Agricultural Credit System – Types and Sources | Free ARD Notes for NABARD

NABARD Grade A exam tests aspiring candidates’ on the subject of Agriculture and Rural Development apart from other subjects of economic & social issues, general awareness, etc. One important topic among many others in this field is the Agricultural Credit System. Needless to say, candidates must have good knowledge of the topic.

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What Does Agricultural Credit System Mean?

Agricultural credit is essentially needed for agricultural growth. From time to time, agricultural policies have been reviewed to give timely and adequate credit availability to the agriculture sector.

The rural credit system calls for more attention as most of the rural families in India live with inadequate savings to finance farming and other economic activities.

Lack of simultaneity between expenditure and income realization, coupled with huge agricultural capital investments adds to the misery.

The institutionalized credit system is critical to agricultural development. In India, commercial banks, regional rural banks, and co-operative banks have adopted a multi-agency approach to credit the agricultural sector.

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Agricultural Credit System -: Types of Credit

Based on tenure and purpose of the credit requirement, agricultural credit is classified under three categories –

» Short-term Credit – Refers to the credit required by farmers to meet their short-term needs (purchasing fertilizers and HYV seeds, meeting expenses on social and religious ceremonies). The tenure of the loan usually does not exceed 15 months and is repaid after the harvest.

» Medium-term Credit – These loans are usually to meet financial requirements like purchasing agricultural equipment or cattle, improving the land, digging up canals, etc. The tenure can go up to 5 years.

» Long-term Credit – This refers to loans taken to purchase a tractor, an additional agricultural land, or to make permanent improvements in the land. These loans are taken for a period of more than 5 years.

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Agricultural Credit System -: Sources of Credit

Agricultural credit sources in India can be classified broadly into Non-institutionalized and Institutionalized sources.

» Non-institutionalized Sources of Credit

  • Money Lenders
  • Commission Agents and Traders
  • Relatives
  • Landlords

» Institutionalized Sources of Credit

  • Co-operative Societies
  • Land Development Banks
  • Commercial Banks
  • Regional Rural Banks
  • Government

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Agricultural Credit Disbursement: The Current Scenario

In recent years, agricultural credit disbursement has reached an all-new dimension. Regional Rural Banks, Commercial Banks, and Co-operative Societies are now advancing long-term, medium-term and short-term credit to farmers in the country to help them improve primitive agricultural practices and adopt new-age technology for raising production and productivity.

Among the various sources disbursing credit to Indian farmers, the loan amount advanced by co-operative societies has increased from Rs.10,479 Crores in 1995-96 to Rs.70,105 Crores in 2010-11. The share of Regional Rural Banks and Commercial Banks to total agricultural credit has also shown a steady increase from 52.4% to 84% during the period 1995-96 to 2010-11.

If you follow the trend, the flow of credit to the agricultural sector has exceeded the target consistently ever since 2003-04.

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Go through the notes thoroughly so that you do not miss out on any of the important points and statistics related to the Agricultural Credit System in India. Once you are done preparing and revising the topics, enroll for a free mock test online to evaluate your performance before appearing for NABARD exams.


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