(introduction...)

1993

INSTITUTE FOR RURAL MANAGEMENT ANAND, INDIA

The purpose of the Working Paper Series (WPS) is to provide an opportunity to IRMA faculty, visiting fellows, and students to sound out their ideas and research work before publication and to get feedback and comments from their peer group. A Working Paper is not to be considered a formal research publication of the Institute.

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I. Introduction

The large scale persistence of rural poverty even after the first two decades of planning made the planners to realise that achieving faster economic development alone may not bring about any significant reduction in rural poverty. The realisation was based on the view that percolation of the benefits of growth to the rural poor has been hindered to a great extent by the existing inequitable distribution of productive resources like land and capital. Such a view led to the adoption of measures which were directly aimed at improving the access of the rural poor to the productive resources.

One of the areas wherein attempts were made in the above direction was the institutional credit system. The need to improve the access of the rural poor to institutional credit came to be perceived as a step which could help in strengthening their capital and asset base. This in turn was expected to bring about reduction in rural poverty and inequality. Several policy initiatives were taken to ensure an easy flow of credit to the rural poor. The creation of Regional Rural Banks (RRBs) in 1975 to cater exclusively to the credit needs of rural poor like small and marginal farmers, rural artisans and agricultural labourers was one such initiative. The RRBs came into being mainly as a sort of via media between the commercial banks and the cooperatives which had for long neglected the rural poor for various reasons. They were expected to serve the rural poor by combining in them the local feel of and familiarity with rural problems which the cooperatives have, and the managerial and business abilities possessed by the commercial banks. Any economic non-viability which may arise out of such a target oriented banking proposition was to be considered as a price worth paying for the broader social objective sought to be achieved through such a reform.

Since their inception, the RRBs have made an impressive progress in terms of their number and coverage. By 1992 there were 196 RRBs with over 14,500 branches spread over 385 districts in the country. However, their growing non-viability has put their future form and existence in doubt. Having now been allowed to lend a part of their funds to non-target group, the RRBs have lost their original identity as the small man’s bank.

Despite their existence for over one and half decades, the role of the RRBs as an institutional reform in the field of rural credit has not been properly assessed or analysed. The failure of the commercial banks and cooperatives to bring the rural poor effectively under their network was attributed mainly to their policy of collateral-based lending. Such a policy, given the inequitable distribution of assets in the rural areas had resulted in the skewed distribution of institutional credit and access to it. The creation of RRBs to exclusively serve those who were earlier neglected by the institutional credit agencies was expected to improve their access and make the distribution of institutional credit more even, if not totally reverse the old pattern.

Keeping the genesis of the RRBs in view, this paper attempts to study as to how far the RRBs have succeeded as an institutional reform in the field of rural credit. In what way their policies have been different from those of the other institutions so as to enable the rural poor to have a better access to institutional rural credit. These objectives have been examined here with reference to the functioning and performance of a RRB in Karnataka namely, Tungabhadra Gramin Bank (TGB). The TGB is the first RRB to be set up in South India in 1976. It serves the districts of Bellary and Raichur with a network of 163 branches. The objectives of this study have been fulfilled mainly by analysing the nature of the selected RRB’s lending policies and practices and the pattern of distribution of its loans across different sections of the society. While the lending policies of the RRB have been examined mainly by going through its annual reports and other published and unpublished records, the analysis of the distribution pattern of its loans is based on the data derived from the survey of 197 randomly selected borrower households of the TGB. These borrower households have been selected in such a way as to represent not only different loan purposes/schemes/categories but also different agro-economic regions of the districts. While the information about the borrowings of the sample households has been obtained from the loan ledgers, the socio-economic details have been collected through the household survey conducted during 1989.

II. The RRB’s lending policies

Before examining the actual distribution pattern of the selected RRB’s loans, an attempt is made in this section to understand the nature and type of its lending as revealed by the purpose-wise and security-wise distribution of its loans. A broad clue as to what could be the actual distribution pattern of the RRB’s loans is obtained by such an analysis.

