BOM

• Agricultural finance


  Studying, examining and analysing the financial aspects pertaining to farm business, which is the core sector of India. The financial aspects include money matters relating to production of agricultural products and their disposal.

  
• Definition of Agricultural finance (Murray 1953)


  An economic study of borrowing funds by farmers, the organization and operation of farm lending agencies and of society's interest in credit for agriculture.

  
• Definition of Agricultural finance (Tandon and Dhoundiyal 1962)

  A branch of agricultural economics, which deals with and financial resources related to individual farm units.

  
• Nature and Scope of Agricultural finance


  • Macro finance deals with different sources of raising funds for agriculture as a whole in the economy. It is also concerned with the lending procedure, rules, regulations, monitoring and controlling of different agricultural credit institutions.
  • Micro-finance refers to financial management of the individual farm business units. It is concerned with how the individual farmer considers various sources of credit, quantum of credit to be borrowed from each source and how he allocates the same among the alternative uses within the farm.
• Significance of Agricultural Finance


  • Vital and significant importance in the agro – socio – economic development of the country both at macro and micro level
  • Plays a catalytic role in strengthening the farm business and augmenting the productivity of scarce resources
  • Use of new technological inputs purchased through farm finance helps to increase the agricultural productivity
  • Accretion to in farm assets and farm supporting infrastructure provided by large scale financial investment activities results in increased farm income levels leading to increased standard of living of rural masses
  • Can reduce the regional economic imbalances and inter–farm asset and wealth variations
  • Needed to create the supporting infrastructure for adoption of new technology in traditional and subsistence agriculture
  • Massive investment is needed to carry out major and minor irrigation projects, rural electrification, installation of fertilizer and pesticide plants, execution of agricultural promotional programmes and poverty alleviation programmes
• Objectives of Agricultural Finance


  • To enhance the economic development of all stake-holders
  • To generate employment in order to combat vagaries of unemployment problem
  • To enhance the per capita income to minimize the difference between rural and urban
  • To improve nutritional standards for betterment of health
  • To discourage rural to urban migration and thereby minimize congestion & other associated problems in the society
  • Economic empowerment of women
  • To contribute towards protection and up gradation of the environment for ensuing ecological balance, avoidance of global warming and healthy living for man and animal
  • To create marketing facilities to reduce post-harvest loss and distress sale of agriculture produce
• Sources of Agricultural financing


  • Commercial banks
  • The Farm Credit System
  • The Farm Service Agency
  • Insurance companies
  • Individuals
  • Cooperatives
  • Processors
  • Agricultural machinery and input suppliers
• Agricultural Finance in India - Based on Time


  • Short term (up to 15 months) - for purchase of seeds, fertilizers, pesticides, fodder, marketing, wages
  • Medium term (15 months to 5 years) - for purchase of cattle, small implements, well repair/construction
  • Long term (over 5 years) - for land improvements, tube wells, large machinery

  
• Agricultural Finance in India - Based on Purpose


  • Productive - directly affecting agricultural productivity
  • Consumption needs - for household expenses
  • Unproductive - for litigation, ceremonies, festivals

  
• Sources of Agricultural Finance in India


  • Non-Institutional: Moneylenders, Relatives, Traders, Commission agents, Landlords
  • Institutional: Cooperatives, Scheduled Commercial Banks, Regional Rural Banks (RRBs)

  
• Cooperatives


  • Primary Agricultural Cooperative Societies (PACSs) provide short and medium term loans
  • Primary Cooperative Agricultural and Rural Development Banks (PCARDBS) provide long term loans

  
• Commercial banks and RRBs


  • Provide both short and medium term loans for agriculture and allied activities
• NABARD


  • Apex institution at the national level for agriculture credit, provides assistance to cooperatives, commercial banks and RRBs

  
• At Independence, moneylenders were the most important source of agricultural credit, accounting for 71.6% of rural credit in 1951

  
• Government has undertaken steps to regulate moneylenders and expand institutional credit to agriculture

  
• Measures taken by Government to expand institutional credit


  • Nationalisation of 14 major commercial banks in 1969 and 6 more in 1980
  • Establishment of Regional Rural Banks (RRBs) in 1975
  • Setting up of NABARD in 1982
• As a result, participation of non-institutional sources in rural credit has declined while that of institutional sources has increased significantly
• Cooperative Credit Structures


