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Complex Demand-Side Issues and the Ground Reality
In our study of the flow of agricultural credit over years, we have
discerned three or four phases. We noticed these phases particularly in the
context of long-period behaviour of scheduled commercial banks after bank
nationalisation in Chapter 4. These phases are: rapid expansion for about
two decades of the 1970s and 1980s; relative slowdown during the 1990s;
and a pick-up after 2002-03 soon followed by galloping credit disbursements
almost until 2006-07; and some pause thereafter. Even when we combined the
scheduled commercial banks’ lendings with those of cooperative banks, the
same picture of four phases has been discernible.
In all evaluations of the performance of the banking system including
that presented in this study so far, the emphasis has been on supply-side
issues of public policies which have contributed to the given expansions or
contractions in bank credit. Broadly, in the phases of expansion, various credit
targets and targets for branch banking associated with bank nationalisation
and social banking, or in the latest phase, the policy of doubling of bank credit
for agriculture, have been emphasized as contributory factors. There were
also earlier intermittent policy interventions such inclusive rural development
programme (IRDP) in 1979-80 or special agricultural credit plans (SACP) in
1995-96. Similarly, for the relative contraction phase of the 1990s, it is said
that the result was seen as a response of the policy planners to reform the
banking system with the help of rigorous prudential norms which constrained
the commercial banks from expanding credit exposures to risky sectors and
individuals. For banks themselves, in the face of accumulated disabilities –
reduced bottom line, large NPAs, and insufficiency of loan loss provisions, poor
capital base, overstaffing and other organisations weaknesses –, the process of
cleaning up and consolidating their operations had become a great challenge
in the 1990s.
A Caricature of Demand-Side Issues
The aforesaid supply-side issues have no doubt been dominant factors
explaining the divergent trends in credit delivery for the agricultural sector
in particular in different phases. But, there cannot be any dispute that the
behaviour of the banking industry cannot be explained by supply-side factors
alone. Within the financial system, the commercial banks are highly risk averse
as they are socially empowered to leverage public deposits which have to be
protected. Therefore, the importance of demand-side factors for their credit
