geographical coverage, loan polices and procedures,
The Banking Commission (1972) has observed16 that: The objective of coordination
between cooperative and commercial banks should be (1) creation of widespread and
progressive Institutional base at the primary level in direct touch with the rural producers, (11)
consolidation, strengthening and expansion of the framework of the banking for mobilisation of
resources and (111) programmes of training and equipping the personnel in the banks to carry
out their task in an efficient waySharma (1979) has observed: The most intractable problem
in the financing of agriculture is that of coordination among various agencies. This problem is
multi-dimensional in nature comprising within its fold coordination between commercial banks
and state Government, the commercial banks and the cooperatives, and coordination among
themselves. So far as coordination between commercial banks and cooperative banks are
direct' guide and supervise has arisen. A sincere efforts to this end was the establishment of the
credit banking cell In Reserve Bank of India in April, 1970. This facilitated the macro-level
planning giving direction to the banks for credit planning at grass root level. In such a need, the
lead bank comes into picture for controlling the economic activities of the district. It has a
In his article on "Credit planning" (1972) S.K. Datta1^ points out that "where this has
been haphazardly tried, it has helped the reallocation of credit to a marginal extent, but the
The committee appointed by Reserve Bank of India in 1975, to examine the progress of
the Lead Bank Scheme, observed that The Lead banks, however, at the initial stages could not
visualise the need for organisation setup for implementing the scheme in coordination with other
D
banks. In the minds of bankers, the lead bank scheme has obviously not taken a distinct
operational shape".
institutional credit18 for covering the new agricultural strategy of agricultural development and all
aspects of rural development including production, marketing, transport and processing. The
development. It was suggested that the share of commercial banks in agricultural advances
should Increase from 8.8 per cent in 1974 to 15 per cent in 1988 and a greater weightage must
be given to the needs of small and marginal farmers and provision of credit to them on
preferential terms in respect of both interest charges and quantum of advances to enable them
to modernise agriculture. The commission also made suggestions for improvements in farmers'
In his paper on commercial Banks - The tasks ahead (1977) Ashakanth observed, that
"since credit plan Is not fully appreciated, the lead band scheme is limping. The lead bank by
Identifying credit gaps, preparing district credit plan and financing the planned schemes and
projects in consortium with other banks and institutions as in fact expected to bring about a silent
Raj committee (1978) studied in detail the problem of regional imbalances in commercial
banking and made an effort to measure these imbalances by constructing the index numbers of
each state by dividing the share of offices, deposits and advances by the share of population in
Basu Subhas, In his book edited in 1979 on The study on commercial Banks and
Agricultural Credit1: A study of Regional Disparity in India', examined the political economy of
banking He describes how the the banking system of the country acts as a siphon for
transferring economic surplus from one sector to another and one region to another. Further,
14
suitable regression models used in the study explain inter- district variations in bank credit and
bank deposit on the basis of observations of 283 districts. An attempt has been made to
distinguish land concentration and rural asset concentration and the patterns of influence they
exert on bank lending to agriculture. It observes that agricultural credit of commercial banks is
influenced by many factors especially in agriculture. Those include factors affecting growth of
commercial banking in general, socio-economic factors and also those reflecting variations in
agricultural productivity in the country. The study suggested the scheme of co-ordination
between the two in the sphere of geographical coverage, loan policies and procedures, resources
Raghupathi (1979) has conducted a survey on the lead bank programme and policies
and concluded thus: Unless the State or Central Government takes up the task of building up of
Infrastructure, very little would probably be done by the lead bank and the banking institutions in
developing the district. It would be discordant if lead bank responds to the social and economic
impulses on an adhoc basis without proper planned strategy in tune with the overall planning in
The study of von Plscheke on "Rural credit project, Design implementation and Loan
Collection Performance" states that poor loan collection performance by formal agricultural
economic development^. Frequently cited causes of loan arrears include small farmers'
poverty, large farmers' Political influence, low returns and lack of profitable innovations in
tropical and subtropical agriculture. A variety of problems arising from inadequate farm credit
and project design tend to result in poor loan collection performance by agricultural lenders.
