Agricultural Finance

CHAPTER – 1

INTRODUCTION

1.1 INTRODUCTION

1.2 RURAL CREDIT AND CO-OPERATIVE

1.3 STATEMENT OF THE PROBLEM

1.4 SCOPE OF THE STUDY

1.5 OBJECTIVE OF THE STUDY

1.6 PERIOD OF STUDY

1.7 METHODOLOGY

1.8 SOURCES OF DATA

1.9 LIMITATIONS OF THE STUDY

1.10 PLAN OF THE STUDY

2
1.1 INTRODUCTION

India is predominantly an agricultural country with about 80% of the

population depending on agriculture for their lively hood. Small farmers,

marginal farmers, rural artisans, landless class of people, other weaker

sections including women and children by and large depend on agriculture

for their lively hood. To them agriculture is the real way of life.

Indian economy is mainly rural. About 96% of the geographical area

of India is rural and around 80% of people reside in this area. Indian

economic prosperity depends much on agricultural production, which on

agricultural production, which contributes over one – third of India’s GNP.

It provides lively hood for over two third of the population and raw

materials for a number of agro-based industries and makes a significant

contribution to export earnings. The development of agriculture is necessary

for solving the twin problems of unemployment and poverty. In short the

prosperity and well being of the entire people of India depend on the

progress and prosperity of agriculture.

Agriculture and rural development are closely related, because

agriculture is the main occupation of most of the rural people. Agriculture

requires essential inputs, such as improved seeds, fertilizers, irrigation

3
facilities, modern implements; marketing facilities etc without adequate and

timely credit they would not be able to make use of these essential inputs.

The use of greater and better quality of inputs would mean greater demand

for rural credit. Therefore the provision of adequate, timely and cheap

finance is an important problem for the development of agriculture and

allied activities.

Various strategies of agricultural development have been undertaken

under the successive five – year plans to boost the India’s agricultural

production. Institutional agricultural credit has been emphasized as a strong

sector for the agricultural development in India. The implementation of

intensive agricultural development program which has increased the credit

requirement, playing a crucial role in the process of break through in Indian

agriculture. It is viewed by the successive committees on agricultural credit

that the best suited agencies were the co-operatives to provide credit for

agricultural production.

1.2. RURAL CREDIT AND CO-OPERATIVES:

The co-operative movement in India was started as an agency for

dispensing rural credit, Credit is an indispensable factory for agriculture. It

is rightly regarded as the kings pin of rural development and the emphasis is

on modern institutions for its supply. Rural folks are unable to earn out their

4
activities without an external help. They need finance for the smooth

conduct of their agricultural and non-agricultural activities. Among the

modern source of finance, co-operative banks occupy great significance.

In India, the importance of rural credit is much more felt than in any

other country, it is said that an Indian farmer is “born in debt, brought up in

debt and he bequeaths in debt”. The All India Rural Credit Survey

Committee estimated the total requirements of credits of the farmer at Rs.

2000/- crores.

The government of India, the RBI, and the state government have

made commendable efforts in the field of agricultural credit. The co-

operative structure, with its country –wide network of primary co-

operatives, the commercial banks and the Regional Rural Banks (RRB) are

the three main agencies involved in the provision of credit for agriculture

and allied sectors of these, co-operative bank plays a predominant role in

terms of both volume and territorial coverage.

1.3 SWOT ANALAYSIS:

Though the co-operative banks contribute much in the agricultural

credit, it has been suffering from a number of impediments. Some of the

basic problems are problems of over due, inability to recover loans,

inefficiency to supervise the loan amount etc.

5
 Despite overall increase in credit, the problem of amounting over dues

has greatly inhibited further expansion of credit to agriculture, which has

adversely the economic viability of lending in institutions. In response to

the changing pattern of rural demand for credit in more recent years, banks

have been expanding their advances to allied activities of a more rapid pace

an that for agriculture.

The short term and medium term credit requirements of agriculturists

are met by primary co-operative societies and other agencies including

commercial banks and RRB, and the long term credit requirement are

provided by Land Development Banks. The present study attempts to

analyze the lending operations of Panayal service co-operative Bank Ltd,

which is one of important subsidiary banks of Kerala state co-operative

agricultural development bank, functioning in Hosdurg Talk. The bank has

greater responsibility to serve the agriculturists with in the area of operation.

The study is therefore entitled as.

“A STUDY ON AGRICUTURAL FINANCE WITH

SPECIAL REFERENCE TO PANAYAL SERVICE CO-

OPERATIVE BANK LTD”.

6
1.4 SCOPE OF THE STUDY:

The present study aims at a general study of the lending operations of

the PSCB and analysis of the resource of funds of the Bank and its branches.

The study covers a description about the disbursement of different types of

loan and profitability of the bank.

1.5 OBJECTIVES OF THE STUDY:

 To analyze the importance of co-operative banks in agricultural

finance.

 To analyze the lending operations of the PSCB and its branches.

 To analyze the organization and workers of PSCB.

 To evaluate and analyze the growth and performance of PSCB.

 To make feasible suggestions, if any, based on the findings of the

study.

1.6 PERIOD OF STUDY:

The study covers a period of four years from 2004 – 05 to 2007 –

2008. The data collected for the purpose of the study were pertained to these

four years.

7
1.7 METHODOLOGY:

The study is based on a single unit and hence case study approach is

accepted as a general methodology. The statistical techniques, diagrams and

graphs are used to measure and analyze the degree and extent to which

variables or phenomena fluctuate.

1.8 SOURCES OF DATA:

To achieve the objectives of the study both primary and secondary

data are used.

1.8.1 PRIMARY DATA:

Primary data were collected through direct personal interviews and

discussions with managerial and administrative staff of the bank.

1.8.2 SECONDARY DATA:

Secondary data were collected from published Annual financial

statements, bye law of the bank, register and other records maintained by the

bank, periodicals, journals, books, and other publications.

1.9 LIMITATIONS OF THE STUDY:

It is only a micro study. The study is only for a period of four years

from 2004 – 05 to 2007 – 2008 due to the non availability of sufficient data

from the Bank for the previous years. The availability of primary data is the

8
main limitation of this research work. The primary data, which are obtained

from the personal interviews of the bank authorities are very limited. The

study was conducted by using more.

Secondary data, the inherent limitations of secondary data itself will

exhibit in this study also.

Another main limitation of the study is the time span obtained for this

work. The study is conducted with in one semester.

1.10. PLAN OF THE STUDY:

This study consists of six chapters. The first chapter deals with the

introduction and design of the study.

The second chapter explains the importance of agriculture and need

for agricultural finance. It also explains the problems and sources of

agricultural finance.

The third chapter discusses the role of co-operative banks and other

institutions in the field of agricultural finance.

In the fourth chapter a profile of PSCB is presented.

The fifth chapter deals with the lending operations of PSCB. It also

explains the workings and profitability of the bank & the last chapter gives a

summary, findings, suggestions and conclusions relating to the study.

9
 CHAPTER – 2

AGRICULTURAL FINANCE – IMPORTANCE, NEED

AND SOURCES

2.1 INTRODUCTION

2.2 PROBLEMS OF INDIAN AGRICULTURE

2.3 MEASURES FOR AGRICLTURAL DEVELOPMENT

2.4 NEED FOR AGRICULTURAL FINANCE

2.5 SOURCES OF AGRICULURAL FINANCE

2.6 CONCLUSION

10
2.1 INTRODUCTION:

Agriculture is the largest sector of economic activity. It plays a crucial

role in the country’s economic development by providing food and raw

materials, employment opportunities, capital for its own development and

surpluses for national economic development.

Agricultural sector contributes the largest share (about 4.5%) to the

national income of India. It also plays an important role in the country’s

International trade by exporting various agricultural commodities. It is quite

obvious that the prosperity and well being of the entire people of India

images on the progress and prosperity of agriculture. Hence on accelerated

growth in agricultural production has been one of the principal aims of

government.

2.2 PROBLEMS OF INDIAN AGRICULURE:

Some of the major problems of Indian Agriculture are the following.

a. Small and uneconomic holdings:

Due to subdivision and fragmentation, the size of the holdings is

usually small, most of the plots are scattered over a wide area, under sized

and scattered holdings lead to low productivity, waste of time and effort. it

is one of the basic maladies of agriculture.

11
b. Low rate of fertilizer consumption:

Continuous cultivation has brought about a decline in the fertility of

the land. The farmers are extremely poor to buy the chemical fertilizers in

adequate quantities because of their high prices. It is one of the vital factors

for the low productivity of Indian agriculture.

c. Dependence on monsoon:

The Indian farmers depend on monsoon for water in order to cultivate

the land. But monsoons are uncertain and untimely. Scientific cultivation is

impossible without adequate and regular supply of water. There is no well

planned irrigation system in the country.

d. Primitive techniques of production:

Indian farmer’s sill sticks to the traditional and automated methods of

production. The use of modern agricultural machines like tractors, sowing

and harvesting machines etc is practically unknown to the majority of he

farmers in our country. Their availability and use are highly inadequate.

e. Ignorance and illiteracy:

12
 The Indian farmers are ignorant, illiterate, conservative and

superstitious. Customs and traditions still rule them. They are victims of

social custom which are too expensive to them.

f. Inadequate finance:

Adequate and cheap finance is essential for agricultural production.

