CHAPTER: IV

Agricultural Credit by Commercial Banks in the selected distracts

A Trend Analysis

After having studied the profiles of the two select commercial banks and the geo-

economic profiles of the two select districts, it is proposed to examine the presence and the

performance of the select commercial banks with regard to the management of farm credit in

the select districts. The commercial banks in India operate under the strict supervisions and

surveillance of the RBI in general and by the NABARD particularly with regard to agricultural

credit. Within the policy purview of the above regulatory agencies agricultural credited is

dispensed by banks irrespective of their basic nature of business viz., commercial or industrial

or agricultural banking. As stated earlier, the two commercial banks namely; SBH and AB are

chosen to examine their performance and presence in farm credit sector. In the interest of a

thorough study of the management of agricultural credit by the commercial banks, as already

stated two districts of TS - Nizamabad and Adilabad are chosen. With the help of these two

sample commercial banks in two districts, an attempt is made to study the management of

agriculture credit deployed by Commercial Banks in TS. Thus the purpose of this Chapter is to

examine the effectiveness of Management of Agriculture Credit extended by the Commercial

Banks in Telangana State. In other words, this Chapter has three objectives. First is to focus on

the various types of credit facilities offered by both select banks. Second is to present briefly

the policies and procedures of loaning to farmers. Third objective is to ascertain the trends in

the deployment of credit to farmers by both the select banks in the select districts All these are

analyzed on the basis of secondary data collected from the loan manuals of the banks, their

1
Annual Financial Reports and the District Credit Plans of the Lead Banks of the districts

concerned. This Chapter is designed to present in two Sections. In Section: A, a brief

discussion about the different types of loans of both the select banks is presented. Section: B

gives the guidelines, procedures, and programs of both the banks for processing the loan

applications of the farmers for financial assistance for agricultural purposes. Time series

analysis of the aggregate agricultural loans given for farming activities and the related Non-

performing Assets (NPA) are examined in Section: C. while examining the trends in credit

desperation an tempt is made to compare the performance of SBH and AB in a relevant manner.

SECTION: A

Product-range of the A gri cultural loan of Two Commercial Banks

Bank customers can be broadly classified as businessmen and agriculturists (including

people engaged in auxiliary farming activities). Their financial requirements may be different

and their timings will also be varying. Since the present study is relating to Management of

Agricultural Credit by Commercial Banks the specific characteristics of agricultural borrowers

has been discussed in Chapter: I. Basically their borrowings are seasonal and tied up with the

harvesting investing plans. Hence the financial agencies will offer a different loan products

suitable to the agriculturists so as to satisfy all types of agriculturists (Marginal Farmers, Small

Farmers, large landholders and landless agriculturists) depending on crop-planning. Asides, the

agricultural policies of the government, the recovery time of the loans , and the conditions of

monsoon are the factors that determine the management of the credit by the bankers. As such,

this Section is devoted to present a brief sketch of the loan products offered by the SBH and AB.

2
Further a discussion about the rules and regulations, policies, and procedures followed by the

two select banks is also presented in this Section:

Loan Products of the Banks:

The primary objective of the banks is to help the needy and also to conduct the business

safely, efficiently and effectively without hampering the interest of investors and depositors. All

customers are not alike in terms of their financial status and their needs. Hence there is a

necessity to develop different deposit products and loan products. It is a business strategy to

face the competition from other players in the market. An analysis of the features of the offered

loan products is attempted to evaluate the Management of Agricultural Credit by Commercial

Banks. The forthcoming discussion about the loan-products and the rules and regulation for

sanctioning of loans will follow a sequence of taking SBH first and AB next. The logic of

developing this sequence is that SBH is a forerunner in financing small business firms and

extension of financial support to farming activities.

State Bank of Hyderabad is originally established as Central Bank under the style of

Hyderabad State Bank by the then ruler Mir Osman Ali Khan of the Princely State of Hyderabad.

The developments that took place subsequently are given briefly in Annexure 4.1 from which it

can be noted that it has joined in the main stream of Indian Banking sector in 1956. The RBI

took it as a subsidiary and renamed it as State Bank of Hyderabad. Since then, it will have

subjected to the provisions of Banking Regulation Act and rules and regulations, policies and

procedures formulated by the RBI from time to time. A close look at the Mission of SBH it is to

3
work for achieving excellence in customer satisfaction and to help in promotion of development

banking by meeting the long term capital formation and working capital requirements (1).

Annexure: 4.1
Historical Evolution of State Bank of Hyderabad
5th April, The Bank opened its door to the public by opening its first branch at
1942 Gunfoundry, Hyderabad
27th October, The HSB became a Scheduled Bank by inclusion in the second schedule of
1947 the
Reserve Bank of India Act, 1934.
1st April, The Government of India assumed control over several subjects including
1950 management of currency and public debt after the financial integration of the
State of Hyderabad with the Union of India on the 1st April, 1950. With this the
HSB lost its character of Banker to the Government
1953 In the year 1953 the Hyderabad State Bank became the agent of the Reserve
Bank of India for maintaining currency chest, handling Government
transactions
and remittance facilities under a tripartite agreement entered among the
Hyderabad State Bank, Government of Hyderabad State and RBI. In the same
year , with effect from 1st April, The HSB took over the assets and liabilities of
the Hyderabad Mercantile Bank Ltd.
22nd October The HSB became a fully owned subsidiary of the Reserve Bank of India under
1956 the name of State Bank of Hyderabad (SBH) (vide State Bank of Hyderabad
Act 79 of 1956).
1st The SBH became a fully owned subsidiary of State Bank of India under the
October1959 State Bank of India (Subsidiary Banks) Act, 1959.
1st January, SBH became a A class bank in terms of Desai Award (in terms of the Award
1964 A class banks are those whose working funds amount to Rs.25 crores or more.
1970 The Bank opened a full fledged training centre at Hyderabad.
1971 The Bank opened its first Agricultural Development branch at Beed in
Marathwada in the year.
1974 A Regional Development Office was opened at Aurangabad. The Bank also set
up a Consultancy Cell at Head Office to give expert advice and guidance on
production, planning, inventory control, marketing and financial management
problems of Small Scale Industries.
1975 Won the Presidents award for employing physically handicapped persons.
1976 Banks operations were reorganized on the lines adopted by State Bank of
India.
1977 introduced Performance Budgeting based on the MBO process of planned
business growth
1978 introduction of participative management with one representative each from the
officers and staff cadre nominated to the Board.
1981 Banks 50th branch was opened at Gruhakala, Hyderabad. In the same year
deposits crossed the 500 crore mark
1982 Modular structure was adopted. The three Zonal Offices were opened at
Hyderabad, Warangal and Gulbarga.
1982 saw the introduction of front office mechanization at 25 branches.
1982-85 The SBH sponsored four Regional Rural banks (RRBs). The first RRB
Saraswathi Grameena Bank started operating in Adilabad district from 1982
onwards and the second one Sri Sathavahana Grameena Bank in Karimnagar
district from 1983 onwards. Two more RRBs were sponsored by the bank

4
 during the year 1985, one for Ranga Reddy District viz., Golconda Grameena
Bank and the other for Nizamabad District viz., Sreerama Grameena Bank.
1989-90 Overseas branches were opened at Hyderabad and Mumbai in the year 1989-
90.
1990-91 i) Bank was reorganized as Category-I Merchant Banker by SEBI;
ii) Two Dealing Rooms were set up at Mumbai and New Delhi;
iii) Industrial Finance Branch was opened at Hyderabad;
iv) Deposits crossed the 2500 crore mark.
1991-92 Merchant Banking Bureau was opened at Mumbai. In the same year the Bank
celebrated its Golden Jubilee
1992-93 NRI branch was opened at Hyderabad and also a dividend of 14 per cent was
declared by the Bank.
1994-95 i) Deposits crossed the 5000 crore mark;
ii) The Bank now has representation at all the districts of Andhra Pradesh.
1995-96 i) The Banks bonds / deposits were rated by ICRA indicating the highest
safety to the investors.
ii) Bond Issue (Subordinated Debt) got concluded to strengthen capital
funds to enable the Bank to achieve the stipulated capital adequacy ratio
of 8 per cent by 31.3.1996.
iii) The Bank achieved a capital adequacy of 9.9 per cent as on 31.3.1996.
iv) The Banks overall performance was rated among the top 5 Public Sector
Banks (PSBs) in a survey published by the Business Today Magazine.
The Bank got Rated sixth during the earlier two years (1993-94 and
1994-95). The Bank improved its position to 5th during 1995-96.
1996-97 i) The Banks aggregate deposits crossed the 7000 crore mark.
ii) The Branch network touched the 800 mark.
iii) Partial Computerisation (FOMs) was completed at 154 branches.
iv) Full Computerisation was done at 20 branches.
v) New facilities like Quick Collection Service, Relationship Banking,
Corporate Terminals were introduced to improve customer service.
1997-98 i) Net profit increasing by 85 per cent to reach Rs.97.12 crore;
ii) Total business level crossing 13000 crore mark;
iii) The opening of the First Commercial Branch at Secunderabad.
iv) Full computerization at 72 branches and partial computerization at 134
branches.
v) Covering of all branches by Centralised Data Base System on loans and
advances.
vi) Opening of ATMs at Hyderabad, Mumbai and Delhi.
vii) Getting rated at 4th position among the top Public Sector Banks (PSBs)
in a survey published by the Business Today Magazine.
1998-99 i) Net profit crossed 100 crore mark.
ii) Aggregate deposits crossed 10000 crore mark. Growth rate of 22.23 per
cent was achieved which was higher than ASCB growth rate of 18.57
per cent.
iii) Per employee business crossed 100 lakh mark.
iv) 100 per cent investments have been marked to market.
v) The Banks net NPAs stood at 8.78 per cent.
vi) Capital Adequacy Ratio stood at 10.65 per cent.
vii) 23 new branches were opened taking the total network of branches to
855.
viii) Successful Y2K Compliance.
ix) Krishi Credit Card has been launched in 16 ACBs.
1999-2000 i) Operating Profit crossed 400 crore mark.
ii) Deposits crossed 12000 crore mark.
iii) Advances crossed 6000 crore mark.

5
 iv) Net NPAs reduced to 7.30 per cent.
v) Investments surpassed 7000 crore mark.
vi) Bank has 236 computerised branches.
2000-01 i) The Bank has launched the Depository Services at its Gunfoundry
branch in January 2000 as a Depository participant with NSDL.
ii) Deposits crossed 14000 crore mark.
iii) Advances crossed 7000 crore mark.
iv) Net profit surpassed 150 crore mark.
v) Investments surpassed 8000 crore mark.
vi) 100 per cent investments marked to market.
vii) Capital Adequacy ratio of 12.28 per cent was achieved.
viii) Total network of branches increased to 878.
ix) 117 branches were fully computerized.
x) 193 branches were partially computerized.

