Rural Credit Delivery System in Maharashtra : A Step Towards Rejuvenation

This paper reviews the rural credit delivery system in the state of Maharashtra in India. It also provides a brief overview on the rural banking sector reforms in general, and on the reform initiatives in cooperative sector, in particular.

The paper studies and presents:

• Rural banking sector reforms;
• Reforms in the cooperative sector;
• Rural credit scenario in Maharashtra, with focus on:
  • Outlays of annual credit plans and potential linked credit plans;
  • Progress of various rural financial institutions (RFIs);
  • Distributional aspect of credit, microfinance or linkage of bank credit with various self-help groups.
• Microcredit innovations in Maharashtra.

Further, the paper observes that:

• The new generation lending institutions, such as Self Help Groups (SHGs), have shown higher rates of recovery and lower transaction costs than other lending institutions;
• Credit cooperatives and commercial banks need to study the mechanism of new generation lending institutions to better structure their loan recovery and interest rate structure;
• RFIs in Maharashtra need to take more stringent and cohesive measures for loan recovery to control high levels of non-performing assets.

The paper concludes that:

• Rural credit delivery system can be rejuvenated by tackling high transaction costs and poor repayment performance;
• More fiscal jurisprudence reserving exemplary punishment for willful defaults, needs to be exercised;
• The focus should be on strategies that are required for tackling issues such as sustainability and viability, operational efficiency, recovery performance, small farmer coverage and balanced sectoral development.