Credit supplies by the co-operative societies and institutional agencies are

quite insufficient. So the agriculturists turn to village money lenders for

finance. The money lenders exploit and extract the farmers by charging

exorbitant rate of interest. Most of the earnings are utilized for making large

payments of interest. In many case, they forced to sell heir land to the

money lenders. The lack of rural banking and credit facilities are responsible

for the miserable condition of the Indian farmers and the backward nature of

Indian agriculture.

2.3 MEASURES FOR AGRICULURAL

DEVELOPMENT:

Some of the important measures for agricultural development are the

following.

i. The size of the holding must be made more economic. Laws should

be passed to prevent subdivision and fragmentation of holdings. The

13
 consolidation of the existing small uneconomic holdings should also

be undertaken by legislation or by co-operative methods.

ii. Steps should be taken to extend irrigation facilities by the

construction of canals, dams, tube wells, tans etc.

iii. The availability of fertilizers has to be stepped up substantially if

production is to increase. Soil testing and proper technical advice are

very important to the cultivator so that the may be informed as to the

fertilizer need for his land and crops.

iv. The productivity should be increased by employing improved and

high yielding varieties of seeds simultaneously with more intensive

application of water and fertilizer. Along with it, the use of modern

implement is also equally necessary to increase the yields.

v. Another necessity is to improve the organization of the supply of

finance to the cultivators. The best way to do that is by encouraging

the co-operative method in various directions. Farm credit should be

available easily and quickly when ever needed. Unless the capital

needs of the farmers are not met, expectations, put in him cannot be

realized.

14
 vi. Highest emphasis should be placed in introducing diversified pattern

of agriculture. Animal husbandry, poultry farming, piggery, fisheries,

and the like must be developed in large areas of the country.

vii. Irrigation facilities should be extended with the association of

panchayat samities or community development blocks wherever

rainfall cannot be depended upon.

viii. For any sound and lasting improvement in agriculture,

education of the farmers to take full advantage of scientific research

and improved methods of cultivation is most essential.

A massive programme of education of farmers through demonstration

of improved seeds and implements and profitable use of credit should have

the top priority in our strategy of agricultural development.

2.4 NEED FOR AGRICULURAL FINANCE:

Agriculture is a productive occupation. Like any other productive

activity, it need finance for its various production processes. Providing

appropriate finance is the oiling agriculture to make its wheels move swiftly

and smoothly. Credit is the basic input for any development programme in

the words of Sir Fredrick Nicholson, “The history of rural economy, alike in

Europe, America and India has no lesson more district than this that

15
agriculturists must and will borrows”. Therefore, agricultural credit is

almost a necessity, particularly for a poor Pearson in India.

Agriculture credit needs can be examined under two different aspects.

a. On the basis of time and

b. On the basis of purpose

On the basis of time agricultural credit is classified in to three categories

Vis;

i. Short term credit – which is normally for a period of 15 months and

is intended for meeting the expenses of seasonal agricultural

operations. Such as purchase of seeds, manner and insecticides and

other day – to – day expenses.

ii. Medium – term credit – which is required for a period ranging from

15 months to 5 years. It is required for repairing wells, purchase

cattle, improved agricultural implements and construction of form –

house, cattle shed etc.

iii. Long term credit – these are required for a period of 5 to 15 years.

The objective of this type of loan is to introduce some permanent

improvements on land such as reclamation of land, repayment of

16
 old debts, digging of irrigation canals, purchase of tract ors,

installation of pump sets etc.

On the basis of purpose of production or consumption the credit needs

can be classified into:

i. Productive needs and

ii. Unproductive needs or consumption needs.

Productive needs include those needs for the purchase of seeds,

fertilizers, manures, pesticides, insecticides pesticides etc.

The unproductive or consumption needs are for meeting out expenses

on the occasion of social and religious examines, litigation and festivals,

marriage etc.

2.5 SOURCE OF AGRICULTURAL FINANCE:

The importance of agricultural credit has assumed added significance

in Indian in view of pivotal position agriculture occupies in the national

economy. Provisions of adequate, timely and cheap finance are much

importance for the development of agriculture and allied activities. The All

India Rural Credit Survey Committee estimated the total requirements of

credit by the farmers to be Rs. 2000/- crores of this nearly Rs. 800/- crores is

self financed by the farmers. The remaining Rs. 1,200/- crores has to be

supplied by different agencies.

17
 The sources of agricultural finance can be divided into two categories

viz., institutional sources and non- institutional sources.

2.5.1 INSTITUTIONAL SOURCES:

The institutional sources of credit include the following.

 Government

 Co-operative Societies

 Commercial Banks

 Regional Rural Banks

i Government:

The government has also been a source of rural finance, for short as

well as long – term periods, government loans to farmers are known as

taccavi loans. These loans are provided for short – term or medium – term

only in emergencies like flood, drought etc. long term loans are supplied

under the land improvement Act 1983 and short and medium – term loans

under the agricultural loans Act 1984. Though these loans are popular

(especially because of the low rate of interest) have not assumed any

significance in agricultural finance. These loans satisfy only a negligible

part of the credit needs of the farmer. According to the rural credit survey

18
committee report, out of total rural credit 3.1% only was given by the

government.

ii. Co-operative societies:

Agricultural credit is one of the most important sectors of the co-

operative movement, co-operative credit. Societies are considered as the

cheapest and best source of rural credit. Being closely associated with the

rural miles these institutions are perhaps the best media for channelising

funds into agriculture. The provision for ST, MT and LT credit needs is

made under co-operatives. The ST and MT credit is provided by the primary

credit societies and the long – term credit by the land development banks.

iii. Commercial banks:

Commercial Banks are interested in giving loans only to trade

and industry since the loans in this sector are more secure than in

agriculture. Therefore until recently most of the commercial banks were

reluctant to give loans to formers. But at present in June with the

government policy, they have also started to issue loans to formers on a

bigger scale.

iv. Regional rural banks:

India is a country where mass poverty still characteristics the rural

scene, RRBs were expected to measure and multiage this problem.

19
 RRBs are regionally based, rural oriented, commercial banks.

Sarayu Grameena Bank (UP) Netravati Grameena Bank, Malaprabha

Grameena Bank, Vishveshvaraya Grameena Bank, Chikmangalur –

Kodages Grameena Bank (all in Karnataka). The RRB popularly called the

Grameena Bank, caters specifically to the needs of farmers, rural artisans,

and people belonging to scheduled castes (Scs) and scheduled tribes (Sts).

RRBs aims at for the development of agriculture, trade, commerce,

industry and other productive activities in the rural areas. Their objectives

include providing credit and other facilities, particularly to small and m

marginal farmers agricultural labourers, artisans and small entrepreneurs.

Although by this time co-operative credit institutions and commercial

banks had grown considerably, their role in rural finance was almost

insignificant. They also suffer from large ‘regional’ disparities. To meet the

increasing volume and variety of the credit requirement of the rural sector,

RRBs, were desired. They supplement the co-operatives and commercial

banks.

20
 The institutional arrangements for credit is shown in chart No. 2.1
CHART NO. 2.1
INSTITUTIONAL ARRANGEMENTS FOR CREDIT

Government of Reserve bank of

India India

NABARD

Co-operative Commercial Regional rural

bank bank bank

Short term Long – term Metropolitan

structure structural branches Urban
branches

SCBs SCADBs Urban

branches Semi
Urban
branches

CCBs Branches PCADBs

Semi Rural
urban branches
PHCSs branches

Rural
Branches

DEPOSITS AND BORROWERS

21
2.5.2 NON – INSTITUTIONAL SOURCE

The non-institutional sources of credit include the following:

i. Money lenders

ii. Land – lords, relatives, traders and commission agents.

i. Money lenders:

Money lenders constitute the most important source of agricultural

credit. There are two classes of money lenders; the professional money

lender and the agriculturist money lender. The professional money lender

adopt money lending as their primary occupation whereas the agriculturist

money lender generally combines paying with money lending, till recently

the bulk of agricultural credit is supplied by the money lenders. According

to the Rural Credit Survey Committee Report, about 45% of the total credit

needs of the farmers met by the professional money lenders. But now the

importance of money lenders in financing agriculture is declining.

ii. Land – lords, relatives, traders and commission agents:

Land lords supply a considerable part of finance. In 1985, it stool at

16.5% of the total credit. Sometimes agriculturists lean on their relatives for

finance. Loans from this source are generally available on self terms. The

interest charged is usually very low or even negligible. There is no

22
insistence of any security for getting the loan and the repayment conditions

are too easy. Since there loans are mostly in the of credit cannot be given

any place of importance in the scheme for agricultural finance. A sizable

part of finance comes through traders and commission agents. The

contribution from then stood at 8.8% in 1967.They charge high interest and

force farmers to sell their produce at low prices.

