criticlally analyse the agricultural financing system / rural banking system

Over the years, rural banking in India has expanded rapidly. The National Bank for Agricultural and Rural Development (NABARD) has made a significant progress in the field of rural credit. Also, the share of institutional sources in the total credit has increased from just 7% at the time of independence to 70% at present. Readily available credit has helped the farmer to increase the level of output and production. Facilities such as crop insurance have insulated the farmers from the vagaries of crop failure. Moreover, institutional credit has freed the farmers from the trap of money lenders and mahajans. 

But, on the other hand, institutional credit is not free from deficiencies. The rural or institutional credit has invariably been associated with security or collateral. Consequently, a substantial number of farmers cannot avail credit. Also, the commercial banks failed to encourage the habit of thrift among farmers. In addition to this, the leniency on the part of the government to collect repayments was another setback in the rural banking. The number of defaulters were as high as 50%. This increased the defaulter’s rate and led to financial unfeasibility for the rural banks.  Thus, rather just being lenders, emphasis must be laid on building banking relations with the borrowers.

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