2001 02 i) Net Profit crossed 200 crore mark;

ii) Advances crossed 8,000 crore mark;
iii) The Bank completed 60 eventful years on 5.4.2002
2002-03 i) Investments crossed 12,000 crore mark;
ii) Profit per employee crossed 2 lakh mark;
iii) Net Profit crossed 300 crore mark;
iv) Specialised SSI / SIB branches were opened in the districts of
Adilabad, Khammam, Karimnagar and Rangareddy in Andhra
Pradesh where the Bank holds the Lead Bank Responsibility;
v) 139 more branches were fully computerized;
vi) Deposits crossed 20,000 crore mark;
2003-04 i) The Bank has become a Corporate Agent for marketing SBI Life
Products
ii) Two specialized SSI / SIB branches were opened in the districts of
Khammam and Nalgonda and one general branch at Nizamabad
district has been converted to SIB branch
iii) 250 ATMs have been installed and all the ATMs are networked with
SB group ATMs;
iv) Introduction of Single Window service at all its branches;
v) Introduced code of Fair Banking Practices and Citizens Charter
towards achieving excellence in Customer Service;
vi) Bank has achieved full computerization of its branches;
vii) Deposits crossed 25,000 crore mark;
viii) Advances crossed 10,000 crore mark.
2004 05 i) Advances crossed 15,000 crore mark;
ii) Agricultural advances crossed 2,000 crore mark;
iii) Credit Cards Crossed 20,000 mark
2005 06 i) Paid up Capital crossed 2,000 crore mark;
ii) Deposits crossed 30,000 crore mark;
iii) Advances crossed 20,000 crore mark;
iv) The aggregate deposits of the four sponsored RRBs crossed 1,000
crore mark
2006 07 i) Net Profit crossed 5000 crore mark;
ii) Bank proposes to declare a dividend 400 per cent for the year;
iii) Four sponsored Regional Rural Banks merged into one entity by
name Deccan Grameena Bank;
iv) International Service Branch (ISB) was opened during the year.
2007 08 i) Deposits crossed 50,000 crore mark;
ii) Bank achieved 100 per cent Financial inclusion in the Lead Districts

6
 of Nizamabad, Rangareddy, Koppal and Raichur;
iii) Number of Branches crossed 1000 mark;
iv) All the 1,001 branches are on core platform;
v) 610 ATMs installed by the Bank and is providing access to over
10,000 ATMs under the State Bank ATM network
2009 10 i) Advances crossed 50,000 crore mark;
ii) Investments cross 20,000 crore mark;
iii) Introduced an online Supply Chain Management Product;
2010 11 i) Net Profit crossed 1,000 crore mark;
ii) Business per employee crossed 1,000 lakhs
2011 12 i) 1600th Branch opened

Consistent with the objectives, varies of deposit source products and loaning products

are developed by the SBH. Mobilization of funds is the first step in the management of

agricultural credit as explained in Chapter: I. Deposits is one of the most important sources of

funds for carrying on the business by banks. Aggregate deposits mobilized by the SBH

registered a growth of 5.3% in 2015-16 over 2014-15. Out of the total mobilized deposits of Rs.

1, 36,278 Crs Current Deposits are Rs. 12,115 Crs (9%), Savings Deposits Rs. 36,292 Crs (27%)

and Term Deposits Rs. 87,871 Crs (64%). This deposit mix indicates that the bank has a

comfortable position to lend to commercial sector and agricultural sector on account of huge

term deposits. The second step in the management of credit by commercial banks is to lend the

right quantity of funds to the eligible applicants. The SBH advanced loans of Rs.1,11,066 Crs.

during 2015-16 for various purposes out of which term loans are Rs.61,642 Crs (56%), bills

discounted are Rs.1638 Crs (1%) and the cash credit, and overdraft are Rs.47,786 Crs. (43%) (2).

In this context, it is to be noted that this classification of loans is based on the terms and

condition of each product in advancing, and recovering of loans. Purpose wise classification of

loans is broadly of two types viz., commercial and agriculture loans. Annexure Chart: 4.2

explains that the banks advance loans to finance the personal needs, commercial activities, and

business of MSMEs and for Agricultural operations.

7
 Annexure Chart 4.2
Types of Credit Products of State Bank of Hyderabad

Personal Advances Commercial & Institutional Loans MSME

Agriculture
Housing Loans Scheme Rent Plus Scheme Plan Scheme to Technology Advances
Varun Mitra Total Package for Financing Upgradation/ Settingup/
Personal Loans Traders Modernization of Food
Educational Loan Overdraft/ Cash Credit Processing industries.
Loan to Pensioners Take over of Advances Special Services to SME
Scoom Take over of Advances barrowers
Purchase of Car under C & I. Credit guarantee fund
Personal Computers School Plus scheme for Micro and
Loan Against Term Deposit Vehicle Loans to Corporate Small Enterprise
Receipts Merchant Banking MSME General purpose Production Credit Loans Investment Credit Kisan Credit Card Other Agricultural
Cash Key term loans Loans Advances
Personal Loan to Trainees Laghu udyami credit card Crop loans scheme General Credit Card
for Pilot Trainee and SME Credit Plus Agricultural Advances/ Agricultural Term loans Scheme Self Help Groups
Airhostess Courses Artisan Cards Advances against scheme Accident Insurance Agri Clinics and
JNNURM Loan Dall mills Plus Scheme warehouse receipt of Minor irrigation Dug Wells for Kisan Credit Agribusiness
Pension Loan to Affluent Hotel Plus NBHCL Scheme Card holders Centres
Pensioners School Plus Financing Tenant Farmers Development of Old Wells SBH Kisan Star Card Yuva Krishi Plus
Demand Loan against Stree Shakthi Package and oral lessees for Scheme Scheme Scheme
Pledge of Gold ornaments Mortgage Loan raising crops Land Development Finance
Overdraft against pledge of Transport Operator Capital Investment Subsidy Scheme
Gold ornaments Finance for Construction/ SAHAYOG NIVAS
Loan against NSCs, IVPs Tourism Finance Expansion/ Consumption Loans
and KVPs Swarojgar Credit Cards Modernization of Cold Central Schemes for
Loan against LIC and SBI Cotton Ginning Plus Storage and Storage for Strengthening of
Life Scheme Horticulture Agricultural Marketing
Kanya Vivah Suvidha Doctor Plus Produce Marketing Loans. Infrastructure, Grading
Scheme SME Smart Score Scheme for Financing of and Standardization.
Vanitha Glold Scheme Construction Equipment Rural Godowns. Financing to Dealers in
SBH Paryatan Scheme Loan Assistance for boosting Drip Irrigation/
SBH Loan to Family SME Car Loan Scheme seed production Sprinkler Irrigation
Pensioners Scheme for Financing Central Sector Scheme for Systems/ Agricultural
SBH Rakshak Scheme Commission agents Strengthening of Machinery.
SBH Tax Suvudha Scheme Rice Mills Plus Agriculture Marketing Financing to Tractor and
Advance against shares & Liquid Gold Plus infrastructure, grading Power Tiller
Debentures Contractor Plus and standardization. Gramin Bhandar Yojana
Reverse mortgage loans Automobile Dealer Finance Loans against warehouse Scheme
scheme receipt of Cold storage Financing for Drip
Udhyog bandhu scheme units/ Private Irrigation System
Mortgage Loans warehouses/ godowns/ Jewellery loans to farmers
Adhyapak Suvidha Scheme Cold Storage Financing aromatic and
SBH Rail Plus Scheme for Financing for Medicinal plants
SBH Sanchar Plus construction of farmers Dairy venture capital fund
Software Professional Plus godowns. Financing stall fed gout
Scheme Capital investment subsidy rearing
SBH Journalist Plus scheme for commercial Vehicle loans
Credit to Credit Card production units of Cold Storage financing
Holders organic inputs Finance for purchase of
Educational Loan Plus land for agriculture
Scheme purpose
Coaching Plus Scheme Gram Niwas
SARAL Loans Scheme
SBH Fast Credit Scheme
Debt swapping of
barrowers
8
Venture Capital Scheme for
Agriculture Business
Development
9
 Again it can be observed that the agricultural loans are given for production of crops,

purchase of equipment and machinery, Kisan Credit Card, and indirect loans. However, it is

found that the SBH branches in NZB and ADBD are extending credit facilities for 12 agricultural

activities subject to various terms and conditions framed from time to time. Hence, an attempt

is made to analyze the relevant schemes by which the SBH extends credit. Table: 4.1 explain

the various purposes for which the SBH gives loans.

Table: 4.1
Agriculture Credit Schemes of SBH

Type of Credit Particulars

(A) Production Credit Loans Farmers are given this type of loan for different
production purposes
1. Crop Loan Scheme This facility can be availed by land-holders, tenant
farmers, and share croppers to raise all types of crops.
Loan amount is determined on the basis of crops
proposed to be raised at the latest scales of finance fixed
by the Lead Bank Technical Committee. The repayment
period is fixed according to the harvesting and marketing
period. For MF and SF margin deposits is exempted but
for others it ranges between 15% and 25% of the loan
sanctioned. Regarding security for loan, simple
hypothecation of crops is sufficient when the loan
amount is Rs. 25,000 or less. For the loans above
Rs.25,000 the borrower has to mortgage form land or
give 3rd party guarantee along with hypothecation of
crop. Facility of Rastriya Bima Yojana for notified crops in
notified areas is available.
2. Produce Marketing Loans The purpose of this accommodation is twofold; first to
(PML) meet the cost of marketing of goods and services and
also to acquire staying power so as to avoid distress
sales. PML is a short term loan provided as Agriculture
Cash Credit for a period of 12 months. It is available only
to those who have availed crop loans which are not
overdue. The maximum amount that a farmer can
borrow under this scheme is limited to Rs.10 lakhs
subject to the 75% of the minimum support price. The
security against such loans is the hypothecation of the

10
 produce including warehouse receipt. The borrower will
have to submit periodical stock statements once in a
month. The bank branch will inspect the stocks of
produce at monthly intervals and at the time of
disbursement of PML crop loan may either be recovered
or adjusted out of this loan.
3. Loans against warehouse Most of the farmers do not have godowns of their own
Receipts. in their places of production. They may store their
produce either in private warehouses or the
Government warehouses or in the Cold Storage for
which receipts are issued by the owners. Of course the
credit worthiness and business record of the private
warehouse owners is also evaluated for advancing loans
against the Warehouse Receipts. At times, bank insists
that the warehouse owners provide collateral security.
4. Advance against warehouse For this purpose demand loans are given. Farmers,
receipts issued by the processors, traders, owners of goods are considered for
National Bulk Handling financing against warehouse receipts maintained and
Corporation Ltd (NBHCL) managed by the NBHCL. This accommodation is
confined to those who are dealing in commodities. The
loan amount is determined as 75% of the value of the
warehouse receipt valued at market price or 80% of the
minimum support price (MSP) declared by the
government. The borrower has to deposit a margin of
20% to 25% of the value of the warehouse receipt. The
security for the loan is a charge over the warehouse
receipt with lien market in favor of bank. Additionally,
the borrower is expected to provide collateral security
from the directors or partner as the case may be. The
maximum recovery period is 12 months and as and when
the produce is sold the loan should be liquated. The
interest should be paid as and when it falls due.ss
5. Financing of Rural Godowns It is meant for financing individual farmers or a group of
farmers or entrepreneurs engaged in storing and
marketing of agricultural produce and willing to build
godowns in rural areas A rural area is a village with a
population of less than 50,000 (as per the NABARD
norms) subject to the potentials of sufficient crops is
considered as eligible for financial assistance. The
structure should be located on a site not liable to
flooding or inundation and it should be free from termite
infection, and water seepage. The proposed godown
should have a capacity ranging between 100 and 1000
MT. The Bank will provide financial assistance to the

11
 extent of 2/3rd of the cost of construction excluding the
cost of land. The mortgage of godown and the site will
be accepted as security. However, a third party
guarantee is insisted in addition of mortgage. Further,
the SBH prescribes that the godown including stocks
therein are to be fully insured against all possible risks.
Recovery of loans will be effected quarterly during a
period of 12 to 15 years. Normally the construction of
godown should be completed within 6 months from the
date of disbursement of loan.
6. Financing for the Exclusively for individual farmers use SBH has this
construction of Farmers scheme to finance the construction of warehouse. The
godown. borrower should have borrowed crop loans and for
seeking facility of storing the produce, food grains, oil
seeds and inputs required for crop cultivation and allied
materials. This godown should be constructed on the
borrowers own land in rural areas as defined by the
NABARD. The construction site should be well-drained,
not prone to flooding, and free from seepage of water.
The SBH finances the cost of construction to the extent
of 85% excluding the land cost. The SBH limits the
finances up to Rs.225 per sft with a margin of 10%
variation. The maximum period of repayment is 15
years with an extension of 12 months in half year
installments. Mortgage of the entire land of the
borrower and the godown constructed is required by
the SBH as security. The godown building will be fully
insured covering risk of floods, fire and earthquake. The
borrower has to meet the processing and inspection
charges based upon the loan sanction.
(B) Investment Credit Loans Capital investment requirements of farmers are financed.
Production and distribution is not possible unless the
farmer uses farm equipment, machinery and vehicles.
The following are a few schemes under which the SBH
dispense medium and long term loans.
1. Agricultural Term Loan It refers to capital investments required by farmers to
Scheme. improve the crop production and realize the best price
for the produce. The outlay, is according to the NABARD
unit of scheme cost. The Schemes are financed subject
to the technical feasibility and financial viability of the
proposal. This loan scheme enables the farmers to
purchase electrical motors for irrigation purposes,
digging and/or deepening of wells, fencing and water
supply network.

