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  • Agricultural Credit in India can be classified on two main bases viz. on the basis of specific financial requirement and on the basis of sources of credit.

On the basis of financial requirement, the agricultural credit can be classified into :

  • Short term Credit: It is requested for the purchase of seeds, fertilizers, feeds etc. and is given for a period of not more than 15 months.
  • Medium — term Credit: It is given for a period of 15 months 5 years for the purpose of purchase of agricultural implements, animals etc.
  • Long — term Credit: It is given for a period of more than 5 years for purchase of machinery like tractors, for land — improvements etc.

On the basis of sources, agricultural credit can be classified into two main categories:

  • Institutional sources such as cooperatives, commercial banks and lard development banks.
  • Non-institutional/private sources such as money lenders, traders and commission agents.

In 1951-52 institutional sources accounted for only 7% of total agricultural credit. But by 1981, this contribution had increased to 63% with just 37% coming from non-institutional sources.  AGRICULTURAL CREDIT : Concepts

But these figures also indicate that the non-institutional !enders like moneylenders are still important sources of credit in the agricultural sector,

Due to the dismal performance in meeting credit flow target to the agricultural sector in the first two years of the tenth Five Year Plan (2002-07), the Reserve Bank of India (RBI) constituted on Advisory Committee on Flow a Credit to Agriculture and Related Activities from the Banking System under the Chairmanship of V.S. Vyas.

Some of Vyas Committee’s major recommendations were

  • A review of mandatory lending to agriculture by commercial banks to enlarge direct lending programmes.
  • Direct agricultural lending by public and private sector banks should increase to about 18 percent of net bank credit.
  • Banks to increase their disbursements to small and marginal farmers under Special Agricultural Credit Plant (SACP). AGRICULTURAL CREDIT : Concepts
  • Reducing cost of agricultural credit by enhancing their cost effectiveness, procedural simplification etc.
  • Total institutional credit to agriculture increased by 44 percent from Rs. 86,981 crore in 2003-04 to Rs. 1,25,309 crore in 2004-05. Since then it has more than doubled (103 percent rise) in 2007-08 to Rs. 2,54,657 crore.
  • Thus the target of ‘Farm Credit Package’ announced in June 2004 to double the flow of agricultural credit in three years was achieved well within time.
  • There are three important sources through which the institutional credit flow takes place to the agricultural sector. They are
  • Cooperatives,
  • Scheduled Commercial Banks and
  • Regional Rural Banks.



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