The TGB has been extending two types of loans namely, direct and indirect loans. The direct loans are those given by the branches directly to the borrowers. Whereas indirect loans are given to the borrowers through 19 farmers’ service cooperative societies adopted by the bank. Such indirect lending accounted for about 15 percent of the total loans outstanding during 1988-89. However, the purpose-wise composition of the indirect loans is not available from the records of the bank except that these loans are found classified as agricultural loans. Given their emphasis on target group lending, the indirect loans of the RRB’s in a way went against their basic principle because the cooperatives do not have such specific emphasis. Also since the cooperatives have been known for their dominance by big farmers, the practice of indirect lending amounted to diversion of the funds of the RRBs meant for the weaker sections to the rich. The selected RRB in order to ensure that its indirect lending did not dilute its basic spirit of target group lending was therefore found to be insisting that such cooperatives enroll more members belonging to weaker sections.

Coming to the direct lending, Table 1 gives the purpose-wise composition of TGB’s direct loans outstanding and disbursed at the end of and during 1988-89 respectively.

The direct loans of the TGB fall broadly under seven purposes. Among them loans given for agricultural purposes consisting of crop production, agricultural investment and agricultural allied activities put together accounted for the major share. The loans given for crop production accounted for the highest share with nearly 40 percent of both loans outstanding and disbursed during 1988-89. The crop production loans are short term loans given for various seasonal agricultural operations. On the other hand, agricultural investment and allied activity loans are term loans given for purposes like development of minor irrigation, for purchase of farm equipment and draft animals, and for pursuing activities like dairying and sheep and goat rearing.

Table 1. Purpose-wise Distribution of the Tungabhadra Gramin Bank’s Direct Loans, 1988-89 (in percentage)

Purpose	Outstanding at the end of 1988-89	Disbursed during 1988-89
1. Crop Production	38.2	39.8
2. Agricultural Investment	15.0	5.1
3. Allied Activities	11.0	7.4
4. Agricultural (1+2+3)	64.2	52.3
5. Trade/Business and Services	17.0	19.8
6. Rural Artisans and Industries	3.3	3.4
7. Consumption	4.2	7.1
8. Others	11.3	17.4
9. Non-Agricultural (4+5+6+7)	35.8	47.7
Total	100.0	100.0
(Rs in Lakhs)	(5609)	(4099)

Source: Tungabhadra Gramin Bank

Among the non-agricultural purposes, loans given for trade, business and service are the major category. The other non-agricultural category is the loans given to rural artisans and industry. The loans under these two non-agricultural purposes are given for meeting both working capital and investment needs. Besides these production loans, the bank also lends for non-production purposes. The consumption loans and loans specified as ‘others’ come under this category. These two loans are classified in the bank’s portfolio as non-priority sector loans. The loans specified as ‘others’ include mainly loans given on the security of deposits kept in the bank. It could be observed from the various annual reports of the RRB that in recent years it has been trying to lend more of its funds to various non-agricultural purposes particularly those which come under the non-priority category. This was found to be mainly because the non-agricultural loans not only had better recoveries but also fetched relatively higher interest rates. The increasing operating costs and higher loan delinquency rates had compelled the bank to adopt such a strategy.The nature of the RRB’s lending policy may be further understood from Table 2 which gives the securitywise classification of its loans. The loans of the bank are sanctioned on the basis of four types of securities namely, land, gold, deposits, and hypothecation of assets and personal security. A major share of the total loans of the TGB is accounted for by loans which are given on the basis of collateral of land, gold and deposits. In other words, the RRB has followed mainly collateral-based lending. The loans given on the basis of these three collaterals accounted for about 61 percent of the loans outstanding and 67 percent of the loans disbursed during 1988-89.

Table 2. Distribution of Tungbhadra Gramin Bank’s Direct Loans by Type of Security, 1988-89 (in percentages)

Type of Security	Outstanding during at the end of 1988-89	Disbursed 1988-89
1. Land	35.1	28.2
2. Gold	14.0	21.0
3. Deposit	11.3	17.4
4. Hypothecation of Assets and Personal Security	39.6	33.4
Total	100.0	100.0
(Rs in Lakhs)	(5609)	(4099)

Source: Worked out from the annual report and other unpublished statements of TGB.