12
2. Financing for tractors and Individuals or group of individuals are eligible for loans.
tillers. The SBH extends financial support to purchase tractors
of 35 HP subject to the land holding varying between 4
and 6 acres of perennially irrigated land. Finance will be
available for the purchase of approved tractors and tillers
of NABARD against hypothecation and a collateral
security up to 50% of the cost. The loan will be
disbursed by DD/Bankers cheque in the name of the
supplier subject to a marginal deposit of 15% to 25% of
the cost by the borrowing farmer(3). Repayment of loan
will be of 9 years with half yearly installments. The
tractor and other equipment (tiller) will have to be
covered by comprehensive insurance in borrowers name
with banks hypothecation clause. The branch manager
or field officer will have to inspect the machinery and
equipment at least once in a quarter(4). A scoring model
is introduced in 2007 to improve the quality of the
tractor financing. Further borrowers characteristics and
the NPA percentage of the branch are to be considered
by the branch manager.
3. Financing of Agri. Marketing It is a scheme sponsored by the Central Government for
Infrastructure. providing finances to strengthen agricultural marketing
infrastructure like transport facility, market user
common facility, e-trade facility. Further, functional
infrastructure for collection/assembling, drying,
cleaning, grading, standardization, SPS (Sanitary and
phyto-sanitary), packing, labeling, ripening chambers,
and other value addition process will be financed under
this scheme. Individual and group of farmers, different
organizations like firms, companies, NGOs, SHOs,
cooperatives, marketing bodies, local bodies and
Marketing Federations are eligible to avail this loan. The
borrowers are eligible for 25% as subsidy from the
Central Govt. and they are to contribute 25% as margin
money.
4. Minor Irrigation - Digging of Minor irrigation projects undertaken by the farmers like
wells. digging of wells, and deepening of wells are also
financed by the SBH. The location and depth of the
proposed wells should be decided by the farmers and
approved by the bank supervisor/branch manager before
extending the financial support. The borrower should be
a borrower of crop loans. The sanctioned amount will
be credited to the S/B account of the borrower for which
the Land Registration Book should be deposited with the

13

5. Gramin Bhandar Yojana
6. Financing private cold The purpose of this loan is lending to warehouse owners
storages/Private warehouses for on lending to farmers as and when need arise. At
for on lending to farmers.
SBH.
It is capital investment subsidy scheme for construction
and renovation of godowns. Individuals, farmers, group
of farmers, firms, sole traders, SHOs, NGOs,
cooperatives, companies, are eligible to obtain this
facility. The godowns should be located in areas
outside the Municipal Corporation. Assistance is limited
to capital cost of construction including allied facilities
like compound wall, internal road, platform, internal
drainage, weighting, grading, packing and quality
certification. The subsidy on the cost of construction
depends upon the tonnage (storage) capacity. If it is
1000 tonnes capacity subsidy is Rs.2,500 per tonne of
storage capacity and if it is more than 1000 tonnes
capacity subsidy is restricted to Rs.1,875 per tonne of
storage capacity. Even these scales are also restricted to
a total subsidy ranging between Rs.28.12 lacs. And
Rs.62.50 lacs depending upon various categories of
farmers. Equitable mortgage of site/godown worth
200% of the loan is insisted by the SBH. Repayment
period of 9 years including the grace period of 2 years
depending upon the cash flow of the project. Insurance
of the property including the stocks stored is to be
obtained in the name of both the borrower and
banker(5).
times the market conditions may not be favorable to the
farmers to sell his produce in the open market in spite of
urgent need for funds. He may avoid selling at the
distress price due to which he wants to store the
produce with private warehouse owners against which
he may borrow a reasonable advance. This is also a
business model of Commission Agents (Adthiars). SBH
has a scheme of advancing loans to the warehouse
owners for onlending to farmers against agricultural
commodities. The loan to the owners of warehouses will
be limited to 60% of the value of their operating capacity
or 60% of the average value of the produce stored during
the past 12 months whichever is lower . However there
is a ceiling on loan amount to the owners by bank
ranging between Rs.25 lacs and Rs.1.00 crore. One of
the important conditions of loan is that the warehouse
owner must utilize the borrowed amount to lend to
14
 farmers only. Normally this loan is disbursed by opening
a cash credit account. This account should be brought to
credit balance by the end of November each year. The
structure as well as the commodities is to be fully
insured.

Source: (1) SBH, Agricultural Banking Department; Agricultural Loan Products and
Schemes, Head Office, Hyderabad, April 2011.
(2) http://agri.ap.nic.in

With regard to the above tabulated narration it is necessary to note that the (a) analysis

is brief and in that process a few operating details may be missing, (b) the above schemes are

implemented by the SBH branches depending upon the regional relevance and demand and (c)

cash credit account is considered as a long term scheme which to farmer is rarely found in

farming sector. Hence, thus type of loan is --------is recent times by opening Kisan Card -----.

Process of Sanctioning and Disbursement of Loans to Farmers by the SBH: After having

discussed various loan products and their details it is necessary to know the rules and

regulations that govern the sanctions and disbursements of loans. They can be interpreted as

the guidelines to the branch manager for processing and disposal of the loan applications. As

such these procedures are followed by all the branch managers for the effective management of

agricultural credit in their well defined area of operation.

The bank-wise targets of agricultural loaning of the district are determined by the District Level

Technical Committee (DLTC) for each Bank which in turn distributed the quotas for their branches based

on the business potentials. Hence, the branch managers have to draw the prospective borrowers from

15
the command area (villages allotted to the branch). The following is the sequence of steps to be taken by

the branch manager for effective management of farm credit by the SBH. Flow Chart: 4.1 explain the

procedure of sanction and disbursement of farm loans.

Flow Chart 4.1

Flow Chart For Process of Agriculture Loans by SBH

Identification of borrower
either by banker
correspondent/ oral
publicity Must hold a deposit Open a saving Bank
account No Account with Kisan
(1)
Credit Card

(2)
Yes
Application filled and issued
Inspection of Land
Acknowledgement
holding by Bank
Manager/ Field (3)
Supervisor

(4)

Processing of Application

(5)

Up to 1 lakh 2 lakhs 3 lakhs

Sanction loan and Surrendering the title book for (crop

credit into saving loans)/ Mortgage the Title Book and
bank account Patta Pass Book to the Bank

(7) (6)
16
Note: Dash lines represent the last but one step in the process of Mgl of force credit.

1. The SBH branch manager identifies the needy with the help of the field staff or the

Sarpanch of the earmarked village (6) or from the business Correspondent

appointed by the SBH in that village. At times the branch managers send signals

through the branch/bank customers about the availability of farm loans. (Step: 1) .

2. The branch manager personally visits the village and enquires about the financial

and social status of the identified farmer and meets them to know about there

requirements, proposed crop plan, infrastructure requirements and landholdings. All

these details are required to the branch manager as a part of management process

of agriculture lending. If he is not a customer, the farmer has to be made to open a

deposit account with Kisan Credit Card. If he is already a customer of the bank, the

branch manager will not go for all the above as his office will have Know Your

Customer (KYC) details. (Step: 2).

3. The farmer, if he needs the financial accommodation will make an application in a

prescribed form which is for both ST and LT loans (Proforma of the Loan Application

where is this ------:4.2 form is placed as Annexure Form: 4.2. If the farmer is unable

to fill the form, the bank staff will assist. All the documentary evidence like Land Title

Book, Pahani and a copy of the Kisan Credit Card have to be enclosed with the Loan

Application Form. (Step: 3) in case of crop loans. To borrow investment loan (LT) the

farmer has to enclose Patta Pass Book in addition to the above documents. The

17
 branch manager gives acknowledgement against the receipt of the Loan Application

to the applicant. (A proforma of Loan Application Form is placed as Annexure Form:

4. 3). Soon after receiving the loan application a running serial number has to be

affixed on the application form and the same serial number is shown on the

Acknowledgement.

Annexure: 4.3

Acknowledgement of Loan Applications

State Bank of Hyderabad

---------------------------------- Branch

S.NO:

Name & Address of Borrower:

Purpose of Loan:

Amount of loan requested

Date of receipt of application:

Probable date of Sanction:

We here by acknowledge receipt of application from

Shir_____________________________ S/o of _______________________________, Village
______________________________ which will be considered on merits, subject to complying
with the requirements of the bank and production of satisfactory proof evidence for availment
of the loan applied for.

Place:

18
 Date:
Branch Manager

4. The field staff/branch manager personally visits the farmer and verifies the land

holdings and the title of the land by referring to land records with the Village

Officers. (Step: 4)

5. From the application form it can be understood that it is a joint loan application as well as

individual loan application. The branch manager will also record the annual income of the

borrower(s). A close reading of the financial details explains the financial position of the

applicant including the contingent liabilities (guarantee amounts if any). A brief idea about

the security offered and their details are also to be mentioned by the farmer. Thus the Loan

Application Form is a comprehensive document containing the purpose, security, land

holdings and an estimate of the assets and liabilities which is important for the management

of credit by the commercial bank. On the basis of all these documentary details and field

visit the branch manager will process the application and sanction the loan either by himself

or by sending it to higher authorities as per powers delegated to him/them (Annexure Table:

4. 4). (Step: 5)

Annexure: 4.4
38(B) DELEGATION OF FINANCIAL POWERS
AGRICULTURAL ADVANCES
(Rs. In lacs)

Sl no Nature of JMGS-I MMGS-II MMGS-III SMGS-IV

Advance (At Brs)
1 Cash Credit (Crop 1.00 2.00 3.00 10.00
Loan & Working
Capital for allied
agri. Activatives)
2 Agricultural 1.00 1.50 2.00 5.00

19
 Jewellery Loans
3 Term Loans 3.00 5.00 10.00 20.00
Aggregate per borrower Total of 1 to 3 not to exceed 30.00

Cir. No OPC/2002-03/4 Dt.27.12.2002 & OPD/2007 -08-/7 Dt. 21.02.2008

Note: JMGS, MMGS, SMGS

6. The loan application form and the enclosures received by the bank branch office is

preserved for future reference, which is a measure helping in the management of

farm credit by the commercial banks. (Step: 6)

7. The sanctioned amount is credited to their KCC account enabling the borrower to

withdraw the amount as and when required. (Step: 7)

SBH Kisan Credit Card (KCC): The earlier practice was that of crediting the deposit

account with the sanctioned amount and enabling the farmer to draw the required amount by

cheques. But this system is not motivating the farmer to deposit the sale proceeds as and when

it come. However KCC aims at adequate and timely support to the farmers for their short

term crop production needs. Further it enables the farmer to credit the account with the cash

as and when felt unwanted. Thus it is in the nature of revolving cash credit account. The cash

credit limit is determined on the basis of Crop Loan requirements and by considering the

seasonal requirements. A proforma of the calculation sheet is placed as Annexure :4.5. The

branch manager has a discrimination power of adding 10% to the estimated cost to help to

meet the contingent needs.

