Strategies to Resurrect Rural Credit Delivery System in India

This paper reviews the rural credit scenario in Maharashtra, with an emphasis on credit flows through cooperatives, commercial banks, regional rural banks (RRBs), and land development banks (LDBs), and also on linkages of bank credit with various self-help-groups (SHGs) operating in the state. The paper also presents a detailed analysis of cooperatives. The paper states that:

• The sustainability, viability and operational efficiency of rural financial institutions (RFIs) are important in ensuring an effective rural credit delivery system,
• However, the rural credit delivery system is plagued by mounting overdues and the non performing assets (NPAs) of RFIs,
• The cooperative banks (CBs) in Maharashtra have shown the highest amount of NPAs,
• This necessitates a re-look at the performance of agricultural financial institutions in Maharashtra.

The paper examines:

• The “Annual Credit Plan” and the performance of the “potential linked credit plan (PLCP)”,
• The SHG-Bank Linkage Program,
• The status of the “Rural Infrastructure Development Fund” (RIDF) in Maharashtra.

The paper concludes that financial sector reforms have created an adverse environment that has caused the poor performance of the rural credit delivery system and recommends the following measures for the revival of the rural credit delivery system:

• Reducing the amount of NPAs,
• Adopting the SHG model,
• Implementing the suggestions of the National Bank for Agriculture and Rural Development (NABARD).