A changing environment and government policies are forcing banks to lend more to the agricultural sector. Both private and public banks are now involving themselves in a lot of agri-based lending activities. Besides financing traditional activities, banks are also involved in training and setting up consultancies, agri clinics, the export and marketing of agricultural produce, etc. The tie up of HDFC with NAFED and SBI with Cargill India will see a new revolution in the agricultural sector in India.
The Indian banking sector consists of commercial and cooperative banks. The role of both types of banks is very significant in Indian agriculture. Cooperative banks were considered as the major source of credit flow to agriculture, but with the time, commercial banks too have come forward to extend credit to agriculture. The share of commercial banks in providing credit to agriculture has increased from 49% in 1996-97 to 52% in 2000-01. In a changing environment, banks are diversifying their role in the agriculture sector in order to get revenue from their significant contribution to agriculture. Some of the new roles that banks have adopted are: Marketing, training and consultancy, insurance and financing for infrastructure via private-public participation.
Indian agriculture depends heavily on the monsoon. Crops often get damaged because of abrupt changes in the weather. The suicide cases of cotton growing farmers in Andhra Pradesh and Maharashtra are an everyday thing now. To overcome all these problems, microfinance and general insurance companies have come up with crop and weather policies which can be helpful to poor farmers.
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