The loans given on the basis of hypothecation of assets and personal security also have accounted for a significant share of the TGB’s loans. During 1988-89 their share in the total loans outstanding and disbursed accounted for about 40 percent and 33 percent respectively. Under this category a loan is supposed to be sanctioned without any primary collateral. In the case of investment loan, the asset purchased out of the loan is hypothecated to the bank till the loan is repaid. In the case of working capital loans, only the personal security of the borrower is taken. However, an analysis of the composition of personal security and hypothecation loans and the actual basis of sanction adopted by the bank brings out their real nature and also the bank’s policy towards such loans.

A considerable number of loans sanctioned on the basis of hypothecation and personal security are loans which come under various credit-based poverty alleviation schemes like Integrated Rural Development Programme (IRDP). Under these schemes the loans are to be sanctioned to the households selected by the government authorities without insisting on any collateral. All the credit institutions in fact are required to lend compulsorily to such borrowers. It could be observed from the working of the RRB that its lending to those who cannot afford any security was virtually restricted to such programmes.

Although on paper no collateral except hypothecation of assets or personal security is to be considered, for loans other than those coming under poverty alleviation schemes in practice it was found that the bank was sanctioning such loans only to those who have borrowed some secured loans by pledging land or gold or maintaining some term deposit in the bank. In other words, the bank was considering the collateral of a loan already sanctioned or deposit held in the bank as indirect security for giving loans under unsecured category. The security so considered was only tacit and not formal.

Thus the bank has followed mainly collateral-based lending except in the case of poverty alleviation schemes under which it is compelled to lend without insisting on any collateral. As a result, to obtain a loan from the RRB a borrower should possess either land, or gold or deposit or should be a beneficiary under a government scheme. This implies that households without assets or suitable collateral get automatically rationed out or denied access. In the sections that follow an attempt is made to understand the distributional implications of the above mentioned lending policies of the RRB.

III. The distribution pattern of RRB’s loans

This section attempts to examine the pattern of distribution of the TGB’s loans across different sections of rural households. The main purpose is to find out as to what extent the functioning of the TGB has benefited the rural poor. For this purpose, 197 sample households have been classified into different groups on the basis of their socio-economic characteristics like caste/religion, occupation, land ownership, value of assets owned, and family income. The objective of such grouping is to delineate the rural poor or the weaker sections based on each of the above characteristics. The distribution pattern of the RRB’s loans is analysed by looking into both the percentage share of each group under different socio-economic categories in the total loans disbursed as compared with the percentage share of each group in the total sample, and the average loan obtained by a household under each group.⁵

(i) Distribution Pattern by Social Groups

The sample households based on their caste or religion were classified into five broad social groups namely, forward caste, backward caste, Muslim (religion), artisans and service caste, and scheduled caste and scheduled tribe (SC & ST). The groupings were done in such a way as to represent the status of a household in the rural social hierarchy.⁶ The distribution pattern of TGB’s loans across these social groups is given is Table 3.

It may be seen from the table that only the forward caste group has received more than its proportionate share in the total loans borrowed by the sample households. The households in the forward caste group who constitute about 44 percent of the sample have received nearly 65 percent of the total loans. For all other groups the share in the total loan amount is less than their respective proportion in the total number of households. When one looks at the average amount of loan received, the forward castehouseholds have received a far higher average of Rs.13,156 as compared to the households in other groups. Across other social groups one cannot discern a clear pattern in the average amount of loans received, if one moves down the social hierarchy. The SC & ST households who are at the bottom of the social hierarchy have received a higher average loan (Rs.6761) than the backward caste (Rs.4770) and artisan/service caste households (Rs.4773).

