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This is to certify that Mr./Miss.

___________________________________________,Reg. No. ______________ has

completed the Practical Manual of the course

Agricultural Finance and Project Management, Course

No. AEC-507 successfully.

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Place: College of Agriculture, Pune

Date : / /
 INDEX
Ex. Page
Date Name of Exercise Remark
No. No.
1. Development of Rural Institutional Lending
Branch expansion, demand and supply of institutional
2. agricultural credit, overdues and Loan waiving
An overview - Rural lending programmes of Commercial
3. banks, Lead Bank scheme
4. Preparation of District Credit Plan
Rural lending programmes of Co-operative lending
5. Institutions
Preparation of Financial Statements using farm/firm level
6. data
Farm credit appraisal techniques and farm financial
7. analysis through financial statements
Performance of Micro-financing Institutions-NGO’s,
8. SHG’s
8. Identification and formulation of investment project
Project Appraisal techniques-Undiscounted measures and
9. their limitations and
10. Project Appraisal techniques- Discounted measures
11. Preparation of project report
Net work techniques-PERT and CPM for project
12. management
13. Case study analysis of an Agricultural project
Risk and Risk management strategies- Crop Insurance
14. schemes
Financial instruments and methods - E-banking and Kisan
15. Cards and Core banking
16. Development of Rural Institutional Lending
 Exercise No.1
STUDY OF DEVELOPMENT OF
RURAL INSTITUTIONAL LENDING
===================================================
Introduction
The Concept of rural development was born in the context of agriculture & it remained for
a long time. Conterminous with agricultural development in India. Rural development is the process of
improving the quality of life and economic well-being of people living in rural areas, often relatively
isolated and sparsely populated areas. Rural development has traditionally centered on the exploitation
of land-intensive natural resources such as agriculture and forestry.
Definition-
The world bank defines Rural development as a Strategy designed to improve the economic& Social
life of a specific group of people the rural people rural development involves extending the benefits of
development to the poorest among those who Seek livelihood in the rural area. The group includes
Small scale farmer’s tenants & landless .To quote from the World Bank Policy paper also on rural
development.
Concept of rural bank: Prior to 1967 the commercial banks locations were highly concentrated in
metropolitan cities & other industrial Centers. Their business was also limited to only to industrialist,
business mean and trade for all around development of the economy measures such social Control of
banks was tried between 1966 and 1968 various Committees bank have suggested that the rural
institutional Credit Structure was weak, therefore same system of rural banks should be created to fill
up credit gap in rural areas .These banks should work for the provision of Credit coupled with
extension in rural areas for rural people.
Rural credit structure-
The Credit facilities are available to the rural agriculturists & artisans through financial institutional &
non- Financial institutions which are under
A) Financial Institutional
1.Governments
2. Cooperatives.
3.commercial banK
B) Non- institutional
 1. Professional moneylenders
2. Agricultural oney lenders
3. Relatives & Friends.
4. Traders & commission agents
5. Others
Institutional lending or credit refers to credit or loan provided by financial institution like cooperative
societies commercial bank RBI and specially established financial institution like regional rural bank
farmers service societies and land development bank lead bank scheme and NABARD.
There are different Rural lending Institutions like:
1) Primary Agricultural Co-operative Credit Societies (PACS)
2) Primary Land Development Banks (PLDBs)
3) Regional Rural Banks (RRBs)
1. Primary Agricultural Co-operative Credit Societies (PACs)
Consequent to the enactment of co-operative societies Act of 1904, PACS came into
operation following the guidelines of the refashion model. The co-operative principles like limited
