Evaluating the gap in demand and supply of institutional lending for paddy cultivation in Thiruvarur district of Tamil Nadu, India

Institutional banking system in India is strengthened through nationalization of banks and many innovative initiatives such as Self Help Group (SHG) - Bank Linkage Programme, Kisan Credit Card (KCC) Scheme and Financial Inclusion. However, many studies conducted in Tamil Nadu, have pointed out several issues such as inadequacy of crop loan amount owing to lower scale of finance and minimum focus on long term agricultural advances that are hampering the banking services directed towards agricultural development.  In order to address these issues, an attempt was made in the present study to assess the causes for and consequences of credit gap in the disbursement of short term / crop loan to the sample farm households; Results of the  study indicated that  the credit gap I (Credit requirement - Scale of finance) and Credit Gap-II (Credit Requirement - Credit Sanctioned) per ha of paddy were lesser in ST borrower farms, which indicted that  though the scale of finance for paddy has been fixed at higher level, i.e., well above the credit requirement, the actual credit disbursement was far lesser than the credit requirement. The working capital, in general, enhances the productivity of the crop and the external financial assistance could help farmers in purchasing the necessary farm inputs in adequate quantities and thereby the farm productivity could be improved. But the scale finance itself was far lesser than the working capital required for cultivating paddy in all categories of farms and this resulted in the wider credit gaps in the different farm categories.