Table 3. Share of Different Social Groups in the Loans Disbursed by TGB and Other details

Social Groups	Households share in loans (in Rs)	Percentage loan (in Rs) Schemes (%)	Average poverty alleviation to TGB(%)	Loans under households having regular access		Proportion of No. %
	1	2	3	4	5	6
Forward caste	86	43.7	64.9	13,156	5.8	76.7
Backward caste	45	22.8	12.3	4,770	37.4	60.0
Muslim	19	9.6	7.6	7,016	35.5	57.9
Artisan/service caste	26	13.2	7.1	4,733	56.5	57.7
SC & ST	21	10.7	8.1	6,761	86.3	23.8
Total	197	100.0	100.0	8,855	22.1	62.9
	(17.44)*

* The figure in the bracket is the total amount of loan in lakh rupees.

(ii) Distribution Pattern by Occupation Groups

Based on their main occupation⁷ the sample households were classified into four groups, namely, agricultural labour, rural artisan/service, trade and business, and cultivator.

It may be seen from Table 4 that it is only the households belonging to cultivator and trade and business group who have received either proportionate or more than proportionate share in the total loans of the TGB. While the cultivator households constituting about 74 percent have received about 83 percent of the total loans, the households having trade and business as their main occupation have received about 9.3 percent of loans with a proportion of about 9.6 percent in the sample. In the case of the other two occupation groups, agricultural labour and rural artisan/service, the share of loans received is less than half of their share in the total number of households. Even the average loan obtained shows that it is the households in the cultivator and trade and business groups who could get a higher average loan amount when compared to households in the lower occupation status groups like agricultural labour and rural artisan/service.

Table 4. Share of Different Occupation Groups in the Loans Disburse by TGB and Other Details

Groups	Occupation share in No. (in Rs)	Households loan %	Percentage poverty loans schemes (%)	Average households (in Rs) to TGB(%)	Loans under having alleviation	Proportion of regular access
	1	2	3	4	5	6
Agricultural labour	17	8.6	4.1	4,233	100.0	11.8
Rural Artisan/ service	16	8.1	3.5	3,777	62.9	37.5
Trade/business	19	9.6	9.3	8,564	18.1	84.2
Cultivator	145	73.6	83.1	9,995	16.9	69.0
Total	197	100.0	100.0	8,855	22.1	62.9
	(17.44)*

* The figure in the bracket is the total loan amount in lakh rupees.

(iii) Distribution Pattern by Land-Size Groups

Land is an important asset which determines the economic status of a rural household to a great extent. The sample households were classified into six land-size groups on the basis of the extent of their land ownership.

The distribution of loans of the TGB by land-size groups can be seen in Table 5. For the lower land-size groups (up to 5 acres) the share in the total loans obtained is far lower when compared to their share in the total number. As one moves up from lower to higher land-size groups, the proportion of loans received by different groups becomes more or less equal to or higher than their respective share in the total sample. The lower three land-size groups including the landless constituting about 50 percent of total households have all together received only about 28 percent of the total loan amount; while the other 50 per cent of households of higher land-size groups have received about 72 percent. The households in the highest land-size group alone constituting only about 14 percent have obtained nearly 40 per cent of the total loans of the TGB.

Table 5. Share of Different Land-Size Groups in the Loans Disbursed by TGB and Other Details

(in acres)	Land-Size groups No. (in Rs)	Households share in % schemes (%)	Percentage loan loans to TGB (%)	Average poverty (in Rs)	Loans under households alleviation	Proportion of having regular access
	1	2	3	4	5	6
Landless	39	19.8	11.6	5,176	53.2	30.8
0 - 2.5	21	10.7	6.6	5,474	67.9	47.6
2.5 - 5	39	19.8	10.0	4,461	34.5	74.4
5 - 10	44	22.3	20.2	8,010	28.7	61.4
10 - 20	27	13.7	12.5	8,094	13.4	77.8
>20	27	13.7	39.1	25,281	1.3	92.6
Total	197	100.0	100.0	8,855	22.1	62.9
	(17.44)*

* The figure in the bracket is the total loan amount in lakh rupees.

The average loan obtained by a household in different land-size groups increases with the increase in the size of land ownership. While for the landless category the average loan obtained is Rs. 5,176, for the highest land-size group it is Rs. 25,281 - a difference of nearly five times. In other words the pattern is: higher the ownership of land, higher the loan amount obtained from the TGB.