Separation of the internal from the external causes of poor loan collection performance
constitutes a starting point for realistic use of farm credit as a development tool in agricultural
In his study Qopal (1979) finds that "The paucity of suitable staff in the rural branches is
a major constraint. The rural branch is often manned by inexperienced personnel. The situation
in his paper on Travails of India's Lead Bank 1980' Naveen Chandra Joshi has studied
the lead bank scheme functioning and its experiences in providing credit for all-round
development of the district. He remarked; "The task of overall monitoring the progress of the
scheme should effectively be handled. This would provide collective supervision which is
important since a feeling of domination from the lead bank or the Government would have
The rationale of public sector banking is dealt with in the book edited by K.N.
Subrahmanya on "Modem Banking in India 1980. The major achievements highlighted by the
authors include the breathtaking expansion of branches with its concomittant reduction in the
bank office population ratio, the change in the credit priorities with an emphasis on helping the
hitherto neglected sectors, the impetus given to deposit mobilisation as reflected in the ratio of
bank deposits to GNP going to 35 per cent or more and the change in the basic approach of
Beliraya and Pramod (1980) have observed that there is lack of interaction at the
scheme formulation stage among various commercial and cooperative banks operating in the
region; and between the agencies such as input dealers and organisations of marketing of
agricultural output. Dealing among them is crucial and it would lead to realistic assumption in
The Report of the Committee to Review Arrangements for Institutional Credit for
Agriculture and Rural Development (CRAFICARD) 1981 suggested that a beginning may be
made at the primary level for integration of credit on a selective basis with the support and
guidance of the Reserve Bank of india/Nationai Bank for Agriculture and Rural Development.
16
In her book on "Centre State Financial Relations" (1981) Hemalata Rao computed
composite Index of banking development to measure the level of economic development for the
years 1958, 1961 and 1965. On the basis of six indicators, she concluded that industrially
developed states like Maharastra, West Bangal, Madras and Gujarat shared among themselves
the top four places while the industrially backward states recorded low index of banking
development.
In his paper on "The nature of Credit markets in developing countries" Aravind Virmani
(1982) analysed various forms of Government23. One of the implications of the paper is that the
credit market differs fundamentally from the market for ordinary goods and services. Another
important highlight of the paper is the vital role of collateral in the loan market. The paper
focuses its attention exclusively on one of the underlying reasons for government intervention
namely market failure in the credit market. It examines the causes and consequences of market
Imperfections or failures in the rural credit structure and the effects of different types of
intervention and their implications for different policies for correcting market imperfections on the
"Rural financial markets in developing countries : Their use and Abuse", edited by Von
Pischke and others felt that the institutional programmes of developing countries on account of
its anti exploitative, easy accessibility and low cost characteristics have established their
superiority over various agencies in the unorganised sector. They also advocate that efficiency
and viability of rural financial markets improve an environment of flexible interest rate policies
National Bank for Agriculture and Rural Development (NABARD) launched field studies
in 1984 In nine states to gain perception into the problems of delinquency in loan repayment
from the demand side. The demand side studies were carried out in two states (Punjab and
Kerala) with good recovery performance and six states (Bihar, Gujarat, Karnataka, Madhya
17
Pradeah, Maharastra, Tamil Nadu) with poor recoveries. The magnitude of ovendues was higher
in the case of Investment credit (term loans) than in the case of crop loans. A considerable
proportion (30 to 40 per cent) of the default in the case of investment credit extended by Primary
Land Development Banks (PLDs) was over five years old, whereas in respect of crop loans
borrowed from Primary Agricultural Credit Societies (PACS) was less than two years old. The
supply side studies carried out examined the impact of faulty lending and recovery procedures
(1984) envisaged a strong supportive role for interest rate policy in monetary regulation based on
monetary targeting. It also pointed out an important role for interest rate policy in regard to
promoting the effective use of credit and in short-term monetary management. The committee
emphasised that the credit budgeting to achieve desired sectorial credit allocations in line with
plan priorities should continue. It recommended that no more than two concessional interest
rates should apply to bank credit made available to specified priority sector borrowers, (me of
which should be equivalent to the basic (minimum) lending rate and the other some what lower
than the basic credit prescribed for target groups under the priority sector reflect societal
concerns which need to be respected and accordingly this aspect should be taken into account
while rataionalising the array of concessional interest rates. It also suggested that Regional
Rural Banks (RRBs) which are extensively involved in lending to the priority sector at
concessional interest rates should receive special assistance from the State Governments and
observed that performance of the lead banks have been far below targets. To achieve the
targets In industrial sector is not always easy and It is quite surprising to see shortfalls even in
agricultural and allied activities. Seshaiah and Krishna Swam! (1965) did efforts to study the
problems and difficulties experienced by the banks under the lead bank scheme by conducting
18
an empirical survey in Andhra Pradesh. Their study analysed that an impressive progress has
been achieved in respect of deposit mobilisation and credit advancement by the commercial
banks fulfilling the norm of credit provision to priority sector. This performance is accompanied
by a significant variation in the target and performance between the sector and the districts.
