258
Similarly, review of consistent data series produced by NABARD on the
ground-level flow of farm credit, produces some more interesting results. A
sharp increase in the role of commercial banks followed by an equally receding
role of cooperatives, re-emergence of crop loans to a dominant position and
declines in the share of term loans, dominance of commercial banks in both
crop loans and term loans, and increased support to allied activities in the
form of term loans, and persistence of inter-regional disparities even in GLC
flow – are some of the features that stand out in this section.
Supply-Side Vs. Demand-Side Issues
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.
But, there is no doubt 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 hav eto be protected. Therefore, the importance
of demand-side factors for their credit delivery performances cannot be ignored.
For instance, scheduled commercial banks have no doubt drastically reduced
their share of agriculture in total bank credit from 17-18% in the latter half
of the 1980s to about 10-11% in recent years, During the same period, banks
have been faced with drastic structural changes in the economy in that while
the share of agriculture in GDP has fallen and that of industry has stagnated
at around 26-28%, the share of services sector in GDP has jumped from 40%
to 56.5%. When GLC data on crop loans and term credit are related to their
respective current inputs and farm sector private investment, there is the most
enviable result of (a) very close to the full part of the farmers’ input costs are
now being financed by state-term institutional credit, and (b) about 90% of
private capital formation, in some years more than 100%, are similarly being
financed by bank credit. This appears unrealistic. This in turn leads us to
infer that the conventional demand-side factors have their limitations insofar
as ensuring of certain role for bank credit in the process of an inclusive and
egalitarian pattern of development is concerned.
Apart from the dependence of a large populace on agriculture, vast
financial exclusion of the farm community, particularly the lower land-
size groups, and generally a growing size of purchased inputs, what is most
disquieting is the further widening of the inter-regional disparities in GLC flow
when compared with real indicators. For, instance, it is found that the relative