SHARE OF FINANCE

FIGURE 2.1

100
92.7
90

80

70 68.3 66.3
60 61.1

50

40 38.9
30 31.7 30.6

20

10
7.3
0
1951 1971 1991 2002

23
2.6 CONCLUSION:

In the light of the above discussion about the various sources of

agricultural finance, we can understand the importance of agricultural

and its financing by various agencies. Agricultural finance in India is

neither adequate nor available on reasonable rates. It follows that

agricultural finance in the country will have to be thoroughly over valued

in here principal directions which are;

a. Increasing the total supply of credit.

b. Softening the conditions of loans and ensuring their productive use

and

c. Organizing financial operation in such a way that the costs are low,

distribution of money resources are equitably distributed among

different classes.

24
 CHAPTER-3

ROLE OF CO-OPERATIVE BANKS AND OTHER

INSTITUIONS IN AGRICULTURAL FINANCE

3.1 INTRODUCTION
3.2 CLASSIFICATION OF CO-OPERATIVE CREDIT
3.3 CO-OPERATIVE AGRICULTURAL CREDIT
STRUCTURE
3.4 PRIMARY CREDIT SOCIETIES
3.5 SERVICE CO-OPERATIVE SOCIETIES
3.6 CENTRAL CO-OPERATIVE BANKS
3.7 STATE CO-OPERATIVE BANKS
3.8 AGRICULTURAL DEVELOPMENT BANKS
3.9 PRIMARY AGRICULTURAL DEVELOPMENT BANKS
3.10 STATE CO-OPERATIVE AGRICULTURAL
DEVELOPMENT BANKS
3.11 OTHER INSTITUTIONS IN AGRICULTURAL FINANCE
3.12 CONCLUSION

25
3.1 INTRODUCTION:

Agriculture has a unique position in the overall economic

development of a country. Since finance is indispensable factor for

agriculture, a number of institutions have been set up for providing credit to

agriculture. Among them co-operative banks play an important role.

The co-operative movement was started in India in 1904 with the

object of providing finance to agriculturists at low rates of interest. A large

number of agricultural credit societies were set up in the villages under the

co-operative societies Act of 1904. “A co-operative society is an

autonomous association of persons united voluntarily to meet their common,

social and cultural needs and aspirations through a jointly owned and

democratically controlled enterprise”. Agricultural credit s one of the most

important sectors of the co-operative movement.

3.2 CLASSIFICATION OF CO-OPERATIVE CREDIT:

Based on the purpose and period of loans co-operative credit can be

classified into three categories.

a. Short – term loans – normally for a period of 18 months.

b. Medium term loans – for a period up to 5 years

c. Long – term loans – for a period ranging between 5 to 15 years.

26
 3.3. CO-OPERATIVE AGRICULTURAL CREDIT

STRUCTURE:

CHART 3.1:

Co-operative Credit Movement

ST & MT Loans LT Loans

State Co-operative
State co- agricultural
operative Bank Development Bank

Primary Co-
District Co- operative
operative Bank Agricultural
Development Bank

Primary Co-
operative Credit
Societies

The Co-operative Agricultural Credit structure of our country consists

of two parts, one dealing with short term and medium term credit and the

other, long term credit. The former is a three-tire structure with the State

Co-operative Bank at the top, District Co-operative Banks in the middle and

the Primary Credit Societies at the base. For the long term loans, there is a

two – tier system with the state agricultural development bank at the top and

primary agricultural development banks at the grass root level.

27
 The co-operative institutions working under the Indian agricultural

credit consists of 31 state Co-operative Banks, 369 District Co-operative

Banks, 20 State Co-operative Agricultural Land Development Banks and

PADBs working under them.

STRUCTURE OF CO-OPERATIVE CREDIT INSTITUTIONS IN

INDIA
CHART – 3.2

Co-operative Credit Institutions

Urban Co-operative Banks Rural Co-operative Credit

(2,770) Institutions {98,343}

Scheduled Non – scheduled Short term Long term

UCHs [53] UCHs [1,717] [97,626] [717]

Multi Single state State cooperative District

Primary
state [28] Banks [31] central co-
agricultural
[25] operative
credit
Banks [37]
societies
Source: Report and trend progress of banking in India, RBI.
[97.224]

Multi state Single state SCARDHs PCARD

[13] [1,704] [20] Hs [69]

Tier 1 Tier II
[1,529] [175]

Unit UCB Non unit UCB

[874] [655]

28
 TABLE SHOWING TOTAL CREDIT TO AGRICULTURE:

TABLE NO. 3.1

(Rs. In Crore)

Sl. No. Year Amount

1 2000 – 01 52827
2 2001 – 02 62045
3 2002 – 03 69580
4 2003 – 04 86981
5 2004 – 05 125309
6 2005 – 06 180486
7 2006 – 07 203296

From the above table (table 3.1) has been seen that co-operative

societies are making remarkable progress during the last few years. There is

a tremendous increase in the amount of total credit agriculture. In the year

2001 – 01, the total credit to agriculture amounted to Rs. 52827 crores,

while in 2004 – 05 it is increased to Rs. 125309 crore., showing an increase

of Rs. 72482 crores. There is overall increase of 137% in agricultural credit

during the four years. In 2006 – 2007 the credit to agriculture amounted to

Rs. 203296 crores.

29
The chart showing the amount of credit to agriculture from 2001 – 01 to

2006 – 07 is shown in figure 3.1.

THE AMOUNT CREDIT TO AGRICULTURE FORM

2000-01 to 2006-07

FIGURE 3.1

250000

203296
200000
180486
Amount of Loan

150000
125309

100000
86981
69580
62045
50000 52827

0
2000 – 2001 – 2002 – 2003 – 2004 – 2005 – 2006 –
01 02 03 04 05 06 07

Year

30
 COMPARATIVE STUDY ON THE PERFORMANCE OF CO-

OPERATIVE SECTOR IN KERALA BEFORE AND AFTER

INDEPENDENCE:

TABLE 3.2
(Rs. In crores)

As on 1946 As on 1999

1. Total number of co-operative 1669 11690

2. Total membership 0.02 2.90
3. Share capital 0.32 936.06
4. Working capital 0.92 16146.32
5. Loan disbursement 0.11 9899.96
6. Over dues at society level 0.02 264.84
7. Percentage of over dues 81.5% 9.5%
8. Over dues at member level 0.17% 958.61
9. Percentage of over dues 48.1% 13.5%
10.Sale of consumer goods 2.25 408.48

3.4 PRIMARY CREDIT SOCIETIES:

A primary credit society is an association of ten or more persons,

residing a particular locality, knowing one another intimately and showing

interest in the welfare of one another. It is operated at the village level

having only individuals as their members. Their primary function is the

creation of funds to be lent to the members. These societies from the base of

the movement and provide direct access to the people.

31
 The are of operation of this society is normally a village panchayath a

population of 3000. All agricultural families including tenants and marginal

farmers are permitted to become members.

Some of main objectives of PACS are:

i. To arrange for the supply of farm requirements such as improved

seeds, fertilizers, insecticides, agricultural implements etc.

ii. To provide short – term and medium – term loans

iii. To maintain and supply on hire costly agricultural machinery such

as tractors, power – tillers, sprayers etc

iv. To raise funds by way of deposits.

POSITION OF PACS IN KERALA:

Position of PACS in Kerala’s strong and their performance is

remarkable as disclosed from the following table:

TABLE 3.3

Sl. No. Particulars per Unit All India Kerala

society average
1 Membership Numbers 1390 6560
2 Deposit In lakhs Rs. 4.11 Rs.
119.47
3 Advance In lakhs Rs. 11.00 Rs.
116.26
4 Working capital In lakhs Rs. 23.31 Rs.
205.00

32
 The primary agricultural credit societies in the state which were once

upon a time more Nanaya Vinimaya Sahakarana Sangham in course of time

transformed themselves into the present agricultural credit societies which

can cater all the credit needs of the rural mass and capable of doing all

modern Banking business. They spread their wing in all spheres of socio-

economic activities, got entrenched in diverse sectors of the economy and

touched the lives of all sections of the people at large. Apart from credit

activities, self help group scheme, Kissan Credit Card Scheme and co-

operative “Neethi Medical Stores” scheme are implemented through

primary agricultural credit societies. Further a tea factory with a project cost

of Rs. 210 lakhs is run by the Malanad service co-operative bank with the

assistance of ICDP Idukki.

3.5 SERVICE CO-OPERATIVE SOCIEITIES:

A service co-operative are occupying an important place among the

primary agricultural societies. The word ‘service’ itself tells that service co-

operatives are giving maximum service to the members and community in

general. These are started by uplifting the “Service motto’ principles of co-

operation.

33
3.5.1 DEFINITION:

The social development ministry during sixties gives the definition of

service co-operative. Accordingly “a service co-operative society is an

organization of the villages who willingly combined together for mutual

help and co-operation in meeting their common economic requirements and

increasing their agricultural production”.

