Rural Credit Delivery System in Maharashtra: Some Emerging Issues

This paper reviews the rural credit scenario in Maharashtra, India, and suggests evaluating issues affecting the viability of agricultural financial institutions. The paper states that:

• The sustainability, viability and operational efficiency of rural financial institutions (RFIs) are important in ensuring effective rural credit delivery;
• The mounting overdue and ‘Non Performing Assets (NPAs) plague the efficiency of RFIs.

The paper examines:

• The functioning of various agricultural financial institutions in Maharashtra with an emphasis on credit cooperatives, commercial banks; ‘regional rural banks (RRBs) and ‘land development banks (LDBs);
• The credit delivery in forward and backward regions/districts of Maharashtra;
• The viability of credit institutions in these regions of the state.

The paper finds that:

• Financial sector reforms have created an adverse environment that has retarded growth;
• High transaction costs and poor repayment performance are the root causes of the stagnation of the rural credit delivery system;
• One of the reasons for the high incidence of NPAs of RFIs has been the practice of debt forgiveness and political interference in issues of prudent fiscal management.

The paper concludes by recommending:

• The adoption of innovative approaches like linking of ‘Self-Help Groups (SHGs) and ‘Non-Government Organizations (NGOs) with mainstream financial institutions;
• Stringent measures for recovery of loans from chronic defaulters;
• Fiscal jurisprudence to tackle high transaction costs and poor repayment performance,;
• A focus on strategies that tackle issues of sustainability and viability, operational efficiency, recovery performance, small farmer coverage and balanced sectoral development.