liability, limited area of operation, honorary management, Voluntary participation of villages, etc were
farmed for the smooth functioning of the societies. The societies are at the village level and directly
meant for the farmers regarding provision of exquisite short term and medium term loan. Supply of
agricultural inputs and other essential commodities is also taken up by these societies. In addition to
these activities PACs are also helping in formatting and implementing the agricultural development
plans. They are also undertaking advisory and welfare functions for the members. The PACs are
associated with the following functions-
1) They borrow adequate and timely tends from DCCB and help the members in financial matters.
2) They attract local savings in the form of share capital and deposits from the villages there by
inculcating the habit of thrift.
3) They supervise the end use go credit.
4) They distribute fertilizers- insecticides, etc. to the needy farmers.
5) They provide machinery on hire basis to the farmers.
2. Primary Land Development Banks (PLDBs)
The establishment of Land Mortgage Bank on co-operative lines dates back to the year 1920
in Punjab. Later during the period 1920-29 many Land Mortgage Banks were established in Punjab.
Madras, Mysore, Assam and Bengal. There was not much growth in the Land Mortgage Bank till 1945,
however an around progress of these banks was witnessed during the post-independence period, i.e.
1948-1953. During this period, only each and argument farmers derived benefit from the LMBs. Small
and Marginal farmers were hardly benefited. LMBs received massive support from institutional
agencies like Reserve Bank of India, State Bank of India. Life I surface corporation and Agricultural
Refinance Corporation. As a result the LB reoriented their lending policies towards small and marginal
farmers and much emphasis was given to agricultural development. In the year 1974, LDBs were
encased as LDBs in A.P. Primary LDBs are generally organized to serve the farmers at talk level. The
specific functions are-
1) They provide long term finance to the needy farmer for the development of land, increasing
agricultural production and productivity of land.
2) They provide loans for minor irrigation and for redemption of old debts and purchase of land.
3) Farmers interested in purchasing tractors, machinery and equipment are financed
4) The Banks also provide finance for construction of farm structure.
5) They mobiles several savings.
3. Regional Rural Banks (RRBs)
All India Rural Credit Review Committee (1969) pointed out that over large parts of the
country small farms have been handicapped in having access to co-operative credit both for current
inputs and investment. Therefore, a need also for the establishment of institutional agencies. This led to
first spell of nationalization of banks with greater expectations. Though they did add to the institutional
structure, they simultaneously created some problems too. The subject was examined by Government
of India and appointed a working Group in 1975 under the chairmanship of Shri. M. Narasimham to go
1970 the financial assistance gendered to the weak sections in the several areas. The working Group
came up with the called "Regional Rural Banks after having identities shortcomings in the functioning
of commercial banks and co-operatives, The Government of India accept the recommendation and the
RRBs came into existence through Regional Rural Banks ordinance on 26 September 1975 and initially
for Rural Banks sponsored by commercial banks were set up on a pilot basis in the country on 2
October 1975. This ordinance of 1975 was immediately replaced by the Regional Rural Bank Act 1976.
The major premises on which the establishment of RRBs recommended were that the existing credit
institutions even after necessary restructuring and modifications cannot be expected to meet the varied
and growing needs for several credit.
Cooperative Credit Organisation
ST and MT loan (Three-tier system) LT Loan (Two-tier system)
State Cooperative bank (SCB) Central Land Development Bank
(CLDB) (At state level)
District Central Cooperative Bank
(DCCB) (At district level)

