Let us have a brief discussion on these items:
A. Classification on the Basis of Time
The agricultural advances provided by the commercial banks can be classified on the basis of time or duration as follows:
Short-term advances, usually for 6 to 18 months may be required by the farmers mainly for:
(a) Purchasing manures and fertilizers.
(b) Purchasing seeds including hybrid and high yielding varieties.
(c) Purchasing pesticides, insecticides and fungicides.
(d) Preparing soil for growing of crops or land for irrigation.
(e) Energizing existing wells or storage tanks.
(J) Purchasing farm implements, say, ploughs ploughshares, spades, sickles spraying machines, etc.
(g) Repairing farm machinery, e.g., tractors.
(h) Constructing farm fences to prevent access of stray cattle.
(i) Constructing cattle sheds, etc.
The inputs are normally required for producing particular crops and the advance should, therefore, be normally adjusted from the sale proceeds of the crop after it is harvested.
Similarly, the purchasing of implements and repairs to a well, etc., may not cost much and the loan should ordinarily be repaid after a crop or two are harvested and marketed.
Certain times, the farmers lose value on their crops due to natural calamities like flood, drought, etc. In such cases in consultation with Central Government the RBI permits banks to convert short-term loan into medium-term loans.
(ii) Medium-term Finance:
An advance may be required by a farmer of a period of over 18 months but not exceeding, say 3 to 7 years, for any of the following purposes:
(a) Sinking of wells and for construction of storage
(b) Purchasing of oil – engines, pump sets or other costly mechanical equipment like power-tillers.
(c) Soil conservation by prevention of erosion reclamation of land from rivers or conversion of barren into cultivable land.
(d) Purchasing of livestock, say, bullocks or horses, or of animal drawn carts.
(e) Drainage of land.
(f) Horticulture (gardening).
(g) Construction of farmhouses, cattle-sheds and sheds for processing of agricultural produce.
(h) Purchase of machinery for crushing sugar cane, manufacturing guru or khan sari.
The medium-term loans are usually repayable by installments which are conveniently fixed and related generally to harvesting and sale of the produce. As the benefit of the improvement to land or purchasing the machinery may accrue after sometime, banks in suitable cases consider the request of borrowers to defer payment of the installment.
The security in case of medium-term advances is generally by way of hypothecation of machinery and equipment purchased, or mortgage of landed property and/or third party guarantees.
(iii) Long-term Finance:
Long-term loans are repayable within a period ranging from over 7 years to 15 years. The purpose may be for,
(a) Major improvement to land.
(b) Purchase of expensive and heavy machinery.
(c) Construction of storage tanks, reclamation and preparation of land.
(d) Development of mechanized farming.
(e) New Plantations of tea, coffee, coconut, rubber, etc.
(f) Construction of warehouses and cold storages.
The repayment of the loan begins normally after a couple of years from the date of the advance. In case of drought or other natural calamity, the period of repayment of the loan may be suitably extended. In case the advance is required for purchasing machinery, the machinery should be hypothecated to the bank.
The borrowers additionally execute a legal mortgage (or an equitable mortgage in suitable cases) of the land, and/or furnish suitable guarantees. The long-term loans are repayable by installments of convenient maturity, say, quarterly, half-yearly, or yearly depending on the number of crops grown on the land and the harvesting seasons.
Banks have also started granting advances on medium/long-term basis to agro-industrial firms or corporations to enable them to purchase power tillers, Pump sets, tractors, Lorries for transport of agricultural produce, etc. These concerns may hire out these items of machinery to the agriculturists or extend them hire-purchase facilities for their purchase.
B. Classifications on the Basis of Method of Advances
The commercial banks provide direct and indirect finance.
Direct finance. When a loan is given directly to an agriculturist it is classified as direct agricultural advance.
Indirect finance. When a loan is given to an intermediary agency like farmers service society, Primary Agricultural credits society, etc., for on-lending to agriculturists, such finance is classified as indirect agricultural advance.
Finance to sugar factories, agro-service centres, customer service units, traders in fertilizers / pesticides, manufacturers of agricultural machinery is also classified as Indirect Agricultural Advance.
Advances granted to state seeds corporations, state Tribal Development Corporations, Electricity Boards (for the purpose of energisation of pumpsets) is also indirect advances.
C. Classification on the Basis of Purpose
Agricultural advances are also classified as production finance, Development finance and Equipment finance.
(i) Production finance: Production finance is given for
(a) Purchase of agricultural inputs e.g., fertilizers, seeds, pesticides, insecticides, manure, etc.
(b) Meeting cultivation expenses e.g, charges for water from neighboring wells, labour charges, maintenance of oil engines/electric motors, purchase of feed for animals/ birds, etc.
(c) Processing of seeds and crops, e.g., tea processing.
(ii) Development finance: Development finance is given for
(a) Digging/Deepening of wells
(b) Reclamation and development of land, land leveling, contour bonding, etc.
(c) Construction of farm buildings and structures e.g., pump-shed, Cattle shed, tractor-sheds, farm stores, etc.
(iii) Equipment finance: The equipment finance is given for
(a) Purchasing of tractors
(b) Purchasing of power tillers
(c) Purchasing of other farm equipments.
After nationalization, banks have built up a widespread network of rural banking base covering the whole country. They have fostered a clientele which outnumbers the urban customers. Some of the empirical evidences of their quantitative expansion are presented below:
(i) Since June 1969, as many as 32,895 new rural branches have been opened.
(ii) Rural branches constitute 56% of the total branch network.
(iii) Number of deposit accounts handled by rural branches is 12.13 crore 30% of total deposit accounts.
(iv) Rural branches handle 9.04 crore savings bank accounts 33% of total savings bank accounts.
(v) Rural branches have mobilized Rs. 49,331 crore of deposit which constitutes 15% of total bank deposits.
(vii) Rural branches have lent Rs. 24,670 crore which constitutes 14% of the total bank credit.
(viii) Rural branches are manned by 2.20 lakhs staff accounting for 22% of the total bank staff.