3.5.2 OBJECTIVES AND FEATURES:

i. It is essentially an institution which helps the members to improve their

agricultural yields at a lower cost.

ii. It extends short term and medium term loan to agriculturists.

iii. It provides quality seeds and bio-fertilizers of affordable rates.

iv. It frames programmers for soil conservation, small irrigation etc.

v. It collects the out put from agriculturist and undertakes marketing of

the same.

vi. It device appropriate programmed for cattle and poultry development.

vii. It increases the standard of living of the villagers by adopting various

developmental programmers.

3.5.3 FUNCTIONS OF SERVICE CO-OPERATIVES:

i. Service co-operatives provide short – term and medium term

agricultural credit and undertake project lending to agriculturists.

34
 ii. It provides non-credit operations to agriculturists by supplying

fertilizers, tractor, filler, duster, sprayer etc.

iii. It undertakes purchase of agricultural produce at the base price fixed by

the government.

iv. It supplies essential goods to farmers and operates special market

during festival season.

v. It conducts chitties and increasing the saving mentality of the villages.

vi. It also borrows money from members and pays reasonable rate of

interest.

vii. It operates social welfare programmers and shows its identify in social

responsibilities.

3.5.4 FUNDS:

Share capital, borrowings, reserves, governmental aid etc. Constitute

the source of revenue of service co-operatives. Besides these in Kerala

service co-operatives are arranging deposit mobilization programmed to

increase their revenues.

3.5.5 PROBLEMS FACED BY SERVICE CO-OPERATIVES:

Service co-operatives faces a number of problems. The important

among them are listed below.

35
 i. The leaders of the society are not fully conversant with the scheme

of linking credit with production requirement and marketing. This

creates serious problem among members and agriculturists.

ii. The quantum of loan supplied by the society is not adequate.

iii. The officials of service co-operatives are least bothered about the

requirements and functions of the society.

iv. The accumulated over dues in service societies is an other

important problem.

In Kerala service co-operatives have not been organized as a separate

institution. The existing credit societies in villages have been converted in to

service co-operatives. For its successful operation, trained staff must be

provided.

3.6 CENTRAL CO-OPERATIVE BANKS:

The Central Co-operative Bank is a financing agency for the primary

co-operative societies in the district. It is the middle tier system in the co-

operative credit structure of our country. In Kerala, there is one central co-

operative bank for each district. In the year 1996 – 97 there are 14 such

banks in Kerala.

36
 The main objects of the bank are;

i. To provide loans and advances and other assistance to the member

societies.

ii. To act as a balancing centre of finance for the primary societies.

iii. To arrange for the regulation and control of the working of the

members societies.

iv. To maintain and utilize subsidiary state partnership fund.

3.7 STATE CO-OPERATIVE BANKS:

The State Co-operative Bank stands at the top of the co-operative

credit structure in the state. It is the apex society and is a connecting link

between NABARD and co-operative credit institutions in the state and also

with the state Government. There are 28 SCBs in India including the banks

in the union territories.

The are of operation of the Bank extends over the entire state. The

Kerala State Co-operative Bank, with its head quarters at Trivandrum is the

Apex co-operative Bank in our state; the main objectives of SCBs include

the following.

i. To provide finance to CCBs and other co-operative institutions in

the state.

ii. To maintain and utilize principal state partnership fund.

37
 iii. To open branches and conduct statutory inspection of co-operative

societies in the state.

3.8 AGRICULTURAL DEVELOPMENT BANKS:

Besides ST and MT credit, agriculturists require long term finance for

effecting permanent improvements on land, purchasing agricultural

machinery and implements and repaying old debts. Agricultural / land

development banks are specialized agencies providing LT credit etc the

agriculturists in India.

The long term co-operative credit structure consist of primary land

development banks at the bottom level and central land development bank at

the top level. The first agricultural development bank was organized in 1920

at Jhany in Punjab. At the end of March 1995 there were 20 central

agricultural development banks with about 750 PCADs in India. These

banks play a crucial role for the development of Indian agriculture

especially in financing the long term credit requirement of the farmers.

3.9 PRIMARY AGRICULTURAL DEVELOPMENT

BANK:

A PCADB is a co-operative institution advancing LT loans to the

agriculturists on the security of landed assets.

38
 LT loans are granted for a period ranging from 5 to 15 years. The

amount of loan depends upon landed assets that can be offered as security.

Usually LT loans are given for making permanent improvements on land.

The purpose of the loan include reclamation of land, digging of wells,

construction of tanks and irrigation canals, soil conservation measures,

bonding, terracing, leveling, purchase and installation of pump sets and

purchase of tractors, power fillers etc.

The area of operation of the bank is usually restricted to one or more

taluks and membership is open to individual agriculturists residing within its

area of operation. Liability is limited to share subscribed by the members. Its

authorized capital is usually Rs. 10 to Rs. 25 lakhs.

The main objects of the bank are ;

i. To provide LT loans on the security of land.

ii. To encourage the habit of thrift and self help among its members.

iii. To undertake any other activities which are incidental or

conductive for the above objects.

The M.B.P of the bank is 60 times of the paid up share capital plus

reserve fund. The IMBP is 20 times of the paid up share capital, not

exceeding Rs. 75,000/-. The resident of this Bank has the power, subject to

39
approval of the managing committee, to sanction loans up to Rs. 30,000.

The loan over and above this amount has to be sanctioned by the SCADB.

3.9.1 TYPES OF LOANS:

A PCADB usually advances four types of LT loans they are;

a. Ordinary loans

b. Special scheme loans

c. Non – farm loans

d. Rural housing loan.

3.10 STATE CO-OPERAIVE AGRICULTURAL

DEVELOPMENT BANKS:

The SCADB is a federation of the PCADBs in the state. It is the apex

bank and also he financing bank of PCADBs. The main aim is to raise L.T.

funds by issuing debentures and to finance the PCADBs affiliated to it. In

India, there are 20 central land development banks. Its area of operation is

extended to the whole of the state. The Kerala state agricultural and rural

development bank with its H.O. at Trivandrum is the apex bank in Kerala.

40
3.10.1 KERALA STATE CO-OPERATIVE

AGRICULTURAL AND RURAL DEVELOPMENT BANK:

The KSCARD Bank is a federation of the PCADBs in the state with

its registered office at Trivandrum. The area of operation of the bank

extends over the whole of the state. The membership of the bank is open to

all PCADBs in the state, the state government and the Kerala Electricity

Board.

The main objects of the bank are:

i. To finance PCADBs within the state which are admitted as

members in the bank.

ii. To float debentures on the security of the assets and mortgage of

lands executed in its favour by customers.

iii. To receive deposits and borrow money from other institutions.

iv. To establish branches and sub – officials to facilitate and promote

the business of the bank.

3.11 THER INSTITUTIONS IN AGRICULTURAL

FINANCE:

Though the over all progress made by the co-operative banking is

remarkable and commendable. Its progress has not kept pace with the

41
growing credit needs of the rural economy. The demand for agricultural and

rural credit is expanding. Co-operatives alone are not in a position to supply

all the credit needs of the developing agriculture. Besides them there are

some other institutional agencies which have been granting finance for

agricultural development. Some of the institutional agencies which

contribute much to the development of agriculture are:

a. Commercial Banks

b. Regional Rural Banks

c. Reserve Bank of India

d. NABARD

3.11.1 COMMERCIAL BANKS:

After the Nationalization of the 14 major commercial banks in July

1969 the commercial banks have participated in agricultural finance to a

greater extend directly as well as indirectly. Today they finance about 44%

of the total credit requirements of the rural people. They provide short term,

medium – term and even long – term loans, for construction of

embankments and bunds, for the purchase of pump sets, tractors and other

agricultural machinery, construction of wells etc. These banks have started

financing small farmers identified under the SFDA (Small farmers

Development Agency) and MPAL (Marginal farmers and agricultural

42
labourers). Commercial banks have organized farmers service societies and

also introduced the village adaptation scheme.

Apart from direct finance, commercial banks have started providing

in direct financial assistance to agriculture. They have sponsored RRBs

which provide rural finance. They introduced the scheme of financing

PACSs and set up Agricultural Ran Finance Corporation for the provision

of finance to agriculturists in backward areas. They subscribe the debentures

of SCADBs and also grant advances to them. Commercial Banks Finance

agencies engaged in the supply of inputs to agriculturists and there by

participate in indirect finance to agriculture.

3.11.2 REGIONAL RURAL BANKS:

RRBs were set up only recently to serve the rural population

particularly the weaker sections of the economy such as small and marginal

farmers, agricultural labourers, petty traders, artisans etc. The RRBs are

expected to concentrate their activities in two or more districts and each

bank is sponsored by a public sector bank which provides assistance to the

RRBs. The lending rate of the RRB is not higher than the rate charged by

the commercial banks and co-operative banks.