Primary Agricultural Cooperative Credit Societies

 (PACS) (At village level)

Exercise No.2
Study of branch expansion demand and supply of institutional agricultural credit
=====================================================
The credit needed by farmers to grow the agricultural credit. Credit is required in every type
of business and agriculture is not exception to it. The need for agricultural credit however becomes
all the more important when it moves from traditional agriculture to modern agriculture.
Demand- Demand normally means the desire or willingness for a good but in economics simple
desire or willingness for a good may not represent demand.
Need for demand for institutional agricultural credits-
1. Purchase of new inputs- The farmer needs finance for purchase of new inputs which includes
seeds, fertilizers, pesticides etc. If the seeds of high yielding varieties and other modern inputs are
made available to the farmers they can increase productivity not only of the land but also of the
labours.
2. Purchase of implements- Credit is required by the farmers for the purchase of water pumping
sets,tractor etc, the use of appropriate machinery in a land will increase production by growing more
than one crop on the same piece of land at the same time.
3. Better management of risk-Credit make the farmers to better to manage the risk uncontainable
prices they can borrow money during bad years and payback the loans during good years of crop.
4. Permanent improvement in land-Credit also helps the farmers to make permanent
improvements in land like sinking of wells, land reclamation.
5. Better marketing of products-If timely credit is available to the farmers they will not sale the
produce immediately after the harvest is over. At that time the prices of agricultural goods are low in
market.
6. To face crisis-The credit is required by the farmers to face crisis. The crisis can be caused by
failure of crops droughts or flood etc .
7. Purchase of cattle-The farmer needs credit to the purchase cattle, because the farmers needs
credit to purchase cattle, because mostly remain free after cultivating the firm.
Payment of ancestors debt-Most of the farmers remain in debt due to their ancestors.
Consumption expenditure-The farmers need loans for getting married their children etc on which
they spend a lot. The reasons contributing in the demand for agricultural for development in
agriculture and provide standard living to people.
Sources of agricultural credit-Credit in the farm sector is available from two sources-
1] Institutional sources
2] Non- institutional sources
Institutional sources of credit-
a] Agricultural development bank b] Commercial bank
c] Cooperative bank d] Taccavi loans
Non -institutional sources of credit-
a] Money lenders b]Friends
c] Relatives d] Landlords
e] Shopkeepers f] Commission agents
Relatives-Any loans that was taken free of interest by a farmer was only consider as a loan from
relatives.
Landlords-When leasing out activities prevails in agriculture this type of loans are often times
found when land lords advances loans to the tenants.
Agricultural money lenders-There are those, whose main occupation is agriculture from money
lending activity are professional money lenders.
Commission agents-Commission agent’s advances loans to the farmers for short period.
Supply of institutional agricultural credit:
Share of commercial banks in total institutional credit to agriculture is almost 48 per cent
followed by cooperative banks with a share of 46 per cent. Regional Rural Banks account for just
about 6 per cent of total credit disbursement
What are institutional Agencies supplying Agricultural Credit?
Institutional Financing Agencies for the Agriculture Sector
1.Co-operative Societies. The best and cheapest source of India's rural credit is cooperative finance.
2.Land Development Banks, 3.Commercial Banks, 4.Regional Rural Banks, 5.Government,
6.Moneylenders, 7.Traders & Commission Agents and 8.Landlords.
Who is major part agriculture credit supplied by: Agricultural credit is disbursed through multi-
agency network consisting of Commercial Banks (CBs), Regional Rural Banks (RRBs) and
Cooperatives.
Overdues: A lot of individuals take loans at various junctures to meet their different financial
requirements. However when they are faced with financial crunch during this time, there could be
outstanding payments towards these loans.
Clear off Overdue: An individual can begin taking action degree before the officially late on any
payment. He may still have several options to lighten or get rid of the burden of overdue payments
including, 1) Pay Late, 2) Refinances, 3) Personal Loan and 4) Communicate with lenders.
1) Pay Rate: It is best to make loan payments on time, but if one can’t do that, slightly late is better
than really late. In many cases, those late payments are not even reported to a credit bureous, so that
credit will not be damaged. This leaves on individual the option of refinancing debt. Consolidating
with a personal loans results in lower interest cost and a lower required payment plus new loan
typically gives a borrower more time to repay.
2) Personal Loan: Consolidating with a personal loan can help get an approved loan. If a borrower
puts his house on time as collateral he could lose it in foreclosure making things difficult for him
and his family. Having a personal loan to overcome overdue payments.
3) Communicate with Lenders: If a borrower foresees trouble making payment it is best to talk with
the lenders.
Loan Waiver: A loan waiver is the waiving of real or potential liability of the person or party who
has taken out a loan through the voluntary actions of the person who has made the loan then there is
a poor monsoon or natural calamities. Farmer may be unable to repay loans.
Importance of farm loan waiving
The agriculture sector in India has been facing many issues fragmented land holding, depleting
water table levels, deteriorating soil quality, rising input costs, low productivity. Also many small
farmers are not eligible for bank credit borrow at exorbitant interest rates from private sources.
Exercise-3
An overview-Rural lending programmes of Commercial banks, Lead Bank
scheme
=============================================
Study of rural lending programmes of commercial banks
