The Reserve Bank and Agricultural Credit

                         The Reserve Bank and Agricultural Credit

                                                              The Reserve Bank is expected to play a dynamic role in the economic development of the country. Besides the traditional functions it has shouldered additional responsibility of keeping the tempo of development by financing the vital sectors of the economy. The agencies providing agricultural credit were inadequate . The finance provided by them, fell short of right quality,was not of the right type and often failed to reach the right people. In this context the Reserve Bank entered the field of agricultural finance.

                                                            With a view to enable to enable the Bank to fulfill this risk, the Reserve Bank of India Act has itself laid down, in section 54, that the Bank should set up a special Agricultural Credit Department. The Agricultural Credit Department was organized simultaneously with the establishment of the Reserve Bank.

 Functions of  Special Agricultural Credit Department

                                                                 The main functions of the department are;(i) Maintaining expert staff to study all questions relating to agricultural credit and to give necessary advice to the Central Government, State Government, State Co-operative Banks and other banking institutions, (ii) To co-ordinate the operations of the Reserve Bank in connection with agriculture credit and its relation with state Co-operative Banks and other banks engaged in agricultural credit.

                                                                 The department conducted a study of the problems of agricultural credit and submitted two reports to the Government of India. The two reports pointed out that the entire finance required by the agriculturists was met by moneylenders and the share of co-operative and agency was negligible. The Report strongly felt that  the co-operative agency would be the most suitable agency for the supply of agricultural credit.The subsequent committee in 1954, observed that, co-operation has failed but co-operation must succeed. So the Bank has been fostering the growth of co-operation must succeed. So the Bank has been fostering the growth of co-operative movement for this purpose.

                                                          With the formation of NABARD,all the activities of this Department have been transferred to NABARD. However, the Rural Planning and Credit Department  in the Reserve Bank deals with the agricultural related matter. 

                                                                 In pursuance of the recommendation of the Rural Credit Survey Committee, the Reserve Bank of India act was amended in 1955. The amended Act provided for the establishment of two funds,viz., the National Agricultural Credit (Long Term Operations) Fund and the National Agricultural Credit (Stabilisation ) fund. 

                                                                 The National Agricultural Credit (Long-Term Operations) Fund was to be used for;
(i) Making loans and advances for period not exceeding 10 years to state government for subscribing to the share capital of co-operative credit institutions.
(ii) Advancing medium-term loans for period not exceeding 5 years to co-operative credit institutions for agricultural and allied purposes for making loans for periods not exceeding 20 years to central co-operative and land development banks and for the purchase of the debentures of such banks.
       The second fund was to be utilized for converting short-term loans due to the Bank from the State Co-operative Banks into medium-term loans for periods not exceeding five years in circumstances under which recovery of short-term loans become impossible due to natural calamities.
         With the setting up of the NABARD the operations of these funds are transferred to NABARD. However, the RBI continued to contribute liberally to both the funds.