43
The functions performed by the bank are: -

i. Granting loans and advances particularly to the small and marginal

farmers, agricultural labourers and other weaker sections of the

economy.

ii. Granting loans and advances particularly to artisans, small

entrepreneurs and persons engaged in trade, commerce and

industry.

iii. Assistance to the co-operative societies by means of indirect loans.

3.11.3 RESERVE BANK OF INDIA:

The role of RBI in the sphere of rural credit has been significant and

gradually increasing. It grants financial assistance to agriculture only

indirectly, ie, through the SCBs, the state governments, SCADBs and the

agricultural refinance and development corporation. The financial facilities

provided by the RBI to agriculture includes short – term, medium – term,

and long – term finance.

Under the RBI act 1934, the bank in charged with the responsibility of

making its resources available to the agricultural sectors. In terms of, the

bank maintains the agricultural credit department which is in change of

providing sufficient loans to the agriculturists.

44
 The RBI has maintained two important funds namely National

Agricultural credit (long term operation) fund and the National agricultural

credit (stabilization) fund which are meant for providing LT in loans to the

agriculturists for financing and refinancing their needs.

The RBI establishes close integration between the co-operative banks

for financing the co-operative sector and rural areas. It created the small

farmers development agency and the marginal farmers development agency

to provide funds at a concessional rate of interest. After the establishment of

NABARD on 12th July 1982. The agricultural credit Department has been

transferred to NABARD, and the functions of financing agricultural has

been taken over by the NABARD from the Reserve Bank.

3.11.4 NABARD – LEADER OF RURAL CREDIT SYSTEM:

The National Bank for Agricultural and Rural Development

(NABARD) was set up in 12th July 1982. It will be empowered to borrow

from the central government. As the apex agricultural credit institution, it

lends short term, medium – term and long term funds to state co-operative

banks.

The NABARD will also route agricultural credit through the

commercial banks. It maintains two funds – National agricultural credit

(long term operation) fund and the National Agricultural credit

45
(stabilization) fund. The central and state government will contribute to

these funds.

The main functions of NABARD are as follows;

i. Co-ordination and monitoring of all agricultural and rural lending

activities with a view to tying them up with extension and planned

development activities in the rural sector.

ii. Advice and guidance to state governments, federation of co-

operatives, NCDC etc, in regard to the co-operative movement in

close collaboration with the RBI and government of India.

iii. Inspection of co-operative banks and RRBs.

iv. Refinance to the co-operatives and RRBs.

46
 ACHIEVEMENTS AND FINANCIAL TARGETS OF CO-
OPERATIVE MOVEMENT DURING PLAN PERIODS
TABLE 3.4
(Rs. In Lakhs)

Sl. Plan period Target Achievement Percentage

No.

1. 1st year plan (1951-55) 8.00 3.69 46%

2 2nd year plan (1956-06) 120.99 63.14 53%

3 3rd year plan (1961-65) 246.16 206.42 84%

4 Three Annual plan (1966) 105.41 91.65 87%

5 4th Five year plan (1969-73) 155.00 637.91 44%

6 5th Five year plan (1969-75) 739.00 546.53 73%

7 Two annual plans (1979-80) 570.00 503.96 84%

8 6th Five year plan (1981-85) 2200.00 2696.04 122%

9 7th Five year plan (1986-90) 2360.00 2348.82 99%

10 Two annual plans (1991- 92) 1500.00 1947.51 130%

11 8th Five year plan (1992-97) 5735.00 8630.53 150%

12 9th Five year plan (1997-2002) 6666.00 8148.79 125%

47
3.12 CONCLUSION:

It has been observed that since independence, the co-operative banks

have made considerable progress in the field of agricultural credit. In the

year 1985-86it accounts for a preponderant share of about 55% of total

institutional credit for agriculture and allied activities. Recently it had been

seen that the banks have been expanding their advance to allied activities

rather for agriculture in the year 1995-96 its share have been reduced to 48%

while the share of other institutions were increasing year by year in 2005-06

co-operatives provides Rs. 39,404 crore of rural credit. Around 21.8% of

total 1,80,486 crore institutional credit to agriculture is provided in that year.

48
 CHAPTER – IV

THE PANAYAL SERVICE CO-OPERATIVE BANK

LTD

A PROFILE

4.1 INTRODUCTION

4.2 ESTABLISHMENT

4.3 AREA OF OPERATION

4.4 OBJECTIVES

4.5 MEMEBRSHIP

4.6 SHARE CAPITAL

4.7 LIABILITY

4.8 FUNDS OF THE BANKS

4.9 BORROWINGS

4.10 MANAGEMENT

4.11 PROFIT DISTRIBUTION

4.12 CONCLUSION

49
4.1 INTRODUCTION:

The Panayal service Co-operative bank was formed fro providing

maximum service to the members and community in general. It occupies an

important place among the primary agricultural societies. It was formed

under Kerala Co-operative societies Act 1969 which as amended in 1999

with the principal objective of undertaking agricultural credit activities.

Besides ST and MT credit, the bank provides long term finance to

agriculturists for effecting permanent improvement in land, purchasing

agricultural machinery and implants and repaying old debts.

4.2 ESTABLISHMENT:

The PSCB was registered on 3rd July 1952 and started functioning on

3rd October 1952. The Bank has 4 branches situated at Pakkam,

Periyattadukkam, Kottapara and Movval. The bank provides ST, MT & LT

loans from the very beginning itself the people residing within its area of

operation.

4.3 AREA OF OPERATION:

Its area of operation shall be confined to the Panayal village of

Pallikkara Grama Panchayath.

50
4.4 OBJECTIVES:

Some of the important objects of the Bank are; to develop new

schemes in order to encourage savings, self sufficiency and service motives

among the members.

 To store and supply seeds, fertilizers pesticides and tools for

agricultural requirements.

 To facilitate better marketing for the agricultural and commercial

products of the members.

 To store agricultural products providing owned or rented stores

houses to it members.

 To provide facilities in producing new kinds of seeds.

 To do an agency sales of seeds, fertilizers, pesticides and other

agricultural tools.

 To obtain various home appliances, furnitures through their purchase

system at a reasonable price for the members, constructing show

rooms and supplying to them.

51
  To help the member and traders of the bank, accepting life insurance

premium from them and acting as a commission agents for the Life

Insurance Corporation.

 To introduce crop insurance, group insurance and other helpful

insurance schemes for its members.

 To procure fund for the bank borrowing loans, grants from other

cooperative banks which are permitted by the distinct co-operative

bank, co-operative development fund and the registration.

 To bring out provident fund schemes to the members.

 To provide overdraft facilities and loan to the members to purchase

vehicles, construct or repair house.

 To bring out the activities directed by the central or state government,

state or District Co-operative bank, Co-operative union and do other

activities which are legally organ sable by the Co-operative units.

 To undertake the projects driven by the state / block gram panchayath

with the permission of the register.

 To provide safe locker facility to members and traders of the bank.

 To provide computer facility if it is requires facilitating the members

and traders of the bank.

4.5 MEMBERSHIP:

52
 To acquire the membership of a bank, one should follow and fulfill

the following conditions.

 He should completed 18 years of age

 Capable to enter into contract

 Who is permanently staying or having owned lands within the area of

operation of the bank.

The table No. 4.1 shows the membership of PSCB Ltd from the year

2004 – 05 to 2007 – 08.

MEMBERSHIP OF PSCB LTD FROM 2004 – 05 TO 2007-08

TABLE NO. 4.1

Number of Increase of
Year % increased
members members
2004 – 05 12,767 - -
2005 – 06 13,613 746 6.63
2006 – 07 14,090 477 3.50
2007 – 08 14,634 544 3.86
Sources records of PSCB Ltd.

From the above table, it reveals that the membership of the bank

steadily increased from the year 2004-05 to 2007-08 and it shows a

substantial increase in the year 2005 – 06. In 2006-07 percentage increase is

only 3.50% as compared to 6.63% in 2005 – 06. The total number of

members at the end of the year 2004-05 was 12,767 and this was increased

53
to 14,634 at the end of 2007-08 showing an increase of 3.86% from the year

2006-07.

THE FOLLOWING GRAPH SHOWS THE MEMBERSHIP

OF PSCB LTD FROM 2004 – 05 TO 2007-08.

FIGURE 4.1:

0
2004 – 05 2005 – 06 2006 – 07 2007 – 08

4.6 SHARE CAPITAL:

54
 The authorized capital of the Bank for the present be Rs. 1,00,00,000

made up of 1,00,000 shares of the Rs. 100 each. Shares are sub divided into

different classes as shown below.

‘A’ class – 1,00,000 shares of Rs. 100 each - 1,00,00,00

‘B’ class – 10,000 shares of Rs. 100 each 0

‘C’ class – 50,000 shares of Rs. 5 each - 10,00,000

‘D’ class – 5,000 shares of Rs. 100 each - 2,50,000

- 5,00,000
Total 1,17,50,000
Shares are classified according to the requirement of the bank:

‘A’ Class:

One who fulfills the essential qualities laid down by the sec. 16 of

Kerala Co-operative laws, become a ‘A’ class member.