20
 Annexure: 4.5
Calculation sheet for KCC Limit

1. Crop Loan (Production Credit Limit):

Sl.no Crops grown No. Of acres Irrigated/ Scale of Total loan
rained finance amount

KHARIF

RABI

SUMMER

Sub Total (C)

21
 Grand Total

II. Peak Level Limit (enter cumulative requirement of each season)

Sl. Crop Jan Feb Mar April May June July Aug Sept Oct Nov Dec
No

Kharif

Rabi

Summer

1 Total crop
loan

2 Working
Capital
requirement
of allied
activities

*** Total
production
limit

3 Ancillary
credit
requirements

4` Contingent
needs (10%
of ***)

Grand Total

1+2+3+4

KCC LIMIT (PEAK LIMIT UNDER ANY ONE OF THE MONTH TABLE II)

Branch:

Date:

22
 Field Officer

Andhra Bank is the other sample bank which was originally a private bank nationalized

in the second tranche of banks take-over in April , 1980. The Government of India holds

61.2643% , Telangana State has 2.69095% and Andhra Pradesh 3.2573% of total shares of AB

(Annexure Table: 4.6 ). The significant developments in the history of AB are briefly presented

in Annexure Table: 4.7 the AB has 2803 branch offices working all over the country (7) out of

which 576 (20.55%) are operating in Telangana State(8) at the end of March 2016 the AB has

______ and ________branches in Nizamabad and Adilabad districts respectively(9).

Annexure. 4.7

Historical Evolution of Andhra Banks

1980 The Bank came into existence on 15th April, consequent to the taking
over of the undertaking of Andhra Bank, Ltd. It is a Government of India
undertaking. The Bank transacts general banking business of all kinds
including foreign exchange.

1983 In March the Bank sponsored its second RRB "Chaitanya Grameena
Bank" in Guntur district.

1987 The Bank sponsored its third RRB under the name "Godavari Grameena
Bank". Thus by the end of 1988-89, the Bank had three RRBs, which
together had 121 branches.

1994 Rs 184.32 crores capital subscribed by Government.

2001 Andhra Bank has tied up with a real estate portal, indiaproperties.com,
to provide housing loans through the Internet.

2002 Andhra Bank has posted a growth of 38% growth in its net profit for the

23
 third quarter of Rs.46.78cr as against Rs.33.76cr for same period in
previous year.

2003 Andhra Bank has slashed rate of interest on both domestic term
deposits and NRE term deposits.

2004 Andhra Bank has informed that the Government of India, Ministry of
Finance, Department of Economic Affairs (Banking Division), New Delhi
vide Gazette Notification dated January 12, 2004 has nominated Smt.
Deepali Pant Joshi, Chief General Manager, Reserve Bank of India,
Hyderabad on the Board of the Bank in place of Smt. Devaki
Muthukrishnan, Regional Director, Reserve Bank of India, Bangalore.

2005 Launches composite credit card for farmers and two insurance
schemes for self-help groups (SHGs) and senior citizens.

2006 Andhra Bank sets up new branch at Kalina

2007 Andhra Bank rolls out Bima Utsav.

2008 Andhra Bank has appointed Shri. Rajib Sekhar Sahoo, as part-time non-
official Director on the Board of Andhra Bank for a period of three years
with effect from the date of his appointment i.e., July 14, 2008, until
further orders.

2009 Andhra Bank has been awarded the 'Indira Gandhi Rajbhasha Puraskar
2008' for the execution of official language policy in the bank.

2010 Andhra Bank has appointed Mr. A. A. Taj, General Manager, Union Bank
of India, as a whole time Director (designated as the Executive Director)
of Andhra Bank.

2011 Issue and allotment of equity shares to Government of India on

preferential basis.

2012 Andhra Bank cuts Base Rate by 25 bps to 10.5%

24
2013 Andhra Bank signs up with McKinsey to counsel biz transformation.

2014 Andhra Bank has recommended an Interim Dividend of Rs. 1.10 ps per
share (@ 11%).

2015 Andhra Bank tops priority lending in AP: SLBC

2016 Andhra Bank ties up with Cigna TTK, Reliance General Insurance.

Basically the AB is a bank focusing on the promotion of commercial business and over a

time it started involving itself in agricultural credit as per the policy of the Government of India.

The Social Banking policy of the RBI is practiced by the AB scrupulously consequent to which

agriculture lending assumed a significant place in the business strategies. It was founded in

November 1923 with a paid up capital of Rs.1.00 lac and over a period it offered various

banking products. As at the end of April, 2017 it has a variety of banking products like

consumer banking, credit cards, Corporate banking, finance and insurance, private banking,

wealth management and Agricultural loans(8). Apart from regular banking solutions it has

introduced some unique products such as AB Premium Current Account and Privilege Corporate

Saving Bank Account with extra benefits to the customers. Further, the AB offers various special

insurance and health benefits schemes including the Kiddy Bank Scheme and the Swashya Bima

Yojana. The aggregate deposits mobilized as at the end of March 2016 is Rs 174302 crs out of

which Rs. 7541 (4.33%) are current deposits , Rs.37924 ( 21,76%) are savings and Rs. 128828

crs. (73.91%) are term deposits indicating the huge availability of funds for lending to

commercial and agricultural sectors. The mobilized funds are invested for lending to

25
commercial sector and agricultural activities. Over a period of 36 years (in the post

nationalization period) the net advances of AB registered an average growth of 1020 % per

annum(Annexure:4.8 ). The aggregate advances of all types increased from Rs. 356 crs. in

1979-80 to Rs. 130788 crs. in 2015-16 (10). The advances given by the AB are broadly of the two

categories viz., commercial loans and farm credit. As at the end of March 2016 there are 18656

employees of different cadres working in all the offices of AB. The progress of the bank in terms

of number of branches, staff strength, net profit, total deposits, advances can be ganged from

the data presented in Annexure Table: 4. 8.

Annexure: 4.8
Progress of Andhra Bank Post Nationalization Period

Year / 1969* 1980** March- Mar-12 Mar - 13 Mar 14 Mar 15 Mar -16 Total
Parameters 11 Avera

No of Branches 155 627 1632 1712 1867 2114 2507 447

(-) (404.52 (260.29) (104.90) (109.05) (113.23) (118.59) (111.81)

No of Business 155 754 2676 2821 3125 4009 4782 6477

Delivery Channels
(-) (483.45) (354.91) (105.42) (110.78) (128.29) (119.28) 135.45)

Staff Strength no 2163 7585 14098 15099 16523 18725 18525 246

(-) (350.67) (185.87) (107.10) (109.43) (113.33) (98.93) (1.33)

Net Profit 0.06 1 1267 1645 1289 436 638 540

Rs in Crs (-) (1666.67) (126700) (129.83) (78.36) (33.82) (146.33) (84.64)

Total Deposits 52 666 92156 105851 123796 141845 155012 174302

Rs in Crs (-) (1280.77) (13837.2 (114.86) (116.95) (114.58) (109.28) (112.44)

4)

Net Advances # 35 356 71435 83642 98373 107644 125955 130788

Rs in Crs (-) (1017.14) (20066.0 (117.09) (117.61) (109.42 (117.01) (103.84)

1)

26
Investments $ 16 170 24210 29656 37795 45639 46719 54152

(-) (1062.50) (14241.1 (122.49) (127.44) (120.75) (102.37) (115.91)

8)

Capital 0.5 1 560 560 560 590 603 681

(-) (200.00) (56000.0 (100.00) (100.00) (105.36) (102.20) (112.94)

0)

Reserves & 0.4 4.9 5933 6920 7882 8148 9461 10313
Surplus
(-) (1225.00) (121081. (116.64) (113.90) (103.37) (116.11) (109.01)
63)

Working Funds 58 708 108901 124964 146299 167341 1)85170 199962

Rs in Crs (-) (1220.69) (15381.5 (114.75) (117.07) (114.38) (110.65) (107.99)

0)

Priority Sector - 128 18032 27027 35132 41293 45508 54545

Advances
(-) (-) (14087.5 (149.88) (129.99) (117.54) (110.21) (119.86)
Rs in Crs 0)

Source: Andhra Bank Annual Report 2016-2017, P. 277

The agricultural loans are ------ by the AB as per the policies and programs of Government of

India, RBI and NABARD. Since the present study is concerned with the management of farm credit by the

commercial banks, types of agricultural advances are focused. These farm loans are classified as Short

Term Agricultural Credit and Agricultural Term Loans. Annexure: 4.9 gives a broad sub-categorization of

these farm loan products.

Annexure Chart 4.9

Types of Agricultural Credit Products of Andhra Bank

27
 (A)Short Term Agriculture Credit (B)Agriculture Term Credit

1. Pattabhi Agricards 1. Kisan Kalpataru

2. AB Kisan Sampathi 2. AB Kisan Rakshak
3. AB Kisan Chakra
4. Rural Godowns
5. Purchase of Land
6. Dairy Agents
7. Kisan Bandhu

Table: 4. 2 explain the features of each type of farm loans along with the terms and

conditions for the sanction and utilization of the given loans.

