EFFECT OF CROP LOAN PROVIDED BY STATE BANK OF INDIA ON ITS PROFITABILITY AND RECOVERY PERFORMANCE

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1 EFFECT OF CROP LOAN PROVIDED BY STATE BANK OF INDIA ON ITS PROFITABILITY AND RECOVERY PERFORMANCE Ashwini Dnyandev Desai Research Student Chh. Shahu Institute of Business Education and Research, Kolhapur Abstract Dr. P.B.Patil Professor and Head, Finance and Accountancy Chh.Shahu Institue of Business Educaiton and Research, Kolhapur Agriculture is the basic profession of India, land reforms and credit are the two basic problems of the Indian agriculture. Crop loan is provided by various bank, for the activities include, among others, ploughing and preparing land for sowing, weeding, transplantation where necessary, acquiring and applying inputs such as seeds, fertilizers, insecticides etc. and labour for all operations in the field for raising and harvesting the crops. Profitability of bank depends on recovery of crop loan. So, it is necessary to give the attention to increase recovery rate of crop loan given by the bank which ultimately helps to increase profitability of bank. Key Words: Crop Loan, Recovery Rate, Profitability. I. Introduction Increasing quantities of food must ever continue to come from the Limited extent of land bestowed upon mankind, to keep pace with the increasing world population. In view of this, agricultural development has assumed special significance. In fact, agriculture has been and will continue to be the basic profession of the developing nations of the world. If agriculture is the basic profession of India, land reforms and credit are the two basic problems of the Indian agriculture. Among others, the development of agriculture and efforts to augment agricultural production, to effectively tackle the country's food problems, have suffered for want of adequate investment for modernising agriculture as also due to shortfall in supply of adequate production, Vol. II, Issue 6, December, 2015 Page 15

2 finance. Hence the strategy of agricultural development during the five year plans has rightly emphasised the adoption of better cropping patterns, the use of improved seeds, better farming methods and techniques, and adequate doses of other inputs like fertilizers, pesticides, etc. But all this involves greater outlay on account of cultivation expenses. The ever increasing production requirement could not be met from out of internal savings of the farmers and needed to be financed from outside. As such, the strategy of development also emphasised the necessity to ensure adequate supply of investment finance and production credit to all needy farmers.in order to meet the ever increasing demand for agricultural credit, the machinery of co-operative and commercial banks has been fully geared to the task. But it was observed that the tenantcultivators, share-croppers, small and marginal farmers and agricultural labourers did not get adequate share of credit because of the security oriented loaning system, tardy and slow implementation of land reforms, absence of ownership rights, non-viability of small farmers and dominance of large and medium farmers over the co-operative financial system.this problem was for the first time, systematically examined by the All India Rural Credit Survey in In order to solve the problem, the Committee of Direction of the AIRCS recommended the introduction of crop-loan system. The recommendation was accepted and thus the basis of short-term production credit became the system of crop-loans. The following were the chief elements of the crop loan system : Its concentration on productive purposes; i. Provision of short-term loans on the basis that a crop is anticipated and not primarily that a title exists; ii. iii. The amount of loan is related to the estimated outlay on raising a crop; and The recoveries are expected out of the sale proceeds of the crop raised with the loan. Crop loan are also called short-term loans for "Seasonal Agricultural Operations." The seasonal agricultural operations cannot such activities as are undertaken in the process of raising various crops and are seasonally recurring in nature. The activities include, among others, ploughing and preparing land for sowing, weeding, transplantation where necessary, acquiring and applying, Vol. II, Issue 6, December, 2015 Page 16

3 inputs such as seeds, fertilizers, insecticides etc. and labour for all operations in the field for raising and harvesting the crops. II. Significance of Study Recovery of provided crop loan effects on profitability of bank. Crop loan is provided for agricultural purpose and agricultural activities and it depends upon natural calamities. Sometime farmers cant repay the crop loan. So, recovery of crop loan is not fully recovered and it effects on profitability. This study is useful to State Bank Of India to know their profitability due to provided crop loan and also the recovery rate. It is useful for them to improve their policy for crop loan and recovery performance. III. Objectives of Study a) To study the profitability of Bank. b) To study the recovery of crop loan. IV. Hypothesis a) There is significant relation between crop loan and profitability. V. Methodology Whenever the researcher collects first hand information, personally, by observation, questionnaire, schedule or interview, it is known as primary data. It refers to the data which is not collected by the researcher through personal observations. It is collected by published and unpublished. For the purpose of calculating profitability ratio and recovery rate of crop loan provided there can be only one approaches that is collection of the reliable data and analyzing interpreting it applying correct formula. For this paper secondary data is used for study. Sample size State Bank Of India at Gargoti, bhudargad Tahshil is selected, the data is used from 2009 to 2014., Vol. II, Issue 6, December, 2015 Page 17