The right to vote at the Annual general meeting is reserved only to the

hold of ‘A’ class shares.

‘B’ Class:

These shares are reserved and issued only to the central or state

government, state or district co-operative bank, KERAFED, ICDP and

District block, village Panchayath and can be redeemed according the

directions given by the registrar or at the date of maturity time.

‘C’ Class:

55
 The holders of ‘C’ class shares can borrow loan by pledging their,

gold / silver ornaments or the receipts of warehouse and they can join in

different types of schemes introduced by the bank moreover the members

are not having any other rights.

‘D’ class:

‘D’ class shares are reserved and issued only to the SHG (self help

groups). Mean while the membership c an be given to those, who are

permanently staying or having land property within the area of operation of

the bank, will be given loan for the agricultural purpose.

The paid up share capital of the Bank for the four years from

2004 – 05 to 2007 – 08 are given below:

PAID UP SHARE CAPITAL OF THE BANK FROM 2004 –

05 TO 2007 – 08
TABLE NO. 4.2

(Rs. In lakhs)
Year Share capital Increase % increased
2004 – 05 24.58 - -
2005 – 06 25.88 1.3 5.29

56
2006 – 07 27.27 1.39 5.37
2007 – 08 29.69 2.42 8.87
Source: Records of PSCB ltd.

Table No. 4.2 indicates the share capital of the Bank from 2004 – 05

to 2007 – 08. The paid up share capital of the Bank is steadily increased

from 2004 – 05 to 2006 – 07 and substantially increased in the year 2007-08

at 8.87% compared to 5.37% and 5.29% in the years 2005 – 06 to 2006-07

respectively.

The amount of paid-up share capital had increased from Rs. 24.58

lakhs in 2004-05 to Rs. 29.69 lakhs in 2007-08. With this increase the Bank

has its own fund, which would increase the borrowing power of the bank.

The following graph shows the amount of paid – up share capital of

the PSCB from the year 2004-05 to 2007-08.

GRAPH SHOWING THE AMOUNT OF PAID-UP SHARE CAPITAL

FROM THE YEAR 2004 – 05 TO 2007-08.

FIGURE 4.2

57
 29.69
30 27.27
25.88
24.58
25

Share Capital (Rs. Lakhs) 20

15

10

0
2004 – 05 2005 – 06 2006 – 07 2007 – 08
Years

4.7 LIABILITY:

Liability of a member towards the bank is limited to the face value of

a share held by them. This liability will occur only at the time of winding up

of the bank.

4.8 FUNDS OF THE BANK:

The bank will ordinarily obtain funds from the following sources:

i. Share capital

ii. Borrowing from District co-operative bank and government.

iii. Deposits from members and non-members.

58
The different types of deposits are:

a. Fixed deposits
b. Savings account
c. Current account
d. Day to day A/C
e. Recurring deposit
f. Family benefit fund deposits
g. Chit fund deposit
h. Treasurer or locker deposit
i. Group deposit and credit scheme.

4.9 BORROWINGS:

The borrowing of the bank includes borrowing from district. Co-

operative bank and government. The total borrowings by the bank from the

year 2004 – 05 to 2007-08 are shown in the following table.

BORROWING FROM PSCB FROM 2004 – 05 TO

2007 – 08

TABLE NO. 4.3

(Rs. In lakhs)

Year Borrowing Year to year change %

59
2004 – 05 174.53 -
2005 – 06 218.18 25.00
2006 – 07 226.16 3.66
2007 – 08 176.71 -21.86
Source: Record of PSCB Ltd.

An analysis of the table No. 43 reveals that the borrowing from PSCB

from the year 2004 – 05 to 2006-07 shows increasing. In the year 2007 – 08

there is a substantial decrease of 21.86% over the previous year.

The amount of borrowing by the bank can be graphically shown in

figure 4.3.

BORROWING OF HE BANK FORM 2004 – 05 TO

2007-08

FIGURE 4.3

60
 250 2 2 6 .1 6
2 1 8 .1 8

200 1 7 4 .5 3 1 7 6 .7 1
Borrowing (Rs. Lakhs)

150

100

50

0
2004 – 05 2005 – 06 2006 – 07 2007 – 08
Ye a r

4.10 MANAGEMENT:

The executive management of the affairs of the Bank shall vest in a

committee consisting of not more than nine members of whom seven shall

represent the borrowing members and two the non-borrowing members,

elected by the General Body.

61
 The election of the members of the committee shall be by ballot in the

manner prescribed in the Kerala Co-operative Societies Rules.

The present 8 our of management of the bank (200-4 – 09) was

elected on 25th January 2004. The name of the members is shown below:

1. K. Kunchi Raman (President)

2. K.T. Narayanan (Vice President)

3. K.V. Krishnan (Director)

4. K. Narayanan Nair (Director)

5. M. Thomban (Director)

6. T. Mohammed Kunchi (Director)

7. K. Geetha (Director)

8. P.H. Kunchi Kannan (Director)

9. K.V. Jayasree (Director)

4.11 PROFIT DISTRIBUTION:

According to sec. 63 of Kerala Cooperative societies Act, the Net

profit of the bank as declared by the registrar every year shall be disposed of

as shown below.

1. 25% of the net profit should be transferred to Reserve Fund as per

Rule 53(2)

62
 2. The prescribed amount should be transferred to co-operative Student

Fund.

3. Not more than 15% of the amount should be transferred to

agricultural credit stabilization fund.

The balance remaining if any after transferring to the above shall be

divided as under:

i. To payout dividend not more than 20% of the balance

according to the shares held by the members.

ii. Not more than 10% shall be transferred to public welfare fund.

iii. Not more than 10% should be transferred to divided

equalization fund A/C.

iv. Not more than 10% should be transferred to building fund A/C.

v. Not more than 10% should be transferred to members welfare

fund A/C.

vi. 10% of the net Profit or Governments BDR grants equalized

amount should be transferred to special board.

vii. After transferring the above the balance should be transferred to

retained earnings.

4.12 CONCLUSION:

63
 PSCB has been functioning about 57 years in Panayal Village of

Hosdurg Taluk. After 2004 – 05 there is a substantial increase in

membership and in the amount of share capital due to better performance.

CHAPTER – V

LENDING OPERATIONS OF THE BANK

5.1 INTRODUCTION

5.2 TYPES OF LOAN

5.3 RECOVERY OF LOANS

64
5.4 WORKING CAPITAL

5.5 PROFITABILITY

5.6 CONCLUSION

5.1 INTRODUCTION:

The objective of setting up of this Bank is to provide ST, MT and

long – term, credit at reasonable rate of interest in the rural sector for the

development of agricultural and allied activities. Availability of adequate

and timely credit is a pre requisite for the development of agriculture. The

farmers need long –term finance for effecting improvement in agriculture

through the use of various agricultural machinery items such as improved

65
implements, tractors, tube wells, and other land improvement measures like

land leveling reclamation of land etc.

From the very beginning itself the bank advances different types of

loan to people residing within the area of operation.

5.2 TYPES OF LOAN:

Loans and advances are given only to the members of the bank.

The different types of agricultural loans advanced by PSCB, are;

a. Short term agricultural loan and

b. Kissan credit loans

c. Loans by pledging agricultural products

Beside agricultural loans, the bank also provides loans and

advances. For non agricultural purpose. They are:

a. Gold loan

b. Loans on involvements

c. Loans to purchase land properties

d. Consumer loans

i. Children’s education loan

66
 ii. Children’s professional education loan

iii. Family member’s marriage loan.

iv. House prepare loan

v. Loans for medical, funeral services and other

requirements of the family members.

vi. Loans to those who are going to abroad in search of jobs

vii. Loans to purchase home appliances.

viii. Industrial loans

ix. Loans to purchase new vehicle

x. Housing loan

xi. Other loans prescribed by the registrars

The number of members who received loan from the bank for the four

years of study is given in the following table.

Number of members who received loan during 2004-05 to 2007-08

Table 5.1

Number of Annual
Trend
Year members Increase /
percentage
received loans decrease

67
2004 – 05 3556 - 100.00
2005 – 06 3976 420 111.81
2006 – 07 4716 740 132.62
2007 – 08 5007 291 140.80
Source: records of PSCB Ltd.

The above table portrays that the number of members received loan

form the bank showed an increasing trend. In the year 2004-05, the number

of members received loan was 3556. In the year 2007-08, it reached to 5007.

An over all increase of 1451 members showed during the period of study

which is 40.80% higher than the base year 2004-05.

THE GRAPH SHOWING THE TOTAL NO. OF MEMBERS

RECEIVED LOAN IS SHOWN IN FIGURE 5.1

NUMBERS OF MEMBERS PERCEIVED LOAN

FROM 2004 – 05 TO 2007-08

FIGURE 5.1:

68
 160
140.8
140 132.62

No. of Members Recived Loan 120 111.81

100
100

80

60

40

20

0
2004 – 05 2005 – 06 2006 – 07 2007 – 08
Years

The total amount of loan advanced to the members during 2004-2005

to 2007-08 is highlighted in the table given below.

