Banking Sector Reforms: Its Impact on Agricultural Finance in India

With the modernization of agriculture in the mid-1960s, the demand for short-term and long-term agricultural credit started rising at a rapid rate as the farmer has to purchase costly inputs like fertilizers, HYV seeds, pesticides, etc. from the market. Capital, together with scientific knowledge, played a very significant role in increasing the productivity of agriculture. This had shifted the government’s attention from co-operative based approach to state-owned banks to create an alternative source of finance to free the farmers from the grip of moneylenders. Several committees/working groups/task forces had been formed to go through the financial aspects of rural financial institutions. The Narasimham Committee brought about various measures in the area of agricultural credit such as deregulation of interest rates, abolition of branch licensing, gradual phasing out of directed credit programmes, closing down of loss- making bank branches and so on. The Committee was of the view that easy and timely access to credit was far more important than its cost. Agriculture finance plays a major role in India.