Question

Role of rbi in industrial finance and agricultural credit

Answer 1

Hiii friend.

Efforts of the RBI toward Promoting Agricultural Finance!

The Reserve Bank of India in a developing economy like ours may be regarded as an engine of growth. It not only regulates bank finance, but deliberately promotes development finance.

It has made special efforts in catering to the growing financial needs of agriculture, industry and export sectors of the country.

Agriculture is the king-pin of India’s rural economy. Thus, rural credit — agricultural finance — is the pre­requisite of agricultural growth and development.

Since the inception of planning in our country, the Reserve Bank of India has been paying specific attention to promoting rural/agricultural finance.

Agricultural Credit Department:

In fact, the Reserve Bank of India Act, 1934 did assign to the Reserve Bank the responsibility of developing an institutional credit system for the agricultural sector in the country. As such, the Agricultural Credit Department of the Bank was constituted along with the establishment of the Reserve Bank in April 1935, whose main task was to develop co-operative credit movement in agricultural finance.

Promotion of Industrial Finance:

While with some change in the credit policy of commercial banks, the short-term credit needs of large-scale industries could be taken care of relatively easily, the need for special measures was especially acute in two spheres:

ADVERTISEMENTS:

(a) The provision of long-term development finance and

(b) Bank credit for small-scale industries.

In both the spheres on the active advice and participation of the RBI special measures have been successfully taken. For providing long-and medium-term finance as well as underwriting of new issues, specialised financial institutions in the form of industrial development banks such as the IDBI, IFCI, ICICI, SIDBI, SFCs and SIDCs have been established in the public sector and the ICICI in the private sector.

The RBI subscribed to the share capital of public sector development banks. It provides them loans from its National Industrial Credit (Long-Term Operations) Fund to which the RBI makes annual contributions from its profits. Started in July 1968 with an initial contribution of only Rs. 10 crore, the Fund had grown to Rs. 5,678 crore on June 30, 1995 and the loans and advances from it stood at Rs. 5,460 crore.

For the small-scale industries, finance is made available by SIDBI, SFCs, and SIDCs and more importantly by commercial banks which are the most important source of credit to them. The recognition of small-scale industries as a ‘priority sector’ has made all the difference.

At the end of June 1995, credit outstanding-to these industries from public sector banks stood at Rs. 26,800 crore which was about 40% of the total priority sector advances (excluding export credit). Additionally, this fi­nance is provided on concessional terms. One important measure in the promotion of credit to small-scale industries has been the Credit Guarantee Scheme for such industries instituted in 1960 and operated by the RBI on behalf of the Government of India.

Promotion of Export Finance:

(i) Various steps have been taken to provide export credit at interna­tionally competitive rates of interest. For example, a scheme was made operative in October 1993 for rediscounting export bills abroad at rates linked to international interest rates. Under another scheme of November 1993, exporters are given pre-shipment credit in major foreign currencies for financing imports.

The RBI provides export credit refinance limits to banks. On March end 1995, they were Rs. 9,400 crore. Export credit refinances limits for post-shipment credit was about Rs. 6,700 crore during 1994-95. More­over, the rate of interest on export credit has been decontrolled.

The percentage outstanding export credit to net bank credit was 9.3 per cent as on March end 1995. But, the percentage of export credit refinance limits of banks to their outstanding export credit eligible for such refinance was 48 per cent.

(ii) Export-Import Bank:

The government has set up in January 1981 an Export-Import Bank, which has taken over the functions of the inter­national financing wing of the IDBI and which acts as the apex institution relating to financing of foreign trade.

Answer 2

Answer:

RBI and industrial finance