4 Data analysis and Interpretation Researcher wants to detect crop loan effect on profitability of bank, is the crop loan scheme is profitability or not. Also researcher wants to find the recovery rate of the crop loan of both banks. Recovery rate is calculated by, Recovery Rate of Crop Loan= (Recovery of Crop Loan / Crop Loan Provided) x 100 Researcher discovered effect of crop loan on profitability of bank through ratio of profitability and crop loan and it finds by the following ratio, Crop loan profitability ratio= Total net profit / crop loan Statement showing the profitability of State Bank of India Table No 1 profitability of State Bank of India Year Crop Loan Profitability Ratio ,65,468 56,42, : ,87,790 49,04, : ,67,000 41,90, : ,04,000 43,38, : ,81,05,409 38,50, :1 Source- Manger, State Bank of India (Gargoti Branch), Vol. II, Issue 6, December, 2015 Page 18

5 Ratio From above table when we observe profitability of State Bank of India. According to change in crop loan, profitability negatively affected with increase in crop loan. It goes down from to It shows more decline in profitability of crop loan. Because profitability depends upon recovery of crop loan. But recovery is fluctuating so, it affects on fluctuated profitability. Recovery Rate of Crop Loan Of State Bank of India and Bank of India Recovery rate of the loan is most important factor; because profitability of bank is depend on recovery of loan. Researcher study the recovery rate of crop loan of State Bank of India. Statement showing Recovery Rate of crop loan of State Bank of India Table No 2 Recovery of State Bank of India Year Crop Loan Recovery of Crop Percentage (%) Loan ,65,468 34,32, % ,87,790 41,21, % ,67,000 35,80, % ,04,000 50,47, % ,81,05,409 91,75, % Source- Manger, State Bank of India (Gargoti Branch), Vol. II, Issue 6, December, 2015 Page 19

6 Percentage From the above table it is clear that the crop loan recovery rate of S.B.I is 59.54% at ; 55.78% at ; 60.00% at ; 54.25% at ; 50.68% at n In the year it is high of 60.00%. recovery rate of crop loan is fluctuating because farmers cant repay the instalment of crop loan. VI. Testing Hypothesis: Null Hypothesis H 0 : There is significant relation between crop loan and profitability. Alternative Hypothesis H 1 : There is no significant relation between crop loan and profitability. Table No 3 Relationship between crop loan and agricultural production Sr. No. Variables correlation of coefficient 1 Crop Loans Agriculture Productivity, Vol. II, Issue 6, December, 2015 Page 20

7 Plot chart of Relationship between Crop Loan and Profitability Plot of crop loan and Profitability Profitability PCrop loan The correlation coefficient between crop loan and profitability is The calculated value of correlation of coefficient is less than the 0 (zero) hence we reject the null hypothesis. It is clear that there is negative correlation between crop loan and profitability. Hence, it is concluded that the null hypothesis is rejected there is significant relation between crop loan and profitability and alternative hypothesis there is significant relation between crop loan and profitability is accepted. VII. Finding 1. Table 1shows the profitability of state bank of India. From the table it is seen that the profitability declines from 2009 to 2014 from ( upto ). 2. Recovery effects on profitability of bank. Table 2 shows the recovery rate of state bank of India. In year there is 60.00% recovery of state bank of India which is the high in last five years. VIII. Suggestion 1. The profitability of bank fully depends on recovery of the crop loan. So it is necessary to both banks to recover all the given crop loan within stipulated time., Vol. II, Issue 6, December, 2015 Page 21

8 IX. Conclusion Agriculture is the basic profession of India, land reforms and credit are the two basic problems of the Indian agriculture. Crop loan is provided by various bank, for the activities include, among others, ploughing and preparing land for sowing, weeding, transplantation where necessary, acquiring and applying inputs such as seeds, fertilizers, insecticides etc. and labour for all operations in the field for raising and harvesting the crops. Profitability of bank depends on recovery of crop loan. From above study we conclude that profitability of bank declines from 2009 to 2014 and recovery of loan does not fulfill the expectation of bank which effects on profitability of bank. References 1. Abedullah, N. Mahmood and S. Kouser, The role of agricultural credit in the growth of livestock sector: A case study of Faisalabad Pakistan Vet. J., 2009, 29(2): Muhammad Khalid Bashir, Yasir Mehmood, Sarfraz Hassan, Impact of Agricultural Credit On Productivity Of Wheat Crop: Evidence From Lahore, Punjab, Pakistan Pak. J. Agri. Sci., Vol. 47(4), ; ISSN (Print) , ISSN (Online) Harpreet Kaur Sandhu, Doubling of Agricultural credit its effect on farmers and current agriculture scenario, International Journal of Social Science & Interdisciplinary Research Vol.1 Issue 7, July 2012, ISSN Md. Ariful Islam, Md. Rayhan Islam, Mahmudul Hasan Siddiqui, Luthful Karim, Importance of agricultural credit for rural development of Bangladesh: A descriptive approach International Journal of Economics, Finance and Management Sciences Jan 2014; 2(1): Mazumder, Chakravarty and Bhandari, Recovery Performance of Primary Agriculture Credit Societies in India: An Assessment IZA Discussion Paper No June 2014., Vol. II, Issue 6, December, 2015 Page 22

9 6. Agricultural Credit : B.N.Choubey, National Publication House, 20 th March Agricultural Economics : Dr. R.G.Desai, Himalaya Publication House, 2001., Vol. II, Issue 6, December, 2015 Page 23