What is meaning of rural lending: Rural credit refers to any kind of loan or financial assistance that is
taken by the people residing in the rural areas for the purpose of agriculture or setting up small
businesses.
Importance of lending in rural area: In the absence of good monsoon or crop failure, farmers are
worst hurt. Thus, in order to save them from such tragedy, crop insurance and farm credit plays a vital
role. The credit can help farmers acquire seeds, tools, fertilizers, and more, which are essential parts
of their trade. Another valid reason for availing of Rural Credit is to mitigate personal expenses, such
as marriage, religious functions, death, and more.
Introduction of Commercial Banks:
Commercial banks play a vital in economic development of a nation. They are the most important
source of institutional credit in the money market as they provide short term loans and advances
functions to its customers . They perform a variety of functions and are the main source of credit
which is main input for trade and business activity.
Commercial bank is a type of financial intermediary and a type of bank commercial bank has two
possible meanings.
a) It is tem used for a normal bank to distinguish it from an investment banks.
b) Commercial banking can also refer to a bank or a division of bank that mostly deals with deposits
and loans from cooperation as opposed to normal individual member of the public.
Definition: Commercial banks are institutions whose debts usually referred to as bank deposits are
commonly accepted to as final settlement of other peoples’s deposits.
Type of Commercial banks:
1. Scheduled Banks
2. Non-scheduled Banks
1) Scheduled Banks –
A scheduled banks is one which is registered in second schedule of the RBI. The following conditions
must be fulfilled by a bank for inclusion in schedule.
1. The banker concerned must be in business of banking in India.
2. It is either a company defined in section 3 of Indian companies Act 1956 or cooperatives or
company incorporated by or under any law in face in any place outside. Indian or an institution
notified by central government.
3. It must satisfy the reserve bank India (RBI) that its affairs are not conducted in a manner
detrimental to the interests of its depositors.
2) Non-scheduled Banks –
Banks which are not included in second schedule of the RBI, are known as non-scheduled banks.
a) Banks with paid-up capital and reserves ranging between Rs 50,000 and one lakh of rupees.
b) Banks with paid up capital and reserves in excess of Rs 5 lakh.
c) Banks with paid up capital and reserves ranging between one lakh of rupees and 5 lakh.
d) Banks with paid up capital and reserves below is 50,000 Non-scheduled banks are not entitled to
all those facilities that the schedule banks avail of from the RBI since the enactment of the banking
regulation Act 1949, non-scheduled bank have also come under the admit of RBI control.
Name of banks providing commercial banking services in India: Allahabad banks, Andhra Banks
Bank of Baroda, Bank of Maharashtra, Bank of India, Bank of Punjab, Bank of Madura, Canara Bank
Central Bank, Cooperation Bank, DCB, Dena Bank, Federal Bank, HSBC in India, ICICI Bank,
Indus bank Ltd. And State Bank of India.
Lead Bank Scheme: The National Credit Council (NCC) has appointed a study group in 1969 under
the chairmanship prof D.R. Gadgil to suggest on appropriate organizations from work for effective in
combination of social objectives. The study group recommended the area approach for development
of financial structure through intensive efforts in the same year RBI appointed Shri K.F .Nariman
committee endorsed the view of the study group on area approach and recommended the formulation
lead bank scheme the RBI associated the recommendation and lead bank scheme come into force
from 1969.
What is a Lead Bank Scheme?
The Lead Bank Scheme was launched in 1969. It's designed to provide banking and credit to rural
areas. The scheme follows the 'service area approach.' A specific bank services each area. The Gadgil
Study Group and Banker's Committee suggested the scheme. They found that rural regions needed
more banking services. This was due to the need for more commercial banks.
Aim of Lead bank Scheme: The objective was to ensure financial inclusion and provide banking
services. The scheme aimed to serve all sections of society. The Lead Bank Scheme aimed to
establish a lead bank in every district of India. The lead bank would coordinate with other banks and
financial institutions in the area
Phases:
Lead Bank Scheme has two important phases
1 .Phase I (Survey of lead districts)
The RBI while implementing the lead bank scheme mentioned following functions. Surveying
the potential across for development of banking in district. Identifying the business establishment
which were higher to dependent upon non-institutional agencies financial them so as to form the
advances. Involving the cooperation of other bombs. Operating in the district for opening branches.
Bristrinating the credit economy.
Objectives –
1. Eradication of unemployment and under employment.
2. Appreciate rise in standard of living for poorest of poor.
3. Provision of some basic needs of people who belong to poor sessions of society.
Functions:
1. Survey resources and development of banking in the area.
2. Survey the dependency on lenders by farms.
3. Survey the facilities for starting, marketing, credit facilities for marketing.
4. Offering training to staff for advice to small borrowers and farmers on priority sectors.
5. Assist other agencies and involve cooperative banks, RRB’s, SFC, KVIB, and NABARD.
Lead Bank Committee:
1. SLBC –State Level Bankers Committee – state level
2. DCC- District Consultative Committee-District level
3. BLBC –Block level Bankers Committee-block level
Preparation of district plan
District is the most suitable administrative unit for decentralized planning below the state level as it
processes the required heterogeneity.
The approach suggested for the preparation of district plan is as follows:
Steps-
The sequence in preparation of district plan can be as follows –
Preparation of district vision, block vision and gram panchayat level vision
 Preparation of participatory plan involving gram sabha from gram panchayat to Zillha parishad
Preparation of plants by urban local bodies

