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3
Importance Assigned to the Role of Institutional Finance
for Agricultural Development: Historically and in the
Contemporary Policy Framework
Public authorities in India have always emphasized the importance of
rural institutional finance, both for freeing the peasantry from the clutches
of moneylenders and for providing crop loans as well as investment credit
for agriculture and allied activities. Historically, the steps which laid a firm
foundation for the development of a broad-based rural banking structure in
the country are essentially four:
(i)
the setting up of an Agricultural Credit Department (ACD)
simultaneously with the establishment of the Reserve Bank of
India in 1935 so as to confer a special developmental role for the
RBI in the sphere of agricultural credit;
(ii)
the appointment by the RBI of an all-India rural credit survey
committee (AIRCS) in August 1951, and its reports during 2002-
04;
(iii) with AIRCS recommendations made in August 1954, creating
the State Bank of India (SBI) in 1955 with the specific target of
opening 400 new branches in rural and semi-urban areas and
starting agricultural lending; and
(iv) finally, nationalisation of major commercial banks in July 1969
and April 1980.
Amajor speech delivered by Dr. Duvvuri Subbarao, Governor, RBI, on the
very theme of “Agricultural Credit: Accomplishments and Challenges” (August
2012), has classified the policies that have shaped the flow of agricultural credit
over the past 60 years into 13 broad steps, which have been embodied within
the four land-mark events described above. In each one of them, the objective
had been to expand the role of formal financial institutions in rural credit
by the strengthening of institutions and introduction of new institutions and
instruments. To caricature the steps enumerated by the RBI Governor, first,
though the AIRCS report placed great emphasis on the role of cooperatives,
and as the role of extant private commercial banks in rural credit was minimal,
the creation of the State Bank of India generated a new momentum in involving
the commercial banks in agricultural lending. Second, the 1950s and 1960s