AMOUNT OF LOANS ADVANCED TO THE MEMBERS

FROM 2004 – 05 TO 2004-08

TABLE 5.2

(Rs. In lakhs)
Year Amount Annual No. of Average loan

69
 advanced increase / members
per member
decrease received loan
2004 – 05 249.33 - 3556 0.070
2005 – 06 287.50 38.17 3976 0.072
2006 – 07 268.85 -18.65 4716 0.052
2007 – 08 475.29 206.44 5007 0.095
Total 1280.97 225.96 17,255 0.074
Source: Records of PSCB Ltd.

An analysis of table 5.2 reveals that the amount of loan advanced to

the members showed a fluctuating trend. In absolute terms, the amount

varied from Rs. 249.33 lakhs in 2004 – 05 to Rs. 475.29 lakhs in 2007-08

constituting a range of Rs. 225.96 lakhs. In the year 2006-07, there is a

decline in the amount of loan advanced by Rs. 18.65 lakhs. The table also

reveals that, on an average the amount of loan advanced to a member came

to Rs. 0.074 lakhs. In the year 2007-08, the average loan per member is Rs.

0.095 lakh as against Rs. 0.070 lakh in 2004-05.

The graph showing the total amount of advance made by the bank for

the four years from 2004-05 to 2007-08 are shown in figures 5.2

LOANS AND ADVANCED GRANTED BY PSCD LTD

FROM 2004 – 05 TO 2007-08

FIGURE 5.2

70
 0.095
0.100

0.090
0.072
Loans and Advances (Rs. Lakhs)
0.080 0.070

0.070
0.052
0.060

0.050

0.040

0.030

0.020

0.010

0.000
2004 – 05 2005 – 06 2006 – 07 2007 – 08
Years

The break up of loan advanced by the Bank for the four years of study

from 2004 – 05 to 2007 – 08 is given below in table no. 5.3.

BREAK UP OF LOAN ADVANCES FROM 2004 – 05

TO 2007 – 08

TABLE NO. 5.3

71
 (Rs. In lakhs)
Sl. No. Types of loan 2004 – 05 2005 – 06 2006 – 07 2007 – 08
1 Short term 173.96 204.10 190.01 374.36
2 Medium term 28.52 35.71 30.01 46.31
3. Long – term 46.85 47.69 48.83 54.62
Total 249.33 287.50 268.85 475.29
Source: Records of PSCB Ltd.

By analyzing the different types of loan advanced from 2004, 2007-

08, it is clear that the amount of different types of loan advanced share a

fluctuating trend, There are ups and down in the amount of different types of

long except in the case of long term loan which shows an increasing trend.

The amount of LT loans showed an overall increase from Rs. 46.85

lakhs in 2004 – 05 to Rs. 54.62 lakhs in 2007-08. There is a substantial

increase in the amount of S.T. loan. It rose from Rs. 173.96 lakhs in 2004-05

to Rs. 374. 36 lakhs in 2007-08 showing on overall increase of 115.2%

during the from years.

In the year 2006-07 there showed a declining trend in the amount of

ST & MT loan. The amount of ST loan had reduced from Rs. 204.10 lakhs

in 2005-06 to Rs. 190.01 lakhs in 2006-07. And also in the case of MT loan.

It reduced from Rs. 35.71 lakhs in 2005-06 to Rs. 30.01 lakhs in 2006-07.

72
 The different types of loan advanced by the bank is presented

by a subdivided bar diagram in figure 5.3

FIGURE 5.3.

400 374.36

350
Loans and advances (Rs. in lakhs)

300

250
204.1
190.01
200 173.96

150

100
46.85 54.62
47.69 48.83 46.31
28.52 35.71 30.01
50

0
2004 – 05 2005 – 06 2006 – 07 2007 – 08
Year

1 Short term 2 Medium term 3 Long – term

The table showing the percentage of different types of loan advanced

for the four years of study from 2004 – 05 to 2007-08 is given below.

BREAK UP OF LOAN ADVANCES IN TERMS OF

PERCENTAGE FROM 2004 -05 TO 2007 – 08

73
 TABLE NO. 5.4

Types of Years
Sl. No.
loan 2004 – 05 2005 – 06 2006 – 07 2007 -08
1 ST 69.78 70.99 70.65 78.76
2 MT 11.43 12.42 11.16 9.74
3 LT 18.79 16.59 18.16 11.50
Total 100 100 100 100
Source: Records of PSCB ltd

By analyzing the above table it is clear that ST loans constituent a

major portion of total loan advance by the bank for the period. In the year

2007 – 08, S.T. loan to agriculturists constitutes 78.76 percent as against LT

loans of 11.50. The MT loans provided by the bank form relatively a very

small portion for the period under study. In the year 2006 – 07, the amount

of MT loans accounted for only 11.16 percent which is relatively a small

portion when compared to others.

The graph showing the break up of loan advances in terms of

percentage from 2004-05 to 2007-08 are shown in figure 5.4

BREAK UP OF LOAN ADVANCES IN TERMS

OF PERCENTAGE FROM 2004 – 05 TO 2007 – 08.

74
 FIGURE 5.4

78.76
80
69.78 70.99 70.65

70

60

50

40

30
18.79 18.16
20 16.59
11.43 12.42 11.5
11.16 9.74
10

0
2004 – 05 2005 – 06 2006 – 07 2007 -08
Years

1 ST 2 MT 3 LT

5.3 RECOVERY OF LOANS:

The soundness of co-operative credit structure to a large extent,

depends on the prompt recovery of loans. However, there has been slackness

in recovery of loans resulting in mounting over dues in co-operative credit

75
institutions. Thus recovery of loan amount in time is very important for the

successful function of bank.

A part of out standings become over due loan if not realized within

certain definite time limit. It includes:

i. Loan which is demanded

ii. Loan for which no time has been given and

iii. Loan which has not been recovered.

The size of the loan and consumption expenditures is the major factor

influencing the amount of over dues. The amount of over dues can be

reduced by better supervision and careful assessment of the cases for

advancement of loans.

The following table shows the recovery of loans made by the bank the

four years of study.

Recovery of loans from 2004-05 to 2007 – 08

TABLE NO. 5.5

(Rs. In lakhs)

76
 Year Demand Collection Balance Over due %
2004 - 05 241.37 191.28 50.09 20.75
2005 – 06 295.79 265.43 30.36 10.26
2006 – 07 336.96 306.96 30.00 8.90
2007 – 08 426.72 416.70 10.02 2.35
Source: Records of PSCB Ltd.

The table No. 5.5 indicates the percentage of over dues to demands of

loan outstanding. It is clear that the percentage of over dues to demand is

decreasing year by year there by showing an increasing trend in the recovery

rate of loan advanced by the bank. In the year 2004-05 the percentage of

over due was 20.75 percent which was reduced by 18.4 percentage points to

2.35 percent in 2007-08. The amount of over dues had reduced by better

supervision and careful assessment of the cases for advancement of loan.

The following pie diagrams show the percentage of over dues

regarding the demand of loan outstanding.

OVER DUE POSITION OF THE BANK FOR FOUR

YEARS FROM 2004 – 05 TO 2007 -08

CHART 5.1

77
 2004- 05 2005- 06

10%
20.75%

79.25%
90%

2006- 07 20 07- 08

2.35%
8.90%

91.10%
97.65%

Amount over due

Amount Recovered

The demand, collection and balance of loans for the period of study

from 2004-05 to 2007-08 is presented in figure 5.5

RECOVERY OF LOANS FROM 2004-05 TO 2007-2008

78
 FIGURE 5.5

450
426.72
416.7
400

350 336.96
306.96
300 295.79
Amount in Lakhs

265.43
250 241.37

200 191.28

150

100
50.09
50 30.36 30
10.02
0
2004 - 05 2005 – 06 2006 – 07 2007 – 08
Years

Demand Collection Balance

5.4 WORKING CAPITAL:

Working capital means the amount of funds required by the Bank for

its operation. The working capital as important as blood in human body. The

79
fulfillment of objectives as mentioned in the bye- laws needs regular supply

of working capital for particular period of operation. The working capital of

fund comprises components of own funds and borrowed funds. The table

No. 5.6 shows the working capital of the bank from 2004-05 to 2007 – 08.

WORKING CAPITAL OF PSCB LTD FROM 2004-05 TO

2007-08
TABLE NO. 5.6

(Rs. In lakhs)
Year Working Annual increase / Trend %
capital decrease

2004 – 05 706.77 - 100

2005 – 06 1336.08 629.31 189.04

2006 – 07 1544.47 205.39 218.10

2007 – 08 1959.91 418.44 277.31

Source: Records of PSCB Ltd

By analyzing table 5.6, it is clear that the working capital of the bank

showed a increasing trend during the record under study. The annual

increase in the amount of working capital showed high in the year 2005-06.