  • Short-term: Primary Agricultural Credit Societies (PACSs), District Central Cooperative Banks (DCCBs), State Co-operative Banks (STCBs)
  • Long-term: State Cooperative Agricultural and Rural Development Banks (SCARDBs), Primary Cooperative Agricultural and Rural Developments Banks (PCARDBs)

  
• Commercial Banks


  • Expanded their rural credit operations after bank nationalisation in 1969 and 1980
• Regional Rural Banks (RRBs)


  • Established in 1975 to supplement efforts of commercial banks and cooperatives in reaching weaker sections of rural community

  
• NABARD


  • Set up in 1982, took over rural credit functions from RBI, provides assistance to cooperatives, commercial banks and RRBs
• Digital Products under Agricultural Finance


  • National Agriculture Market (eNAM)
  • Direct Benefit Transfer (DBT) Central Agri Portal
• Advantages of Digital Agriculture


  • Increases agriculture productivity and lowers production cost
  • Promotes effective and efficient use of water resources
  • Uplifts socio-economic statuses of farmers
  • Reduces environmental and ecological impacts
  • Ensures worker safety
• Measures to make digital agriculture successful in India


  • Portable and low cost technology
  • Renting and sharing platforms for agriculture equipment and machinery hardware
  • Academic support
• Types of Agriculture Loans in India


  • Farm Mechanisation Loans
  • Agriculture Working Capital Loans
  • Agriculture Gold Loans
  • Kisan Credit Card
  • Agriculture Term Loan

  
• Digital Agriculture Portal


  Helps farmers adopt modern farm machineries through government subsidies
• Advantages of Digital Agriculture


  • Increases agriculture productivity and lowers production cost
  • Promotes effective and efficient use of water resources
  • Uplifts socio-economic statuses of farmers
  • Reduces environmental and ecological impacts
  • Ensures worker safety
• Measures to make digital agriculture a success in India


  • Portable
  • Low cost technology
  • Renting and sharing platforms for agriculture equipment and machinery hardware
  • Academic support
• Agriculture loans in India


  • Farm Mechanisation Loans
  • Agriculture Working Capital Loans
  • Agriculture Gold Loans
  • Kisan Credit Card
  • Agriculture Term Loan
• Kisan Credit Card


  To help farmers and others engaged in agriculture meet their short-term and seasonal capital needs, the government of India introduced the Kisan Credit Card. It works similar to a credit card and farmers can dip into the approved line of credit to meet their various short-term needs.
• Agriculture Term Loan


  It works similar to a regular term loan. Farmers are provided with a one-time loan amount, which they then repay as fixed EMIs over a specific tenure. Term loans are mostly used to meet large capital needs of farmers.
• Agriculture Working Capital Loans


  These loans lie between KCCs and long-term capital loans. They are used to fund the large working capital needs of farmers. It's repaid as fixed EMIs over a specific tenure.
• Agriculture Gold Loans


  It works just like regular gold loans. The borrower pledges a gold ornament as collateral and receives loans on it. The only difference between agriculture gold loans and regular gold loans is that the former is exclusively offered to farmers.
• Farm Mechanization Loans

  As the name implies, these loans are specifically offered to farmers for upgrading farm machinery. It includes various subcategories like tractor loans, drip irrigation loans, solar pump set loans, etc
• Other types of Agricultural Loans in India


  • Running day to day operations
  • Buying farm machinery such as tractors
  • Harvesters
  • Purchasing land
  • Storage purposes
  • Product marketing loans
  • Expansion
• The Reserve Bank of India (RBI) set up the Agricultural Refinance Corporation (ARC) in 1963 to work as a refinancing agency in providing medium-term and long-term agricultural credit to support investment credit needs for agricultural development.

  
• In August 2019, the Reserve Bank of India (RBI) revised its 2015 guidelines, which categorized the renewable energy sector as a priority lending sector, by adding a provision that allows banks to increase their exposure to non-banking financial companies (NBFC) by permitting on-lending for the priority sectors.
• Renewable energy includes


  • solar-based power generators
  • biomass-based power generators
  • wind mills
  • micro-hydel plants
  • non-conventional energy based public utilities
  • remote village electrification
• The guidelines also place limits on the amount that banks can loan to borrowers and includes a target for priority sector lending by all scheduled commercial banks operating in India of "10 percent of adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher.
• In June 2019, this target was revised to 15 percent, but reverted back to 10 percent in the latest revisions in July 2019 and August 2019. In addition, the guidelines set a priority sector total of "40 percent of ANBC," with additional priority sectors including agriculture, export credit, education, housing, social infrastructure, and micro, small and medium enterprises.