(iv) Distribution Pattern by Asset Groups

Besides land there are also other assets like buildings, livestock, gold, financial assets, etc., which determine a household’s economic status and capacity to borrow. The sample households were classified into asset groups on the basis of the value of various assets they own.⁸ The distribution pattern of the TGB’s loans across different assets groups is given in Table 6.

Table 6. Share of Different Asset Groups in the Loans Disbursed by TGB and other details

Asset groups (Rs 000s)	Households share in No. (in Rs)	Percentage loan % schemes (%)	Average poverty loans to TGB (%)	Loans households (in Rs)	Under having alleviation	Proportion of regular access
	1	2	3	4	5	6
< 1	13	6.6	2.7	3,588	91.4	7.7
1 - 5	9	4.6	2.0	3,822	79.4	11.1
5 - 10	10	5.1	2.5	4,301	67.2	30.0
10 - 20	20	10.2	6.5	5,685	81.0	50.0
20 - 50	37	18.8	12.4	5,829	56.9	62.2
50 - 100	37	18.8	13.2	6,241	24.3	64.9
100 - 250	50	25.4	23.9	8,341	3.6	82.0
> 250	21	10.7	36.9	30,617	0.0	100.0
Total	197	100.0	100.0	8,855	22.1	62.9
	(17.44)*

* The figure in the bracket is the total loan amount in lakh rupees.

The major share of the total loan amount has gone to the top two asset groups. These two asset groups constituting about 36 percent of the total households have received nearly 61 percent of the total loans of TGB. The highest asset group alone, with only 10.7 percent share in the sample has received nearly 37 percent of the total loans. The four lower asset groups accounting for 26.4 percent of total households, put together have obtained only 13.6 percent of total loans. The average loan received by a household in different asset groups shows a very clear increase along with the increase in the asset worth. While the households in the lowest asset group on an average have received a loan of Rs.3,588; it is Rs.30,617 in the case of households in the highest asset group. A direct association is noticeable between the asset ownership and the loan received.

(v) Distribution Pattern by Income Groups

In addition to the classifications based on caste, occupation, land and value of assets owned, the sample households were also classified into 8 groups on the basis of their annual income. For this purpose, the net annual income derived by a household from all activities has been considered.⁹ Household income helps in making a distinction between the poor and the non-poor. During the Seventh Five Year Plan (1985-90) all rural households having annual income up to Rs.6400 were considered as poor.¹⁰

The distribution of loans of the TGB across different income groups reveals that it is the households in the higher income groups who have received the major share of the loans (Table 7). The households in the top three income groups constituting about 39 percent of the total number have received about 58 percent of the total loans.

The households having more than Rs 50,000 of annual income though represents only 7 percent of households but account for 29 percent of the total loan amount. At the other extreme, the households having annual income of less than Rs 6,400 representing about one-third of the total sample households have received only about one-fourth of the TGB’s loans.

Table 7. Share of Different Income Groups in the Loans Disbursed by TGB and other details

Income groups (Rs 000s)	Households share in No (in Rs)	Percentage loan % schemes (%)	Average poverty loans to TGB (%)	Loans house (in Rs)	under hold alleviation	Proportion of shaving regular access
	1	2	3	4	5	6
<2	12	6.1	5.8	8,484	90.8	41.7
2 - 4	31	15.7	11.9	6,703	57.3	32.3
4 - 6.4	23	11.7	6.6	4,974	55.6	39.1
6.4 - 10	33	16.8	8.3	4,395	32.7	69.7
10 - 15	27	13.7	9.9	6,379	19.5	73.4
15 - 25	30	15.2	14.7	8,526	10.0	70.0
25 - 50	27	13.7	13.8	8,940	1.2	88.9
> 50	14	7.1	29.0	36,138	0.0	92.9
Total	197	100.0	100.0	8,855	22.1	62.9
	(17.44)*

* The figure in the bracket is the total loan amount in lakh rupees.