Table: 4.2

Characteristics and Terms and Conditions

of the Agricultural Loans by Andhra Bank

Types of Agri.Loans Particulars

(A) Short Term The purpose of this line of credit is to enable the farmers to finance
Agriculture Credit the working capital needs such as wages, fuel bill, and inputs costs.
1. Pattabhi Agricards It is also known as crop production loans. The need for such
loans arise during crop production period such as seeding to
harvesting of the produce. Individual Farmers, Joint borrowers
engaged in cultivation, and tenant farmers are eligible to seek
support. The credit limit sanctioned is valid for a period of five
years. It is a revolving credit limit fixed on the basis of credit
requirement and the scale of finances for Kharif and Rabi seasons.
About 10% is also added to the above credit requirement to meet
post-harvest and household expenses of the farmer. Another 20%
may also be added towards repairs and maintenance of farm assets,
insurance, and PAIS. Medium term requirement of land
development, irrigation, purchase of farm equipment and other
agricultural needs will also estimated and added to the above
credit limit. All this amount will be fixed as Kisan Credit Card
(KCC) Limit. In addition to this accommodation, the farmers will
also be issued Rupay Kisan Card to the KCC holders. All these
facilties viz., KCC and Rupay Kisan Card are valid for the current
season or for the current year. They can be used (a) at branches,
(b) at ATMs, (c) with Business Correspondents and ultra thin
branches, (d) at the POS (point of sales) available input dealers and
(e) at the mandies where POS facility is available. It is to be noted

28
 that the AB does not insist upon margin money since it is inbuilt
while fixing the scale of finance. There is no processing fee for
the loans if the limit is of Rs.3.00 lacs. However, the borrower(s)
have to surrender their Land Holding Pass Book to the lending
branch office.
2. AB Kisan The objective is to provide security and financial stability to the
Sampathi farmers to avoid distress sales when the prices tend to decline in
the market. The crop loan borrowers and the non-loanee farmers
are eligible to avail this facility. The maximum loan limit could be
Rs.5000 lacs or the 60% the average market rate for the last 3
years (as obtained from the Market Committee) or the minimum
support price (MSP) whichever is less. All these calculations will
depend upon the area of crop cultivation by the farmer and yield
there on. Recovery of loan is to be effected with in a maximum
period of 12 months based on the shelf life of the commodity
stores. The AB demand the pledge of the produce stored as
security or the pledge of the warehouse receipt issued by the
approved godown owners or the Central/State Warehouse
Corporation. The Bank will not insist for collateral security if the
loan is up to Rs.2.00 lacs and when it is more than Rs.2.00 the
borrower has to give collateral security worth 75% of the loan
sanctioned with a suitable guarantee of two persons of sufficient
worth. If the produce is stored in PURI it must have insurance
coverage. There is a provision that the Bank can recover/adjust
the outstanding crop loan out of the Kisan Sampathi loan.
(B) Agricultural Term Under this loan scheme the AB provides finances to build capital
Loans assets useful for the development farm activities.
1. Kisan Kalpataru For financing the acquisition of farm machinery, land
development, irrigation, water conservation, horticulture and other
capital equipment. This facility is available only to the customers
of at least 5 years satisfactory standing with the Bank. The
purpose for which this loan is sanctioned should not be a part of
the crop production loan (Pattabhi Agricard). This loan is
repayable within a maximum period of 9 years subject to the
viability of the activity and cash flows there on. Quantum of loan
is based on the investment plan proposed by the farmer in the next
2-3 years subject to the approval of bank as per the guidelines
and not more than Rs.25.00 lakhs. The plan can be a combination
of investment activities relating to agriculture and allied activities.
However, the credit limit is subject to 100% value of the land
mortgaged or the unit cost as determined by the NABARD which
ever is less. The margin money to be deposited is 15% in case of
SF and MF and 25% in case of other farmers. In addition to this,
personal security of a third party is to be provided as per the
guidelines . The borrower has to hypothecate the property created
with the loan amount . Collateral security is not required if the

29
 borrowing is less than Rs.1.50 lacs but in case of loan of more
than Rs.1.50 lacs minimum of 75% of agriculture loan should be
covered by the mortgage of agricultural land or other properties.
The upfront fee varies between Rs.1000 and Rs.3,000 and it is
waived for MF and SF. The bank manager has to inspect the assets
mortgaged at least four times in a year and the inspection fee
varies between Rs.75 and Rs.250 per visit depending upon the
loan raised. All these are exempted in case of MF and SF.
However, the assets have to be insured for full market value. The
composite sanction for all investment proposals will be done
separately for each project.
2. AB Kisan Rakshak It is meant to protect the farmers indebted to the private money
lenders, from the exploitation and harassment. The customers who
by some or other reason fail to quit the existing debt with private
money lenders are helped to clear off the arrears. Even non-
borrowers are also eligible to avail this facility. Such borrowers
are first considered for production loan and a separate credit line is
opened as per the eligibility. This additional credit is limited to
50% of the crop loan (Pattabhi Agri Card) subject to the maximum
amount of Rs.50,000. If the farmer is a non-borrower his eligibility
is first determined based upon the crop plan subject to Rs.25,000
or 50% of estimated crop loan which ever is less. The amount due
to the non-institutional lender will be released directly either by
DD or Cheque or Pay Order against the discharge of the financial
instrument like Promissory Note or a Bond. The discharged bonds
are going to be in the custody of the branch office. The repayment
of loan is of seven years after gestation period of one year. The
crops are hypothecated as security and a collateral security of 75%
of the loan amount is necessary.
3. AB Kisan Chakra The purpose is to make the movement of the farmers fast to know
the trends in agricultural markets and open markets so as to make a
decision. It is a loan to enable the farmer to purchase two wheelers
and four wheelers. Existing borrowers who are owner cultivators
with a minimum of 2 acres of double cropped area or 5 acres of
single cropped area. The borrowing farmer should be below the
age limit of 55 years due to which loans in the name of
son/daughter is not possible. The loan is limited to 75% of the
cost of the vehicle subject to the maximum of Rs.75,000 in case of
two wheeler and Rs.5.00 lacs for the four wheeler. The MF and SF
are required to deposit 15% of the cost and other 25% as margin
money. The vehicle so purchased should be hypothecated with the
bank with a suitable guarantee of third party as security. The
property should be fully insured with banks clause. The period of
repayment is 5 years in monthly or bi-monthly or half yearly or
yearly installments as per the option of the borrower.
4. AB Rural Godowns It is for either construction of a new godown or for the purchase of

30
 Kisan Samraksha an existing warehouse or for undertaking repairs to the existing
godown. The location of the godown should be in a rural area as
defined by the NABARD. The selected place for the construction
of godown should satisfy two conditions. First, there must be
sufficient production creating a need to store the produce. Second,
it should be constructed on well-drained site free from seepage.
The borrower should deposit a margin money of 25% of the
estimated cost of construction. The repayment schedule may be
between 12 to 15 years including a grace period of 12 months.
The repayment be in monthly or quarterly or half yearly or yearly.
Security for the loan is the mortgage of the site and the godown
constructed and a collateral security to the extent of 75% of the
loan amount. The godown and the stock there in are to be fully
insured against all possible risks.
5. Finance for the It is primarily meant to help the SF and MF and also share
purchased of land croppers and tenant farmers to become viable or to reclaim fallow
for agricultural lands and waste land for cultivation. To become eligible for this
purpose. loan, one should have maximum of non-irrigated land of 5 acres
or irrigated land of 2.5 acre. This condition is to indicate that the
borrower is a genuine farmer. The maximum loan that can be
advanced under this scheme is Rs.10.00 lacs. The borrower should
deposit a margin money of 20% of the project cost. The repayment
can be 7-15 years including a moratorium period of 2 years. The
AB insists mortgage of the purchased land and the owned land as
security and if the loan amount is above Rs.50,000 third party
guarantee is necessary. Along with the application form the
borrower should enclose (a) land holding proof of the owned lands
and also the land proposed to be bought, (b) no dues certificate
from the credit cooperative society/commodity board/financial
institutions and (c) a sale offer letter from the vendor of the land.
6. Dairy Agents It is an indirect loan provided to help agriculturists to increase (i)
milk production (ii) employment opportunities in rural areas and
(iii) the incomes of the farmers. The other important conditions are
that the borrower should not be a defaulter to any other bank and
he should be associated with the company for a minimum period
of two years. The borrower must be able to produce collateral
security to the Andhra Bank. The loan could be of Rs.1.00 lac per
every 100 liters of milk procured subject to the maximum of
Rs.3.00 lacs. This scheme is not specific to the dairy operators of
a region/state/district. Hence, it is available to the dairy farmers
through out India.
7. AB Kisan Bandhu Farm mechanization is recognized as a means of improving
productivity of land. This loan is expected to help farmers to
purchase tractor and three other related implements. This set of
farm machinery is considered as a unit for the purpose of
financing. The loan is to meet the entire cost of the entire unit of

31
 machinery. The eligibility for borrowing is that he must have 3
acres of double cropped land or 6 acres of single cropped land.
The repayment period is 9 years linked to the harvesting time. The
borrower has to deposit 15% of the unit cost as margin money.

Source: http:// abloanproducts.in.co

The above Table gives outline of the loan products offered by the AB to agriculturists

from which it can be observed that loan amount sanctioned is credited deposit account of the

borrower and the drawls are facilitated by the Pattabhi Agricard. The AB has designed such

loan products which will bail out the farmers from distress sales. Indirectly, it is an

accommodation to finance the consumption and contingencies of the farmers. Thus it can be

called as consumption loans. Almost all agricultural term loans are long term loans of above

five years. It can also be noted that the AB is a bit generous with regard to insurance coverage

because of the nature of loan product (e.g., purchase of agriculture land) and its purpose.

Process of Sanctioning and Disbursement of Loans to Farmers by the AB: It is the duty

of the branch manager to achieve the targets of mobilization of deposits, loaning and recovery of

outstanding advances. The quota of advancing loans by the bank is fixed by the District

Technical Committee (Lead Bank) and in its turn it will set the targets for each branch in the

district depending upon the potentials of the area. Depending upon the potentials of the business

in the service area of the branch the staff strength is determined by the Management of the AB.

However, every branch is posted with a Rural Development Officer (RDO) who is responsible

for estimating the business potentials of business of the service area. In pursuit of achieving the

agriculture loan target, the branch manager has to find out the needy for the farm loans. For this

purpose, the branch manager and the RDO will mobilize the customers by conducting an

informal survey. They also collect the socio-economic data maintained by the Village Officers

like Sarpanch, and panchayath officers and plan for the all-round development of the village.

32
The Andhra Bank branches can, lend agriculture loans to any farmers even if he is not the

resident of the service area of the branch. The following are the steps involved in the process of

sanctioning and disbursing agriculture loans which is shown in Flow Chart: 4. 2.

Flow Chart: 4.2

FLOW CHART of the Processing of Loan Applications-ANDHRA BANK

Identification of borrower
either by Business
Correspondent / oral Hold a deposit account Open a saving Bank
publicity/Posters/ and Account with Pattabhi
No
work of mouth (2) Kisan Credit Card
(1)
Yes
Filling of Application
Inspection of Land
holding in MABHOOMI (3)
Site by Bank Field
Supervisor

(4)

Processing of Application

(5)

Up to 1 lakh 2 lakhs 3 lakhs

Surrendering the title book for (crop

Sanction loan and
loans)/ Mortgage the Title Book and
credit into Pattabhi
Patta Pass Book to the Bank 33
Agri card a/c
(7)
(6)
 Credit
Note: Dashed lines into the Deposit
represents the last Kisan Credit
but one Card
in the process of Mgt. of Farms Credit.
(8) of RDO initiate the identification of the needy by
1. The branch manager with the help

sending signals through business correspondents (if any), sarpanches, panchayath

officer, and also by pasting wall posters. The financial status, landholdings, and their

past records are scrutinized by the branch manager.(Step: 1).

2. The branch manager will verify the relationship of the farmer with the branch office

in terms of deposits held by him, and frequency of transactions. If he is not a deposit

holder already, the branch manager will have to get him enrolled as a customer by

opening a deposit account. (Step: 2).

3. Loan application in the prescribed form has to be obtained by the branch manager. It

has to be filled in with the personal profiles of the applicants including their social

category, land holding, annual income and their sources, details of the assets and

liabilities. (Step: 3). A blank proforma of the loan application is placed as Annexure:

4. H from which it can be noted that the branch manager has to give a number to each

application and it is informed to the applicant as a reference.

34
4 Physical verification of the details of land holdings, assets and liabilities of the

applicant(s) are carried out by the branch manager with the help of the RDO. The

records relating to landholdings can be inspected referring to MABHOOMI site

maintained by the State Government (Step: 4).