During that period alone, the amount increased by 629.31 lakhs which

accounted 89.04% increase compared to 2004-05.

80
Figure 5.6 shows the working capital position of the Bank from the year

2004-05 to 2007-08.

WORKING CAPITAL POSITION OF THE BANK

FROM 2004 – 05 TO 2007-08

FIGURE 5.6

1959.91

2000
1544.47
Amount of Working capital (Rs.

1800
1336.08
1600
1400
in Lakhs)

1200
706.77
1000
800
600
400
200
0
2004 – 05 2005 – 06 2006 – 07 2007 – 08
Years

5.5 PROFITABILITY:

81
 The banks performance is determined by the magnitude of profit

earned for survival and growth. The economic stability, expansion and

diversification of business through profitability is an important task of Bank

Management.

Profitability is the excess of income over expenditure. The important

source of income in PSCB Ltd are interest and discount on loans, interest on

investment and commission. The various element expenditure includes

interest on borrowings, salary, audit fees, bonus to staff etc.

The profitability of the Bank from the period 2004 – 05 to 2007-08 is show

in table no. 5.7

PROFITABILITY OF THE BANK FROM 2004 – 05 TO 2007 – 08

TABLE 5.7

(Rs. Lakhs)
Year Net Profit Annual increase / decrease Trend %
2004 – 05 44.58 - 100
2005 – 06 12.60 -31.98 28.26
2006 – 07 75.81 63.21 170.05
2007 – 08 50.68 -25.13 113.68

The table shows that the profit of the Bank showed a fluctuating trend

year by year. In the year 2004-05 the net profit made by the bank amounted

82
to Rs. 44.58 lakhs while in the year 2005 – 06 there is a tremendous decline

in the amounts of profit. The profit had reduced to Rs. 12.60 lakhs showing

a decline of 71.74% from the base year. It may be due to lack of supervision

and inefficient management of funds. But in the year 2006 – 07 there is a

substantial increase in the amounts of profit to Rs. 75.81 lakhs.

The graph showing the profitability of the bank from 2004 – 05 to

2007-08 is presented in figure 5.7.

TREND SHOWING PROFIT MADE BY THE BANK FROM 2004-05

TO 2007-08

80
75.81
70

60
Profit (Rs. in lakhs)

50 50.68
44.58
40

30

20
12.6
10

0
2004 – 05 2005 – 06 2006 – 07 2007 – 08
Year

5.6 CONCLUSION:

83
 It was observed that the PSCB was not implementing its main

objective properly. During the last years of study there is a considerable

reduction in the quantum of agricultural loans. During this period a major

portion of he amount is advanced for non – form sectors and Rural Housing

Loans.

Chapter –VI

84
 Summary, findings, suggestions and

conclusions

6.1 INTRODUCTION

6.2 SUMMARY

6.3 FINDINGS

6.4 SUGGESTIONS

6.5 CONCLUSION

6.1 INTRODUCTION

85
 This concluding chapter presents a summary of the study, findings of

the investigation and some suggestions for improvement.

6.2 SUMMARY

The first chapter being the introduction chapter includes the statement

of the problem, scope and objectives of the study, methodology, period of

the study, limitations of the study etc.

The second chapter deals with the importance and need for

agricultural finance. India, being an agricultural country, about so percent of

the population depends on agriculture for their lively hood. Indian economic

prosperity depends much on agricultural production which contributes over

one-third of India’s GNP. Co-operative Banks, Commercial Banks, RRB in

etc. are the important institutions providing agricultural credit. Among them

co-operative Banks plan a significant role in providing agricultural finance.

The third chapter explains the role of co-operative banks and other

institutions in the field of agricultural finance. The co-operative movement

was started in India in 1904 with the object or providing finance to

agriculturists. Agricultural credit is the most important sector of the co-

operative movement.

At present, the co-operative institutions working under the Indian

credit consist of 31 state Co-operative Banks, 37 District Co-operative

86
Banks, about 97,224 PACSs, 20SCARDBs and 69 PCARDBs working

under them.

Beside co-operative banks, commercial banks and RRBs are other

institutions providing agricultural credit. Co-operative credit institutions

account for a preponderant share of about 57 percent in total credit

institutional credit for agriculture and allied activities. But recently it had

tremendously declined. In 2005-06 Co-operatives provides Rs. 39,4040crore

of rural credit. 39, 404 more of rural credit. Around 21.8% of total 1, 80,486

core institutional credit to agriculture is provided in that year. In 2005-06

commercial banks provides Rs. 1,25,859 crore of rural credit. 69.7% of total

1,80,486 crore institutional credit in 2006-07 RRB provided 27964 crore as

credit agricultural sectors. 8.5% of total institutional credit to agriculture

In the fourth chapter a profile of the PSCB is given, the bank which

was r d on 3rd July 1952 has been efficiently functioning about 57years

in Panayal Village of Pallikkara Pandhayath. The management is rested in

the Board of Directors elected by the members at the General Body

Meeting.

The Authorised share capital of the Bank is Rs. 1,00,00,000 which

consists of 1,00,000 ‘A’ class shares of Rs. 100 each and 10,000 ‘B’ class

shares of Rs 100 each. The paid-up share capital of the Bank in 2004-05 was

87
Rs. 24.58 lakhs which increased to Rs. 29.69 lakhs in 2007-08 showing an

increase of 8.87 percent than the year 2004-05. The number of members had

increased from 12767 to 14634 members.

The amount of borrowing made by the Bank from the PSCB showed

an increasing trend. The total borrowing had increased from Rs. 174.53

lakhs in 2004 – 2005 to Rs. 176.71 lakhs during 2007 – 08.

The lending operations of the Bank are analyzed in his fifth chapter.

The main objective of setting up of the Bank is provide credit at reasonable

rate of interest for the development of agriculture and allied activities. The

Bank advances different types of loans namely ST, MT & LT loans, non

form sector loan and Rural Housing Loan.

The number of members received loan from the Bank in 2004 – 05 is

3556 which is increased to 1451 during 2007 – 08. The average loan per

member amounted to Rs. 0.074 lakhs during the four years of study. In 2007

– 08 the total loan advanced amount to Rs. 475.29 than 249.33 lakhs in 2004

-05.

The break-up of loan advanced by the Bank for the period of study is

depicted in table no. 5.3. The medium term loans provided by the Bank from

a very small portion for all the periods under study in 2004 – 05 only 11.43

88
percent accounting for medium. Which has reduced considers ability to 9.74

percent in 2007-08.

The recovery rate of the Bank has been progressed from 79.25%

during 2004-05 to 97.65% in 2007-08. This is due to the considerable

reduction in the amount of agricultural loans. This ultimately affected the

profitability of the Bank which had increased from Rs. 44.58 lakhs in 2004-

05 to 50.68 lakhs in 2007-08 showing a negative approach towards their

objectives.

The amount of working capital showed on increasing trend during the

period of study. Due to inadequate working capital the firm is insufficient in

meeting their overall objectives. In the year 2004 – 05 the amount of

working capital is Rs. 706.77 lakhs which was increased in 2005-06 and

stood at Rs. 1959.91 lakhs only during 2007-08.

6.3 FINDINGS:

 In Rural India Co-operative Bank play an important role in the credit

delivery system. But in recent years it has been found that their

attitude towards agricultural credit has been reducing. In the year

1985-86 about 55% of the total institutional credit is provided by co-

operatives which was reduced to 48% during 1995-96 and 21.8% in

the year 2005-06.

89
  The number of members received loan from the Bank had increased

from 3556 in 2004-05 to 5007 in 2007 – 08. There is an increase of

1451 members during the four years of study.

 The average loan per member disturbed by the Bank is only Rs. 7400

which is insufficient to meet the credit requirements of agriculturists.

 The amount advanced by the Bank during 2004 – 05 was Rs. 249.33

lakhs which was increased to Rs. 475.29 lakhs during 2007-08. Thus

an amount of Rs. 225.96 lakhs has only increased during the four

years of study.

 The recovery rate of the Bank has been increased from 79.25% during

2004-05 to 97.65% in 2007-08. This may be due to the extension of

credit to Non – form sectors and Rural Housing loans rather than

lending for agricultural purposes.

6.4 SUGGESTIONS:

For achieving the objectives of the Bank very efficiently, the

following suggestions are made:

As the main objective of the Bank is to provide financial assistance to

agriculture, the Bank must pay more attention towards agriculturists rather

than non – agriculturists.

90
 It has been suggested to give interest subsidy to those who repay the

loan before the required date. This will encourage them to repay the loan at

an early date on will minimize the amount of overdoes so that the bank can

function its lending operations very efficiently.

6.5 CONCLUSION:

It can be concluded that the Bank under study was not practically

implementing its objective. A major portion of loan is advanced for non-

agricultural purposes during the last years of study. It is necessary that the

bank should rise up to occasion and take up initiative in implementing its

main objective by advancing sufficient loans for agricultural purposes.

91