As regards the average loan, though households in the two bottom income groups have received a higher average amount than those in the middle income groups, overall it is the households in the higher income groups (>Rs 15000) who have received higher amount of loan, on an average, than all other households. The households from the highest income group have borrowed on an average Rs 36,138 which is almost four times the average loan received by a household (Rs. 8,940) even in the second highest income group.

Thus,from the above analysis it is possible to make out that though the RRB was intended basically to provide credit to the weaker sections, it has been serving households belonging to almost all segments of the rural society. At the same time the pattern of its loan distribution is also found to be inequitablenaturewith the major share of the loans having gone to the households in the upper strata of various socio-economic categories.

The reasons for the above pattern of loan distribution is to be found clearly in the type of lending policy being pursued by the RRB. As discussed in section II, the RRB has followed mainly collateral-based lending. When the lending is predominantly collateral-based, it is bound to benefit different categories of households more or less according to the pattern of ownership of assets. In the case of the sample households, 77.4 percent of the total loan amount obtained by them is based on the direct or indirect security¹¹ of land or gold or deposits (Table 8). Now, given the type of lending procedure or practice followed by the bank, this major chunk of the loans has got distributed across households in accordance with their capacity to provide/offer different types of collateral.

Table 8. Distribution of Loans Obtained by Sample Households from TGB by Type of Security

Type of Loan		Percentage
1. Security Based		77.41
	(i) Land based	49.80
	(ii) Gold loans	14.45
	(iii) Indirect security	13.16
2. Hypothecation and		22.59
Personal Security (unsecured)
Total (1 + 2)		100.00
(Rs in lakhs)		(17.44)

An understanding of the actual lending procedure or practice followed by the bank would explain as to how the inequitable distribution of loans has occurred. The bank is expected to identify its target groups like small and marginal farmers, agricultural labourers, rural artisans and other persons of meagre means on the basis of the household’s income or land. However, in actual practice, the bank was considering an individual and not an household as the borrowing unit. The actual asset disclosed or offered by an individual was being considered for determining the eligibility of the borrower. As a result, even members belonging to richer sections were able to borrow from the RRB in the name of the rural poor by showing only a part of land or income which makes them eligible to get a loan. Also, since the bank had fixed the maximum limit for individual loans, in order to maximise the total borrowings, households which could offer more than one collateral at a time had borrowed more than one loans in the name of either the same or a different member of the family. It may be seen from Table 9 that the average number of borrowal account per sample household is more than one and it increases along with the increase in the value of the asset owned. This multiple borrowing has in fact enabled many a household, particularly, the richer ones to obtain from the bank almost as much loan as they needed.

Table 9. Average Number of Borrowal Accounts by Asset Groups

Asset-Groups (in Rs.000s)	No. of Borrowal per household
< 1	1.0
1-5	1.0
5-10	1.2
10-20	1.3
20-50	1.3
50-100	1.5
100-250	1.8
>250	3.4
Total	1.6

Thus, security based lending coupled with individual rather than household based lending procedure has resulted in different type of households to obtain loan from the RRB more or less according to their asset ownership.

At the same time, as discussed in the previous section, a significant proportion of TGB’s loans are lent without any primary collateral. These are the loans which are provided mainly under various credit based poverty alleviation schemes to households selected by the government agencies. In the present study the loan amount borrowed from the TGB under various poverty alleviation schemes like IRDP, Antyodaya, Special Component Plan, etc. accounts for 22 percent of the total amount borrowed by sample households and for households in the lower strata of various socio-economic categories (column 5 in Tables 3 to 7), the major share of their loans has come mainly from these schemes. Out of the 197 sample households, 66 have borrowed under these schemes. Most of them have entered the institutional credit network for the first time by virtue of being selected under the poverty alleviation schemes. The inclusion of these households by the TGB has been possible mainly because of the insistence of the government to bring such households under the institutional credit network. The bank, as could be made out from the observations of its officials, has been a rather reluctant lender to households under this category. The credit for bringing these households under the institutional credit network therefore to a great extent, goes to these programmes.¹⁴