5 Both the branch manager and the RDO will conduct an Interview-Cum-Assessment

of the crop loan and term loan requirements by filling a well structured format. A

photo copy of the Assessment form is presented as Annexure: 4. I from which it can

be seen that many comprehensive details are collected and the loan requirements are

estimated and repayment dates are determined. The observations and

recommendations of the Appraiser and the branch managers are recorded in the

above referred Assessment form. Confirming the above details of moveable and

immoveable properties a declaration is given by the applicant(s) in a prescribed form.

(Annexure: 4. J). All this process of loan application is carried out by the branch

manager and the RDO. (Step: 5).

6 After processing of the loan application the quantum of loan applied by

the applicant requires formal sanction by the branch manager if it falls with the

authority delegated to him. If it goes beyond the authority delegated to the branch

manager, sanction has to be obtained from the appropriate authority superior to the

branch manager. In the Flow Chart: 4.2 it is indicated that the sanction will be

accorded by an appropriate authority. A sanction letter in the prescribed format will be

issued to the applicant (Annexure: 4.K) in which the terms and conditions, limit

sanctioned and the due date are mentioned. (Step: 6).

35
 7 Soon after the sanctioning of loan and issue of sanction letter, the

applicant has to deposit the Land Title book (Landholding Pass Book) in case of crop

loan and for term loans the borrower has to surrender the Title Book and also the

Patta Pass Book to the branch office. (Step: 7)

8 After receiving all the documents such as the Promissory Note in a

prescribed form and the Composite Agreement (for Agriculture), the sanctioned

amount will be credited to Pattabhi Agri-card account in the books of the bank branch

concerned (Step: 8).

At this juncture it is necessary to note a few important covenants incorporated in the

Composite Agreement (for Agriculture) that the standing crop and the harvested stock are

hypothecated in favor of the Bank and it also says about the default and the due dates of the loan

(A copy of the Composite Agreement Agriculture is given at the end of the Chapter as

Annexure: 4. L). A word about Pattabhi Agri-card is not impertinent since it works as deposit

account which will also offer facilities like Cash Credit account and as a debit cardd. All the

financial transactions between the bank and the borrower are routed through this account. All

these facilities are offered to the borrower after receiving an application form in the prescribed

format. The former declares in the form that he will abide by the terms and conditions

mentioned in the application such as credit limit, drawls, deposits, caesuras, cancellations, and

insurance. A copy of the Application form for opening the Pattabhi Agri-card is placed as

Annexure: 4. M.

36
 An analysis of all the documents help to conclude that loan products offered are farmer

friendly and aim to meet the financial needs of farming activities and at the same time the

farmer is made to know the rules and regulations governing the accommodation.

SECTION: B
Organization and Management of Farm Credit
by SBH and AB

This Section is devoted to evaluate the performance of both the select banks (SBH and

AB) in the select locations (NZMBD and ADBD) by considering the time series data relating to

branch net work, the deposits, scales of finance, loans disbursed and the recovery of loans. To

ascertain the impact of the financial assistance on the crop production and the agriculture

economy of the two select districts relevant data will be analysed in this section. Of course, all

the impact analysis are attempted with an eye on the role of other banks cannot be ignored.

One of the limitations of this analysis is that in respect some criteria the data are inadequate

and not uniform for comparison. In what follows trends in branch network, deposits, scale of

finance and aggregate advances extended by both the banks are analyzed.

Branch Network:

Establishment of lavenches is s strategy to reach people as effectively as possible. It is a general

observation by the Government and the RBI that the people in the country are scantly covered

as the number of banks servicing the villagers is limited. Realizing this situation in the country,

37
the RBI allowed the system of Business Correspondents to spread by the banks as much as

possible(12). Yet the problem of inadequate banking is not solved. Hence expansion of branch

network is only a popular alternative approach. Hence almost all banks are expanding their

branch network. It is observed earlier in Chapter: II that the aggregate number of branches is

increasing in general and in rural areas in particular. In addition to the above argument, this

approach has two more objectives. First, branch expansion is expected to achieve financial

inclusiveness. Second, increased branch network helps the branch managers to identify the

potentials of agricultural investment in rural areas. They can also observe closely the

customers and their volume of business and their credit standing in the market. As such, higher

the number of branches greater would be the personal attention that the manager can bestow.

All these analysis are subject to the fact that there are a large number of banks operating

through their branch network due to which the potential business is shared among all the

branches. It is also possible to all the branch managers to share the information about the

financial standing of the customers.

Table: 4.3

Trends in Branch Net work of State Bank of Hyderabad & Andhra Bank in NZBD and AB

(Figures in Nos.)

Year No of Bank of Branches Growth in ----- Coverage of Population

State Bank Andhra State Bank Andhra State Bank Andhra
of Bank of Bank of Bank
Hyderabad Hyderabad Hyderabad
(A) Nizamabad
2013-2014
2014-2015 68 33 --- ---
2015-2016 68 34 00 1 34500 69000
NA NA NA NA NA NA
(B) Adilabad
2013-2014 49 19 --- --- 50775 130947

38
 2014-2015 NA NA NA NA NA NA
2015-2016 55 30 06 11 45914 84127
2016-2017 56 30 01 00 48950 91374
Source: Lead Bank Annual Credit Plans of Nizamabad and Adilabad

Table: 4.3 presents the data relating to the branch net work of SBH and AB in NZBD and

ADBD for four years (2013-2017). The average population covered by each branch is also shown

so as to highlight the probable business effectiveness of the branch. The average population is

computed by dividing the estimated population by the number of branches. At this stage it is

necessary to note that population means all the people irrespective of their age, profession and

vocation. The data in the above Table also helps to examine the comparative situation between

the banks and also in the two select locations. In both the districts SBH has more number of

branches consequent to which the average population served by each branch is lesser than the

AB. However, year wise analysis by number of branches is more in case of AB than the SBH. All

these analysis lead to conclude that the AB is trying to catch up with the SBH in both the

districts with regard to branch offices.

Deposits: are the major sources of liquid assets to banks. It is built up by exploiting the

saving nature of the people. The deposits so pooled are used by the banks to lend to the needy.

Bank improve their deposits by offering relatively a better rate of interest and also earn some

surplus by lending at a competitive rate of interest. Banks offer different deposit products to

mobilize the surplus from different people with various perceived purposes. As such deposits

are of three broad categories viz., current, savings and term deposits. It is observed elsewhere

in this Chapter that the term deposits are significant as a percentage to total deposits. In 2016-

17 term deposits are found to be around 70% of total deposits in both the banks. As such the

39
banks have to lend in such a way that their earnings be maximized by maintaining a lucrative

spread (the difference between rate of interest on lending and deposits). In the process of

management of credit , mobilization of deposits is the first step. Of course, the cooperative

banks do not depend much upon the deposits, particularly in the context of agricultural credit.

Table: 4.4
Trends in Deposit Mobilization by SBH and AB in NZBD and ADBD
(Rs in Crs)
Year Deposits % of Growth

State Bank of Andhra Bank State Bank of Andhra Bank

Hyderabad Hyderabad

(A) Nizamabad

2007-2008 1044.68 399.57 --- ---

2008-2009 1319.64 512.17 26.32 28.18

2009-2010 1385.62 514.91 05.00 00.53

2010-2011 1290.38 519.12 06.87 00.82

2011-2012 1417.40 506.49 09.84 -2.43

2012-2013 1895.75 868.08 33.75 71.39

2013-2014 2068.38 1024.65 09.11 18.04

2014-2015 2398.07 1109.44 15.94 08.28

2015-2016 (AS ON 1857.66 1126.01 -22.54 01.49

29.02.2017)

(B) Adilabad

2007-2008 1109.34 489.00 --- ---

2008-2009 1425.67 641.74 28.52 31.24

2009-2010 1595.93 607.68 11.94 -5.31

40
 2010-2011 1593.31 568.19 -0.16 -6.5

2011-2012 1663.35 600.00 4.40 5.60

2012-2013 1783.20 637.00 7.21 6.17

2013-2014 2286.00 906.47 28.20 42.30

2014-2015 2650.05 1075.81 15.93 18.68

2015-2016(up to Dec 2015) 2874.48 1032.02 8.47 -4.07

Source: Annual Credit Plans of Nizamabad and Adilabad Districts

Table: 4.4 present the data relating to the growth of aggregate deposits mobilized by

the SBH and AB in the select districts of Telangana State for the eight full years commencing

from 2007-08 to 2014-15. Of course, the deposits mobilized by both the banks in 2015-16 in

both the districts are not available for full year. However, the deposits mobilized by the SBH and

AB in 2015-16 are relating to 11 months and 9 months respectively. A look at the data reveals

that the deposits of AB are lesser than the deposits of SBH in all the years in both NZBD and

ADBD. In NZBD district the deposits of SBH increased from Rs.1044.68 crs. in 2007-08 to Rs.

2398.07 crs. in 2014-15 registering a rise by two and half times and in ADBD also it increased

by same rate (2.39 times). In other words, the deposits of SBH in both the districts increased at

the same rate. The deposits of AB in NZBD increased from Rs.399.57 crs in 2007-08 to

Rs.1109.44 crs in 2014-14 registering a growth by 2.77 times and in ADBD it increased by 2.11

times. The year-wise analysis of growth of deposits of SBH in NZB is in a positive trend and in

ADBD also it is showing a positive trend except in 2010-11 i.e., growth of deposits dropped by

0.16% over the preceding year. The annual average growth of deposits of SBH in NZBD works

out to 13.35% and 12.00% in ADBD. The AB registered 15.0% of an annual average growth of

deposits in NZBD which is better than the average growth of deposits of SBH. In case of ADBD

41
the annual average growth of deposits of AB is 11.57% which is a little lesser than that of SBH.

All these analysis indicate that the working of SBH in respect of deposits is a little better than

the AB. The reason for such difference is that the SBH is a senior player than the AB. Further,

the SBH recognized its social responsibility earlier than the AB as the latter is a late-comer.

Scale of finance: is defined as the estimated amount that is required by the borrower to

undertake the planned crop production. Scale of finance must be roughly equal to the cost of

production of crops. In the process of management of farm credit by a banker the advances

given to the farmer should be adequate and should not be indiscriminately high. Inadequate

credit to the farmers for crop production will again lead to the age-old problem of borrowing

from private lenders at exorbitant rates of interest. The terms and conditions would also be

probably exploitative and highly discouraging. Consequently agricultural production would

suffer from unhealthy credit dispensation. Excessive credit than what is really required to the

farmers will lead to high indebtedness resulting in discontentment. Further the borrower may

become extravagant and divert the excess amount to unproductive activities. At macro level,

this type of excessive lending may cause inflation. As such adequate, timely and planned

sanctioning of loans and their disbursement are the important components of the management

of farm credit by the lending banker. Indiscriminate and unscientific estimation of the cost of

production should be eschewed. As a matter of fact, there are no guidelines from the NABARD

to fix the scale of finance. For this purpose, the Lead Bank of the district concerned will

convene a District Level Technical Committee (DLTC) meeting with all the Bank Managers under

the Chairmanship of the District Collector. This Committee meets once in a year and estimates

42
the cost of cultivation of various important crops in consultation with the District Agriculture

Officer. The cost thus estimated will become the scale of finance at which the banks have to

provide credit. Almost all the banks including cooperative banks have to follow the scale of

finances for lending purposes. Since the Lead Bank Scheme, this practice is in existence. Over a

period the borrowers faced problems of inadequate finances due to volatile changes of prices of

inputs like fertilizers, pesticides, seeds due to which the District Level Technical Committees

have decided to give a scale-band with minimum and maximum scale for each crop.

