Land Development Banks
The advent of new innovations in agricultural technology, increasing demand for food with population explosion, profitability in commercial agriculture, attractive price for exportable agricultural commodities, etc., made the farmers to realize that agriculture could also be taken up as an industry by effecting improvement on land for increasing its production potential through more capital investment, which led to the raising demand for long term credit.
Farmers required larger amount to acquire durable farm assets such as machineries and livestock and undertake permanent land improvements, construction of wells, buildings, erection of pump – sets, redemption of old debts, etc. Since the amount is large, it is difficult for them to repay the loan amount in lump sum. The amount has to be repaid in installments and distributed to a longer period of even 20 years.
Reasons for the Establishment of LDBS
- A bulk of the credit was extended by non-institutional agencies like money lenders at higher rate of interest. Therefore, indebtedness of farmers was so acute that it did not allow them to receive long-term credit.
- The organizational structure of the PACS and its lack of expertise in scrutinizing or appraising the securities and long-term credit proposals did not permit them to deploy long-term credit.
- Commercial banks could not dispense long-term credit because of the short-term nature of their deposits.
- The government was not considered as an ideal agency for extending long-term credit as stated by the AIRCSC (1951).
Hence, the need for special type of credit institutions to meet the long-term credit demand for farmers had arisen. The first Co-operative Land Mortgage Bank was set up at Jhang in Punjab in 1920. In 1924, the first land mortgage bank was registered in Bengal at Naogaon. These banks however, could not achieve success due to mounting over dues, malpractices, etc. The real beginning in land mortgage banking in India was made when Central Land Mortgage Bank was set up in Madras in 1929.
During 1920-29, land mortgage banks were established under the Co-operative Societies Act in Punjab, Mysore, Bombay, Assam and Bengal. The Agricultural Finance Sub Committee (1945) observed, “Co-operative Land Mortgage Banks in India have so far been advancing loans almost exclusively for the redemption of old debts. It should not, however, be forgotten that the main object of land mortgage banking is to finance land improvement.
” The AIRCSC (1954) recommended the establishment of a Central Land Mortgage Bank (CLMB) in each state at the apex level and for strengthening of the Primary Land Mortgage Banks (PLMB) at the district level. During the third plan period, the LMBs received massive support from institutional agencies like RBI, SBI, LIC and Agricultural Refinance Corporation. The LMBs reoriented their loan policies towards providing loans for productive purposes and attention was paid to agricultural development and hence, their name was changed to “Land Development Banks (LDBs)’.
The main objective of the Land Development Bank is to promote the development of agriculture and increase the agricultural production.
The long-term co-operative credit structure is not uniform throughout the country. The structural pattern of LDBs falls into one of the following four categories:
- Federal type with the Central Land Development Bank at the top and the Primary Land Development Bank at the base. This pattern is adopted in Andhra Pradesh, Assam, Haryana, Kerala, Karnataka, Punjab, Rajasthan, Tamil Nadu and West Bengal.
- The Central Land Development Bank advances loans directly to farmers through branches.
- This pattern prevails in Bihar, Gujarat, Jammu and Kashmir and Uttar Pradesh.
- The CLDBs operating through branches as well as PLDBS.
- The CLDBs operates through separate departments of DCCBs of the area.
Area of Operation
`The area of operation of PLDBs shows very wide variation and it ranges from a taluk to a whole district. It was estimated by the Working Group for Formulation of Fourth Five Year Plan Proposals on Co-operation that a Primary Land Development Bank to be an economically viable unit, should handle, a minimum business of Rs.20 lakhs a year with a margin of 1.25 per cent, employing requisite staff for the purpose.
In PLDBS, all land owners are eligible to become members and borrow funds by mortgaging their land. The principal borrower is enrolled as ‘A’ class members and others who have interest in the mortgaged property are admitted as B class members. The members of SLDBs are the PLDBs and a few industrial promoters.
The management of the SLDB is vested in a Board of Directors consisting of 7 to 9 members. The Government nominates 2 to 3 directors in some states. The State / Central LDB nominates the directors in some states.