IV. Regularity in borrowing or sustained access

In the foregone section, an attempt was made to analyse the performance of the TGB by examining mainly the quantum of credit received by households belonging to different socio-economic strata at a point of time. Besides the quantum, what is also important is the regularity in borrowing or the sustained access of households to an institutional credit agency. The main objective of the rural credit policy of India has been to create a dependable source of institutional credit and to ensure a regular flow of credit to rural households. The regular dealings of rural households with an institutional credit agency not only indicate its dependability but also the sustainability of the institutional borrowing for them. This aspect of institutional borrowing however, has not received much attention in the rural credit literature.¹⁵ Here an attempt is made to examine the regularity in borrowings of the sample households.

Column 6 in Tables 3 to 7 gives the proportion of households coming under different socio-economic groups having regular access to the RRB. A vast majority of the 197 sample households (about 63 percent), have a regular access to the bank. These are the households who have been borrowing regularly from the bank for their production or consumption needs and whose line of credit or access to the bank is not broken. The rest of the households (73) were not able to borrow regularly. In most of the cases, either default of a loan or inability to provide additional collateral had prevented them from borrowing regularly from the RRB.

When seen across different groups under each of the five socio-economic categories, caste/religion (social), occupation, land, asset and income, the proportion of households having regular access to the TGB shows an increase along with the increase in the group’s status. Among the social groups (Table 3), while the proportion of regularly borrowing households is about 77 percent in the case of forward castes, the same is about one-fourth for the SC & ST Group. As for occupation groups (Table 4), it is mainly the households belonging to trade and business (84 percent) and cultivator (69 percent) groups who have a regular access to credit as compared to those in the lower status groups like agricultural labour and rural artisan/service. Across land-size groups (Table 5) also the proportion of households borrowing regularly increases with the increase in the land-holding. While for the landless the proportion is 31 percent, for the highest land-size group it is about 93 percent. When seen across asset groups (Table 6), the pattern is still more clearly depicted. The proportion of households having regular accessibility increases from about 8 percent in the case of the lowest asset group to 100 percent in the case of the highest asset group. Thus all households in the top-most asset group are able to make regular use of the RRB’s loan facility. Lastly, across income groups also (Table 7), one can see that the proportion of households borrowing regularly shows an increase along with the increase in the group’s income. When compared to households in the below Rs. 6,400 groups, majority of those in the income groups above that level have a regular accessibility.

The above analysis thus shows a clear association between the socio-economic status and regularity in access. Though the majority of the sample households have got regular access to the RRB, they are mostly from the better-off sections. Like the quantum of credit even regular accessibility to the RRB is found to be unequally distributed across households.

The households who have lost regular accessibility to the bank were found to be mainly defaulters, both intentional and non-intentional. As a result of their default they were not in a position to borrow further or renew their access. Interestingly, a majority of these households (44 of the 73), have borrowed under various poverty alleviation schemes. Many of them, as mentioned elsewhere, have come under the institutional network for the first time, and for some of them the dealings with the bank have ended with their first loan itself. In the case of those who could sustain accessibility to the bank, their regular repayment of loan was found to be mainly responsible for it. However, default of loan in certain cases had not necessarily broken the access. Those who could offer additional or new security were able to borrow new loan despite their default. Thus, security based lending has also helped the richer households to maintain their access to bank credit even under default conditions.

V. Conclusion

The following concluding remarks may be made based on the overall analysis carried out in the paper. The RRB though meant basically for the poorer sections was found to be serving not only all the segments of the rural society but also the major portion of its loans had gone to the households in the better-off categories. Moreover, the regular accessibility to the RRB was found to be restricted mainly to better-off households. This is attributable mainly to the emphasis put by the RRB on the security based lending. The system or practice of considering the individual and not the household as the borrowing unit had not only enabled the richer sections to borrow from the RRB in the name of rural poor but also had helped them to garner a major share of its loans. Though the bank had brought in a considerable number of poorer households into its ambit, their coverage is attributable more to the selection of such households by the government agencies under various poverty alleviation schemes rather than to bank’s own initiative. Incidentally, most of them have also not been able to sustain their access to the bank. As a result, the RRB was found to be serving mainly the better-off sections who could sustain their dealings with it unlike the poorer households.