43
 Table 4.5
Scale of Finance for Crop Loans in NZBD and ADBD

Sl.No Name of the Crop Scale of Finance Fixed Average Scale of Finance Fixed Average % of
By District Technical By District Technical Growth
Committee for Committee for over 2010-
2010-2011 2016-17 2011
2 Minimum Maximum 5 Minimum Maximum 8 9
3 4 3 4
Nizamabad District Rs Rs Rs Rs Rs Rs Rs
1. Paddy(IRRI) 15000 16000 15500 26000 28000 27000 74.19
2. Maize(IRRI) 10000 11000 10500 18000 20000 19000 80.9
3. Jawar 9000 10000 9500 11000 13000 12000 26.32
4. Chillies(IRRI) 15000 16000 15500 32000 40000 36000 132.26
5. Soya Bean (IRRI) 6000 7000 6500 12000 14000 13000 200.00
6. Turmeric 30000 32000 31000 51000 52000 51500 66.12
7. Sugarcane(Ratoon) 15000 16000 15500 40000 45000 42500 174.19
8. Sugarcane(Eksali) 24000 25000 24500 25000 30000 27500 12.24
9. Cotton (Non-Hybrid) 8000 9000 8500 24000 26000 25000 194.11
10. Cotton (Hybrid) 10000 11000 10500 25000 28000 26500 152.38
11. Ginger 8000 10000 9000 48000 52000 50000 455.55
12. Groundnut 11000 12000 11500 16000 20000 18000 56.52
13. Pulses (Red gram) 6000 7000 6500 12000 13000 12500 92.30
14. Wheat 6000 7000 6500 9000 11000 10000 53.84
15. Bajra 5000 6000 5500 8000 9000 8500 54.54
Adilabad District
1. Paddy(IRRI) 11500 12800 12150 23000 24000 23500 93.41
2. Jawar(UN- IRRI) 4500 5000 4750 11000 12000 11500 142.10
3. Bajara 4500 5000 4750 7000 8000 7500 57.89
4. Maize (UN-IRRI) 7000 8000 7500 15000 16000 15500 106.66
5. Groundnut(UN-IRRI) 6500 7500 7000 16000 17000 16500 135.71
6. Cotton (UN-IRRI) 11000 13000 12000 25000 27000 26000 116.06
7. Cotton (IRRI) 13500 15000 14250 31000 32000 31500 121.06
8. Sunflower(UN-IRRI) 5500 6000 5750 13500 14000 13750 139.13
9. Soyabean (UN-IRRI) 7000 7500 7250 14000 15000 14500 100.00
10. Redgram (UN-IRRI) 4500 5000 4750 12000 12500 12250 157.09
11. Black Gram(UN-IRRI) 4000 4500 4250 10000 11000 10500 147.05
12. Green Gram(UN-IRRI) 4000 4500 4250 10000 11000 10500 147.05

44
13. Castor (UN-IRRI) 3000 3500 3250 10000 11500 10750 230.76
14. Chillies (IRRI) 17500 19000 18250 40000 45000 42500 132.07
15. Turmeric (IRRI) 19000 21000 20000 55000 58000 56500 182.5
Source: Lead Bank Annual Credit Plans of Nizamabad and Adilabad Districts.
Note: IRRI: Irrigated
Un-IRRI: Un Irrigated

The scale of finances decided by the DLTC of NZBD and ADBD for the crops proposed for

2010-11 and in 2016-17 is placed in Table: 4.5 from which it can be understood that the scales

are different for irrigated lands, un-irrigated lands, hybrid and non-hybrid varieties. Average

scale- band is calculated for both years and for each type of the crop. The scale of finances fixed

is different in NZBD from ADBD since the prices are found to be different from one location to

another. Certain crops like Sugar cane and ginger are not popular crops in ADBD and a few are

found to be in un-irrigated conditions in ADBD whereas they are under irrigation conditions in

NZBD. It can also be observed that the average scale of finance increased in 2016-17 in both

the districts when compared with the scales of 2010-11. The percentage of increase of scale

ranges between 456% and 12% in NZBD. The percentage of increase of scales over 2010-11 is

a little lesser in ADBD (Col.9). All these observations reveal that the scale of finances are

scientifically fixed and synchronized with market prices of farm inputs.

As there are no guidelines from the NABARD with regard to fixation of scale of finance,

the DTLC basically depends upon the local conditions for the fixation of scales. An indicative

unit cost for major investment proposals by the farmer is given in NZBD and it is not the practice

45
in ADBD (13) . There are 74 investment proposals for which unit-wise cost are suggested as scale

of finance. All these proposals are broadly based on 11 broad categories viz., (i) Water

Resources, (ii) Land Development, (iii) Farm Mechanization, (iv) Plantation and Horticulture and

Sericulture, (v) Forestry and Wasteland Development, (vi) Dairy Development, (vii) Poultry

Development, (viii) Sheep, Goat and Piggery, (ix) Fisheries, (x) Storage Godowns and Agri

Marketing Infrastructure and (xi) Renewable Sources of Energy and Others. Of course, this type

of unit cost is not advised in ADBD.

Advances by the Select Banks: One of the important functions of banks is lending to the

genuine needy which can be broadly classified as commercial and farming loans. Since the

present study is relating to farm credit an attempt is made to discuss about the typology of agri

credit. As stated earlier, farmers need short term as well as long term loans to finance crop

production and to develop agriculture infrastructure. In its generic form, agriculture is a

vocation which include land cultivation, raising of crops, marketing of the produce and also

dairy , poultry and horticulture. For the purpose of present analysis farming is defined as all

the activities that relate to cultivation of land and its marketing. In the preceding Section,

different loan products have been explained. All of them are relating to crop production, storing

and marketing of the produce. The presence and performance of the two select banks In the

select locations is examined by considering the farm credit extended to the farming community.

At this stage, it is necessary to note that there are a number of other banks financing the

agricultural credit needs of the farmers in the select districts.

46
 Table: 4.6
Trends in Agriculture Advances in Selected Districts by Selected Banks
(Rs.in Crores)
Year Advances % of Growth

State Bank of Andhra Bank State Bank of Andhra Bank

Hyderabad Hyderabad
(Rs
(Rs.) .)

(A) Nizamabad

2007-2008 225.95 176.69 --- ---

2008-2009 196.87 197.00 -12.87 11.49

2009-2010 285.57 136.33 45.06 -30.80

2010-2011 327.32 229.01 14.62 67.98

2011-2012 464.08 322.43 41.78 40.79

2012-2013 492.92 323.91 6.21 0.46

2013-2014 763.76 446.36 54.95 37.80

2014-2015 709.47 463.79 -7.11 3.90

(B) Adilabad

2007-2008 92.01 39.27 --- ---

2008-2009 83.47 36.50 -9.28 -7.05

2009-2010 9.49 4.03 -88.63 -88.96

2010-2011 170.82 50.33 1700.00 1148.88

2011-2012 278.80 75.69 63.21 50.39

2012-2013 275.59 107.08 -1.15 41.47

47
 2013-2014 303.28 156.05 10.05 45.73

2014-2015 458.34 259.52 51.13 66.31

Source: Lead Bank Annual Credit Plans of Nizamabad District & Adilabad District

However, for evaluating the performance of the select two banks, the data relating to

agriculture loans deployed in the two locations are provided in Table: 4.6. In both the districts

the agricultural advances by SBH and AB increased significantly during the period under study.

In NZBD district, advances by SBH increased from Rs.225.95 crs in 2007-08 to Rs.709.47 crs in

2014-15 registering a growth by 3 times and such advances by the AB increased by two and half

times during the same period. The year-wise analysis of the loans disbursed by SBH show a

positive trend except in 2008-09 and in 2014-15 due to the shortage of water and poor

maintenance of canal system. The same trend is evident in case of AB. In almost all years AB

had put in a positive trend except in 2009-10. The annual average growth of advances by SBH is

worked out to 19% and it is 15% in case of the AB in NZBD district. Thus it can be argued that

the AB is yet to pick up when compared with SBH. In Table: 4.6 aggregate advances given by the

banks are examined so as to estimate the trends over a period of eight years. As already

observed the farm credit is obtained by the agriculturists for various uses. Hence, purpose wise

analysis of the aggregate loans will be more meaningful.

48
 Table: 4.7
Purpose wise Analysis of Agriculture Credit by SBH and AB
(Rs. In Crores)
Year Purpose Wise Loans % of Growth

State Bank of Andhra Bank Total State Bank of Andhra Bank

Hyderabad Hyderabad

(a)Nizamabad Crop Term Crop Term SBH AB Crop Term Crop Term
Loan Loan Loan Loan Loan Loan Loan Loan
(Rs.
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) )

2007-2008 183.25 42.70 145.18 31.51 225.95 145.18 --- --- ---

(81.18) (18.90) (82.17) (17.83) (100) (100)

2008-2009 142.06 54.81 168.00 29.00 196.87 168 -22.48 -45.19 68.00 -71.00

(72.16) (27.84) (85.28) (14.72) (100) (100)

2009-2010 172.74 112.83 102.32 34.01 285.57 102.32 21.60 12.83 2.32 -65.99

(60.49) (39.51) (75.05) (24.95) (100) (100)

2010-2011 201.07 126.25 141.46 87.55 327.32 141.46 16.40 26.25 41.46 -12.45

(61.43) (38.57) (61.77) (38.23) (100) (100)

2011-2012 262.46 201.62 194.86 127.57 464.08 194.86 30.53 101.62 94.86 27.57

(56.55) (43.45) (60.43) (39.57) (100) (100)

2012-2013 283.79 209.13 204.89 119.02 492.92 204.89 8.13 109.13 104.89 19.02

(57.57) (42.43) (63.26) (36.74) (100) (100)

49
2013-2014 472.63 291.32 310.86 135.50 763.95 310.86 66.54 191.32 210.86 35.50

(61.87) (38.13) (69.64) (30.36) (100) (100)

2014-2015 519.58 189.89 355.09 108.70 709.47 355.09 9.93 89.89 255.09 8.70

(73.23) (26.77) (76.56) (23.44) (100) (100)

(b) Adilabad

2007-2008 83.89 8.12 33.01 6.26 92.01 39.27 --- --- --- ---

(91.17) (8.83) (84.06) (15.94) (100) (100)

2008-2009 73.76 9.71 31.65 4.85 83.47 36.50 87.92 119.58 95.88 77.48

(88.37) (11.63) (86.71) (13.29) (100) (100)

2009-2010 8.84 0.65 3.72 0.31 9.49 4.03 11.98 6.69 11.75 6.39

(93.15) (6.85) (92.31) (7.69) (100) (100)

2010-2011 111.23 59.59 39.00 11.33 170.82 50.33 1258.26 9167.69 1048.39 3654.8
4
(65.12) (34.88) (77.49) (22.51) (100) (100)

2011-2012 268.00 10.80 65.82 9.87 278.8 75.69 240.94 18.12 168.77 87.11

(96.13) (3.87) (86.96) (13.04) (100) (100)

2012-2013 196.32 79.27 83.37 23.71 275.59 107.08 73.25 733.98 126.66 240.22

(71.24) (28.76) (77.86) (22.14) (100) (100)

2013-2014 264.32 38.96 115.58 40.47 303.28 156.05 134.64 49.15 138.64 170.69

(87.15) (12.85) (74.07) (25.93) (100) (100)

2014-2015 410.73 47.61 194.74 64.78 458.34 259.52 155.39 122.20 168.49 160.07

(89.61) (10.39) (75.04) (24.96) (100) (100)

Source: Lead Bank Annual Credit Plans of Nizamabad District & Adilabad District

Note: Figs in ---------indicates -----------to the total loans.

