Formal Credit and Small Farmers in India

This chapter analyses the access to and adequacy of formal sources in meeting the credit needs, particularly agricultural credit needs, of small farmers in India with the help of banking data, and data on the borrowing profiles of these households collected through the village surveys of the Project on Agrarian Relations in India (PARI).Three major institutions provide formal credit in the rural areas of India today: commercial banks, regional rural banks (RRBs), and credit cooperatives. Commercial banks and RRBs – primarily sponsored by public sector commercial banks – together control about three-fourths of total agricultural credit.3 Despite being a late entrant into the field of rural credit, the contribution of commercial banks, after nationalisation, to shaping the history of development of rural and agricultural credit in India has been overwhelming. In course of time they have overtaken credit cooperatives, the oldest serving institution of rural credit, except in a few States where cooperatives continue to predominate even today