Consolidation of plants prepared by local bodies by district planning committee

Exercise No. 3
Preparation of District Credit Plan
==========================================
Credit Plan means a plan pursuant to which an Accountholder agrees to repay amounts due from
such Accountholder to Bank under an Account. A Credit Plan may be a: Regular Revolving Credit
Plan or a Special Credit Plan.
District Credit Plans: The district credit plan is based on the strategy of development sustainable to
a particular district taking into account principle economic activities and their potential for
development
Important Credit Plan: The credit plan should help your organization accomplish many goals,
including reduction in bad debt and write-offs, as well as improvements in sales to cash payment
cycles and improved profitability. The plan should include a mission statement or well-defined
company goal.
Steps/Phage of District Credit Plans:
1. Preparation of the district credit plan.
2. Formulate banking loaning scheme having labour intensive orientation so as to generate
employment.
3. Provide desired loan to increase the productivity of land and allied activities.
4. Reduce unemployment and thus increase income level.
5. Give maximum credit to weaker sections.
The preparation and implementation of District Credit Plans, mandated by the Lead Bank Scheme,
can take time and effort to achieve uniformly across all districts. This can result in disparities in credit
allocation and the implementation of development programs.
Lead Bank Scheme is aimed at achieving the national plan objectives viz., (i) Removal of
unemployment and under-employment; (ii) Appreciable rise in the standard of living of the poorest
sections of the population; and (iii) Provision of some of the basic needs of the people belonging to
the poorer sections.
To achieve these goals, District Credit Plans are prepared under Lead Bank Scheme to focus
on: 1.Increasing productivity, production and employment opportunities in different sectors in rural
areas, especially among weaker sections, to enable them to move above the poverty line.
2. Promoting balanced development of different districts/ blocks within the districts
3. To achieve these goals, there would be need to lay more stress on promoting optimum use of land,
labour and financial resources for promoting productivity and production. It is also necessary to
further improve the co-ordination arrangements between Government development programmes and
bank lending and promote availability of institutional credit assistance.
Allocation of Districts: All the districts of the country have been allocated to the banks (public
sector and to a few private sector). The bank, which has been assigned the lead bank responsibility, is
called Lead Bank of the district and such district for the Lead Bank shall be termed as Lead District.
The distribution of districts was mainly done on the basis of certain criteria like size and resources of
a bank, geographical contiguity, and ability to undertake lead responsibilities.
Lead Bank Fora:
For successful implementation of Lead Bank Scheme, there are various co-ordination forums created
for realistic credit planning, to discuss and solve operational difficulties and monitor the performance
of the participating Credit Institutions, agencies, etc. at Block, District, State and National Levels.
These forums are:
Block Level: Block Level Bankers’ Committee (BLBC)
District Level: 1.District Consultative Committee (DCC) &2.District Level Review Committee
(DLRC).
National Level: 1.High Power Committee (HPC), 2.Regional Consultative Committee (RCC)
1. District Consultative Committee DCC: (Total membership= 20-25 members). Conducted
by the Lead District Managers on quarterly basis and presided over by the District
Development Commissioners.
2. Standing Committee Meetings: Conducted by Lead District Managers on monthly basis.
(Usually the meeting of Standing Committee is not held in the month in which the meeting of
DLRC is held).
3. DLRC Meetings: These meetings are required to be held at quarterly basis to review
performance of banks under District Credit Plan. The meetings are presided over by the
District Development Commissioners.
4. Block Level Bankers’ Committee (BLBC) Meetings: Lead District Managers functions as
Chairman of BLBC and meetings are convened on quarterly basis in every block of the
 district. The district comprises of various blocks. Senior most Branch Manager of the Block
located at Block Headquarter) of the Lead Bank happens to be the Convenor of BLBC forum.
Preparation of District Credit Plans: District credit are simply aggregation of the Block credit
plans of the blocks falling in a district. These aggregates are compiled, collated, reviewed and
finalized in DCC meetings and given the final shape of annual District Credit Plans. The District
Credit Plan represents the aggregation of block credit plans/credit plans of all credit agencies
operating in the district.
ce:The time frame for preparation of Annual credit plan/ District credit plan at glance:
1. Supply of a Background papers by the Lead Banks to Branches. 15htDec.
2. Preparations of Branch credit plan by branches. 31st Dec.
3. Approval of Branch credit plan by controlling office. 31st Jan.
4. Finalization of Branch Credit plan at BLBC. 28th Feb.
5. Aggregation at block level. 15th Mar.
6. Aggregation at district level. 31st Mar.
7. Launching of district credit plan. 1st April.
 Exercise No. 5
Rural lending programmes of Co-operative lending Institutions
=============================================
The co-operative movement in India traces its origin to a period as early as 1904, when the
Co-operative Credit Societies Act was enacted. As far as co-operative sector is concerned, Maharashtra is
the most developed state in the country.
After independence, the government of India following the recommendation of all India Rural Credit
survey committee (1951) felt that cooperatives were the only alternative to promote agricultural credit
and development of rural areas.
The short-term co-operative credit institutions have a three-tier structure comprising State Co-operative
Banks (SCBs), Central Co-operative Banks (CCBs), and Primary Agricultural Credit Societies
(PACSs) which are not banks but only societies
Cooperative Credit Structure
ST and MT loan (Three-tier system) LT Loan (Two-tier system)
State Cooperative bank (SCB) Central Land Development Bank
(CLDB) (At state level)