50
 Table: 4.7 present the purpose-wise details of the aggregate agri-advances over a period

of eight years. A close reading of the purpose-wise details of the loans disbursed explains that

the term loans disbursed by both the banks in both the districts are lesser than the crop

production loans. The percentage of term loans to the total advances by SBH in NZBD in all the

years varied between 19 and 43 and it is 7 and 35 in ADBD. The term loans disbursed by the AB

in NZBD ranged between 15% and 40% of aggregate loans and in ADBD it ranged between 8%

and 26% during the eight years period under study. The reason for such poor percentage of

term loans when compared with the crop loans is that these loans are used for investment

purposes for stabilization and sustainability.

In ADBD the performance of both the banks is similar as in NZBD but with a little rise in

quantitative terms. The advances by SBH increased from Rs.92.02 crs. in 2007-08 to Rs.458.34

crs in 2014-15 registering a growth by five times whereas it is 7 times by the AB over the

period under study. The annual average growth of advances by SBH is 216% and by the AB it is

about 157%. Thus AB is recording a lower performance than the SBH in both NZBD and ADBD.

The SBH is a little faster than the AB as the farmer is a government bank whereas AB is a

converted public sector bank. In both the banks the growth is significant as the initial

deployment of credit is poor and over the years due to the Government focus on the

development of backward areas both of them performed in a competitive manner.

The commercial banks are generally known for financing the working capital needs and

the investment proposals of industrialists, traders, service providers and other extractive

51
ventures. They often ignore the financial requirements of the farmers and horticulturists. They

have no experience of looking at the financial needs of the rural artisans, rural industrialists and

farmers. However, nobody can underestimate them in the socio-economic development of the

country. Hence, the social banking philosophy drew the attention of commercial banks and

other banks towards rural development as an integral strategy of the economy. The RBI at the

instance of Govt. of India has issued guidelines to the commercial banks that at-least 40% of the

aggregate advances should be for rural development on priority bases. Hence, such lendings are

called as Priority Sector advances. Further, it also directed that out of this earmarking, a

minimum of 18% should be spared for agriculture development. Hence, in the context of the

present study it is not irrelevant to examine whether the select banks are complying the

guidelines or not. Comparable data are not available for the district ADBD due to which an

attempt is made to study the performance of the SBH and AB in NZBD district only.

52
 Table 4.8
Share of Agriculture Credit in Total Loans Disbursed in Nizamabad District.
(Rs in Crores)
Year Total Advances Priority Sector % of Priority Agriculture % of Agricultu
Advance Sector Advances Advances Advances in
in Total Priority Sect
Advances Advances
SBH AB SBH AB SBH AB SBH AB SBH A

Nizamabad Rs Rs Rs Rs Rs Rs Rs

2007-2008 644.35 304.03 332.86 275.52 47.18 82.77 225.95 176.69 67.88 64.

2008-2009 816.63 377.95 271.90 204.26 46.28 75.12 196.87 197.00 72.41 96.

2009-2010 936.51 370.70 394.16 251.87 39.58 63.90 285.57 136.33 72.45 54.

2010-2011 1146.12 465.17 445.82 261.29 40.59 58.61 327.32 229.01 73.42 87.

2011-2012 816.63 667.45 549.33 379.34 81.73 69.06 464.08 322.43 84.48 85.

2012-2013 1714.79 874.55 584.07 371.72 34.06 42.50 492.92 323.91 84.39 87.

2013-2014 1748.16 1145.75 880.14 533.98 50.35 46.61 763.76 446.36 86.78 83.

2014-2015 1985.83 1326.13 820.14 533.21 41.30 40.21 709.47 463.79 86.51 86.

2015-2016 2510.82 1348.93 932.25 531.33 37.13 39.39 788.35 429.83 84.56 80.

Source: lend bank Annual Credit Plan of Nizamabad

Table: 4.8 present the total advances (including commercial credit), priority sector

advances and agriculture credit made by SBH and AB in NZBD. A close look at the data reveals

53
that the priority sector lending by both the banks increased significantly, surpassing the limit of

40% of the total advances. Similarly the advances to agriculture sector as a percentage to

priority sector is also significant in both the banks. The agriculture credit dispensed by SBH is

considerable since it registered a share ranging between 68% and 87% during the eight years

period. Similarly, the agriculture credit by AB also registered a share varying between 54% and

96% during the period of eight years. Hence, it can be stated that the commercial banks are

responding favorably to the financing of farm activities.

Credit Deposit Ratio: explains the extent of execution of moral commitment of banks in

the credit deployment vis-a-vis mobilization of deposits with reference to a specific region or

location. As a matter of fact, by government directions the Banks are to work as the instruments

of level playing in terms of investment that promote socio-economic development. They must

mobilize surplus funds from those who have no plans of investment worth mentioning.

Whatever the deposits they mobilize must be utilized to promote productive investment. There

must be a reasonable balance between mobilization and fruitful investment of the funds. Of

course there are a few statutory obligations and business expediencies for the banks to strike an

ideal balance between the pooled up funds and investment plans. Hence, all the funds

mobilized by the banks may not be available for investment. In underdeveloped countries

investment of funds in agriculture will bring about a socio-economic change over a period. Thus

it is a simple comparison of funds mobilized and funds invested. It is calculated by a ratio

between mobilized funds and investment of funds with reference to a place, region, and state at

a particular point of time subject to the preservation of funds to meet the contingent

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challenges(14). The authorities of the District Lead Bank have calculated the Credit Deposit

Ratios in both the District for the financial year ending March 31, every year.

Table. 4. 9
Credit Deposit Ratio of the Select Banks in Select Districts
(%)
Sl.No Year State Bank of Hyderabad Andhra Bank

Credit Deposit Ratio Cash Deposit Ratio

(A) Nizamabad District

1. 2007-2008 61.68 76.09

2. 2008-2009 61.88 73.79

3. 2009-2010 67.59 71.99

4. 2010-2011 88.82 89.61

5. 2011-2012 90.09 131.78

6. 2012-2013 90.45 100.75

7. 2013-2014 84.52 111.82

8. 2014-2015 82.81 119.53

9. 2015-2016 (AS ON 135.16 119.71

29.02.2017)

(B) Adilabad District

1. 2007-2008 58.08 62.17

2. 2008-2009 57.28 58.89

3. 2009-2010 71.82 78.83

4. 2010-2011 83.54 100.09

5. 2011-2012 99.61 100.17

6. 2012-2013 103.84 100.00

7. 2013-2014 106.02 95.11

8. 2014-2015 74.20 78.26

9. 2015-2016 (AS ON 68.30 84.47

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 29.02.2017)

Source: Lead bank Annual Credit Plans of Nizamabad & Adilabad Districts.

Table: 4.9 present the CD ratio data for both the districts relating to both the banks for

a period of eight years. The CD ratios of SBH in NZBD is moderate ranging between 61 (2007-

08) and 90 (2014-15) whereas it varied between 76 (2007-08) and 132 (2011-12) in case of the

AB. In almost all years the CD ratios of the AB are more than the SBH in NZBD district. A similar

trend is very much evident in ADBD viz., the CD ratio of AB is more than the SBH in almost all

the years except in 2012-13 and in 2013-14. However, the CD ratios of the SBH and AB

increased gradually year after year. The CD ratios of AB are better in both the districts than the

CD ratios of the SBH. The reason might be the eagerness of AB to stamp its presence in both

the districts through deploying credit more than the deposits mobilization.

Agriculture Credit and Inflation: It is everybodys experience that inflation eats away the

purchasing power of the currency. Consequently, the cost of management of credit increases

for the bankers and cost of production will rise for the borrowers also. As such the working

capital needs as well as capital investment by the farmers will also increase. As a matter of fact,

the government and the NABARD claim that they are deploying higher amount of farm credit

year after year. In the aforesaid analysis it is observed that the loans given by the banks are

rising genuinely. The rise might happen for two reasons. Firstly, the number of borrowers with

their land under cultivation may go up. Secondly, the financial needs of the farmers increase on

account of rise in the input prices on account of general inflation. One of the principles of farm

credit is that the financial support to the farmers should also be adjusted to suit with the

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fluctuating prices. For the last few decades inflation in the country is increasing without any let

up. The Scale of finances is revisited every year by the DLTC to ensure adequate finances to the

borrowers. The scales are revised in the light of rising input costs. At this stage, a question

arises that whether the aggregate credit dispensed is sufficient or not in view of the inflation.

Hence, an attempt is made to compare the rise in the total volume of credit with the increase in

the Scale of Finance. For this purpose, percentage growth of the aggregate advances and the

percentage increase in the Scale of Finances are compared by taking data for two comparable

years viz., 2010-11 and 2014-15.

Table: 4.10
Growth of Crop Loans and Scale of Finance

Year Crop Loan Advances % Growth of Advances Average Scale of

(1) Finance of all Crops
(Table:4.5)
SBH AB SBH AB
(Rs. In Crores) (Rs. In Crores)
(2) (3) (4) (5) (6)
(a) Nizamabad
2010-2011 201.07 141.46 --- --- --
2014-2015 519.58 355.09 158.40 151.02 78.31
(b) Adilabad
2010-2011 111.23 39.00 --- --- ---
2014-2015 410.73 197.74 269.26 407.02 106.40
Source: Table 4.5 (Col. 2 and 3) and Table 4.7 (Col.5 and 6)

Table: 4.10 give the aggregate credit deployed by SBH (Col.2) and AB (Col. 3) and the

percentage of growth of advances in 2014-15 over 2010-11 (Columns: 4 and 5 relating to SBH

and AB respectively). It can be noted that the percentage growth of aggregate credit deployed

by the SBH in NZBD is 158.40 and 269.26 in ADBD whereas the average rate of growth of Scale

57
of Finance is 78.31% in NZBD and 106.4% in ADBD. These average data are computed by taking

the mean value of rise in the Scale Finance for various crops. Hence, it gives a fair idea of

percentage growth of Scales of all the crops. It is clearly evident that the rate of growth of

aggregate credit in both the cases (SBH and AB) is far higher than the rise in the average rate

growth of Scale of Finance. On the basis of the comparative analysis between the two

variables, it can be stated that the rise in the aggregate credit advanced by the banks is not on

account of hike of the revised Scale of Finances but might be for (a) increased number of

borrowers or for the expansion of land under cultivation and (b) the liberal policy of the banks

in providing credit to the farmers generously.

Summary

References

1. SBH, Annual Report 2013-14, p. 3

2. NABARD, Cir. No.AGR/1998-99/10 dated 26.06.1998.
3. NABARD, Cir. No. AGR/1993-94/48 dated 17-03-1994.
4. SBH, Agricultural Banking Department; Agricultural Loan Products and Schemes;
August 2011, pp.89-90
5. SBH; Cir. No. AGR/2006-07/11 dt.09-06-2006 and the Cir. No.AGR/2004-05/42 dated
19-01-2005 relating to Service Area Approach policy.
6. Andhra Bank, FY 2015-16 Press Release.
7. Andhra Bank, Wikipedia last edited April 29, 2017.
8. Andhra Bank, Annual Report 2015-16, p.277
(-) Ibid., p. 282.
9. Business Correspondent system
10. SBH, Lead Bank , District Annual Credit Plan For the District Development, 2016-17
p. 238

58
11. RBI., Reports of the committee on ----------- path on financial inclusion; ---------2015,
P. XXVI

59