An Assessment of Impact of Crop Loan Delivery on Credit Cooperatives

The present study attempts to decipher the actual cost of purveying crop loan to the farmer and contrast it with the assumed or presumed cost of such financing. The difference between the actual and the assumed cost of financing crop loans provides an estimate of the burden (if any) involved in such financing. For each state, cost of funds deployed by SCBs and CCBs was computed using balance sheet and income and expenditure statements. The information on risk cost and establishment cost for sample PACS for each state was also computed from their balance sheet and income and expenditure statements. The actual cost of financing crop loan through the credit cooperatives was computed in a sequential manner. First, the effective cost of funds at the CCB level which captures cost of funds/refinance, cost of funds provided by SCB and CCBs availed from NABARD. Second, the establishment and risk cost at the PACS level was added to the effective cost of funds at the CCB level to get the actual cost of disbursing crop loans. We consider five states - one from the Eastern (Orissa) and two states each from Western (Gujarat and Maharashtra), Southern (Andhra Pradesh and Tamil Nadu) regions to make the estimate of burden representative. The broad finding of the study is that the average burden of regulated crop loan is 2.83% for the five states during the study period.