Short notes on Land Development Banks

The long-term finance required by the agriculturists for the purchase of agricultural machinery and for effecting permanent improvements on land cannot be provided by com­mercial banks and co-operative banks for the reason that these institutions obtain most of their funds in the shape of short-term deposits.

The necessity therefore has arisen for the establishment of the institutions with the object of providing long-term credit to agriculturists at moderate rates of interest and providing for the repayment of loans in easy annual or semi­annual installments spread over a number of years. These institutions are the Land Develop­ment Banks.

Land Development Banks have developed a special technique for conducting their busi­ness. They obtain their funds, not in the shape of short-term deposits like commercial banks but by the issue of long dated debentures sometimes carrying State Government guarantee with regard to payment of interest and repayment of principal.

Thus, they are able to lend their money for long periods to agriculturists. On account of their importance to the nation they enjoyed special powers for the recovery of defaulted loans, exemption from taxes and in some cases state guarantee for these bonds.

Land Development Banks differ from one another in their functions and their constitu­tion. Some Land Development Banks specialize in providing fund against agricultural prop­erties; some continue their business to advancing loans against urban properties, some ad­vance loans to public bodies and municipalities.

Some have combined all these different kinds of functions. Land Development Banks also differ from one another in their constitu­tions. Some are organized on co-operative basis, some on joint stock basis and some on quasi co-operative basis, incorporating the co-operative and joint stock principles.

Land Development Banks in India

Land Development Banks in India are of quasi-commercial type. Although they are all registered under the Co-operative Societies Act, they are associations of borrowers as well as non-borrowers organised on the principle of limited liability.

The borrowing capacity of a member is generally determined according to the number of shares he holds in the bank, though each member has only one vote according to co-operative principle, irrespective of the number of shares he holds.

Co-operative Banking in India

Even though the first Land Development Bank was started in Punjab in 1920, the real progress began when the Land Development Bank was established in Chennai in 1929. The Land Development Banks are Co-operative Institutions established ore limited liability prin­ciple with borrowers and non-borrowers as members to supply long-term capital against development of land and building. Capital

The Land Development Banks derive their funds from share capital reserves, deposits and debentures. The debentures, which account for most part of the funds on the bank, may be issued by the banks themselves or by the State Co-operative Banks on their behalf.

They are subscribed for by the public or the Government in some cases, the principal and interest of these debentures are guaranteed by the Government.

In Mumbai and Chennai Central Land Development Banks were established to finance Primary Land Development Banks by centralized debenture issues. These debentures are classified as trustee securities.

Loans and Advances

The loans granted by land development banks are repayable within 20 to 30 years. Normally, loans are granted up to 50% of the value of the land or up to 30 times the revenue. Loans are granted only after a thorough verification of security title-deeds as well as the necessity for the loan.

Defects of Land Development Banks

Land development banking made little progress in India. Many states are without a single Land Development Bank. The following have been noticed in the working of Land Development Banks,

(i) Loans given by them are predominantly for discharging of prior debts and not for purpose connected with land improvements.

(ii) These banks do not have the necessary specialized staff for assessing the technical soundness of scheme and adequate supervising staff for verifying that the schemes are in fact executed. Although State Government possesses such staff, there is co­ordination between them and Land Development Banks.

(iii) These banks do not prescribe different periods for different types of loans.

(iv) They are not able to raise sufficient funds although their debentures are guaranteed by the State Governments.

(v) There is no co-ordination between the activities of State Co-operative Bank and the Land Development Bank.

(vi) Delay in Granting loans.

The Land Development Banks are now called (State Co-operative) Agriculture and Ru­ral Development Banks (ARDBs) since they are providing long-term funds for various agri­culture related projects besides development of land.