Given the common lending policies pursued by the RRBs, the following conclusions may be drawn. The RRBs which were created as institutional innovation for the rural poor, however, did not come out with any radically different policy or strategy to reach out to their clientele. Unlike the Grameen Bank of Bangladesh,¹⁶ the RRBs in India have followed mainly the established security based lending and hence, their success as an institutional innovation/reform appears to be of a limited nature only. Since their basic policy remained the same, the outcome was in no way significantly different from that of other institutions like the co-operatives and the commercial banks. This suggests that what becomes important for serving the rural poor by the institutional credit agencies is not their form but their policies and this has to be reckoned with in any future institutional policy reform for the rural poor.

Endnotes

(The author is thankful to Professor H G Hanumappa and Dr Bhende, both of ISEC, Bangalore and to Professor Katar Singh and Dr Thomas, both of IRMA, Anand for their useful comments on an earlier draft of the paper. However, the author alone is responsible for any errors. Thanks are also to Mrs.Lissy Varghese for word processing of the paper).

1. Such observation was made by the Narasimham Working Group set up to examine the problems and prospects of creating RRBS. See Reserve Bank of India (1985), p.78.

2. Nearly 150 out of 196 RRBS in the country were running under losses. Many out of them have eroded their capital base. The Khusro Committee which reviewed the agricultural credit system in the country recommended that since the RRBs have become weak and debilitating they should be abolished as separate entities and should be merged with their original sponsoring banks (Reserve Bank of India, 1989). The Narasimham Committee on Financial System recommended that in order to improve the viability of the RRBs they be allowed to do all the banking business besides giving them the option of becoming the subsidiaries of the commercial banks (Narasimham Committee Report, 1992).

3. In a recent policy change the RBI has allowed the RRBs to lend 40 percent of their funds to non-target groups.

4. This is a strategy which the RRB has learnt to adopt over the years to make its unsecured loans secured. To make the indirect security of unsecured loans more effective, the bank was releasing the collateral pledged for a secured loan only when the borrower repaid both the loans.

5. For households receiving capital subsidy under various government programmes, the total borrowings considered is inclusive of such subsidy. This is because in the absence of subsidy they would have received a loan to the full extent of the project cost from the bank.

Y = 1272 + 77.8 X₁ (1)

(13.15)*

n = 131 R² = 0.57

Y = 142 - 0.14 X₁ (2)

(1.06)

n = 66 R² = 0.02

Y = -1144 + 76.9 X₁ + 5335 X₂ (3)

(15.7)* (3.22)*

n = 197 R² = 0.55

* Indicates significance of ‘t’ values at 1% level.

These equations basically explain the influence of value of assets owned (X₁) by the sample households on the amount of loan (Y) obtained from the RRB. While equations (1) and (2) are for households coming under general schemes and poverty alleviation schemes respectively, equation (3) is for all the households taken together. X₂ in equation (3) is a dummy variable considered for capturing the influence of selection of a household under the poverty alleviation scheme, for such households are to get loans irrespective of their asset position.

The value of assets shows a significant influence (at 1% level) on the quantum of loan obtained from the RRB (Equation (1) and (3) except in the case of households coming under poverty alleviation schemes (equation (2)). In other words while for the general scheme households the quantum of loan obtained is determined by their asset ownership, the households under poverty alleviation schemes have received loan from the TGB irrespective of their asset ownership. The significance of dummy variable (X₂) in equation (3) corroborates the latter point.

15. For a study which has dealt with the sustained access or repeat borrowings of IRDP beneficiaries, See Pulley, Robert V (1989).

16. The Grameen Bank of Bangladesh is one of the major oft-quoted success stories in the world. The Grameen Bank by following the policy of group based lending has been able to overcome the main problem of collateral and in the process could reach even the poorest of the poor quite successfully. See Hossain, Mahabub (1988).