states of the country Dr. Chhipa has used the techniques of modified factor analysis to measure
disparities In various aspects of banking development. The study also attempts to analyse the
factors influencing the growth of commercial banking and to test the validity of the observed
In his study on the "social obligations of commercial banks after nationalisation", H.N.
Agarwal covered such aspects like the social objectives of commercial banks and the steps
taken by these banks. An effort has been made to evaluate the performance of these banks in
discharging various social obligations on the basis of comparison made with the performance of
other bank- groups viz., the SBI group and the private scheduled commercial banks and
According to the world Bank study, the need of short-term credit among small farmers
must be met adequately if they were to produce marketable surplus and thereby contribute to the
development process.26
The study of Robert, C. Vogal identified that subsidised credit policies in costa Rica have
made income distribution more unequal2. It is argued that small farmers are unable to borrow
at high rates of Interest. Loans to small farmers are rationed continuously than loans to big
farmers because of the lower returns and higher costs of lending to small formers.
Economic Research observed27 that a major gap existed In the area of investment credit and a
19
considerable progress has been made in respect of long term credit to agriculture through
In his paper on development of commercial banks and other Institutional credit, S.l.
Shetty2 identified the need for increased development of credit to facilitate farmers to achieve
attention to the need for redistribution of existing Institutional credit in favour of the small and
The Report on the flow of credit by National Institute of Rural Development29 pointed
out that the cooperative credit Institutions have to be more actively involved in financing
Integrated Rural Development Programmes with the wider network they have in rural areas
Cooperative credit instltutionas can more effectively mobilise credit for disbursement of loans
under Integrated Rural Development Programme. K.C. Padhy9 in his work on commercial
banks and Rural Development made a critical study of the rural development experiment of the
Credit is the input that enables farmers to use the agricultural inputs for the development
credit. After nationalisation commercial banks opened many branches in rural areas to cater to
the credit needs of agriculturists. Realising the magnitude of credit requirements commercial
banks sought the cooperation of other agencies. Since 1975 agricultural credit has been
provided through organisations like farmer service cooperatives, primary Agricultural Finance
Corporation and National Bank for Agricultural and Rural Development. With the creation of
Regional Rural Banks, commercial banks adopted various innovations like adoption of specific
villages, group loan system, crop loan system etc. Thus, the commercial banks have been
REFERENCES
1. Reserve Bank of India. Report on Trend and Progress of Banking in Inda. 1962, P. 29.
2. Reserve Bank of India. Report on Trend and Progress of Banking in India, 1967, P. 75.
3. Reserve Bank of India. Report on Trend and Progress of Banking in India, 1969, P. 32.
4. Edward, W. Reed, Commercial Bank Management, Harper and Row Publishers, New York,
P. 167.
5. Ghose, S.N and Sharma, M.D., Economic Growth and Commercial Banking in a Developing
Economy, Scientific Book Agency. Calcutta, 1965, p : 75.
6. Reserve Bank of India, Report of All India Rural Credit Review Committee, Bombay, 1972,
p: 55.
7. Bhanu Pratag Singh, "Backward farming to blame'. The Hindu (daily) Bangalore, May 23,
1995, P. 12.
8. Government of India, Report of the Agricultural Finance Sub- Committee, New Delhi, 1945,
P. 59.
9. Government of India, The Rural Banking Enquiry Committee, 1969, Delhi, p: 23.
10. Reserve Bank of India, Reserve Bank of India Bulletin, March 1981, pp : 200-241
11. Report of the Study Group of National Credit Council, October, 1969, p: 87.
12. Bank of Baroda, Commercial Banks and Agricultural Advances, Bank of Baroda Weekly
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