District Central Cooperative Bank Primary Land Development Bank

(DCCB) (At district level)

Primary Agricultural Cooperative Credit Societies

(PACS) (At village level)
The activities of the members. Banks and mobilize and deploy the financial resources among the
members banks
Function:
1. They help the State governments in the formulating development plans with regard to cooperative
institutions.
2. They coordinate the policies of the cooperatives worth with the government
3. They formulate and implement uniform credit policies regarding Cooperative development in state
4.They grant subsidies to DCCBS for smooth functioning of Cooperatives
[B]District Central Cooperative Banks (DCCBS)
These banks are in fact the link between state- Cooperative Banks and PACs. They are basically
meant to meet the credit requirement of PACS .They also undertake banking, business functions such
as accepting deposits. From public, collecting bills, Cheques, draft and providing credit to needy
persons.
Functions:
1.They supervise and inspect the activities of PACS & help the credit Societies run smoothly.
2.They Maintain close & continuous contact & guide the primary societies and promote leadership to
them.
3.They undertake non- credit activities like supply of seeds fertilizers besides sugar etc.
4.They provide requisite funds to societies under their control .
C) Primary Agricultural Cooperative credit societies (PACCS)
Consequent to the enactment of cooperative Societies act of 1994, PACS came into operation
following the guidelines of the Raifessen model. The cooperative principles like limited liability
limited area of operation honorary management, Voluntary participation of villages, etc. were framed
for smooth functioning of societies. The Societies are at the village level. And directly meant for
farmers reading provision of requisite Short term & medium term loans.
Functions-
1.They borrow adequate & timely funds from DCCBS and helps of the members in financial matters.
2.They attract local savings in the form of share capital & deposits from villages.
3.They supervise the end use of credit
4.They distribute fertilizer, insecticide etc to the needy farmers.
Two Tier System
A) Central land development Bank (CLDB)
As an Apex bank in the two tier cooperative Credit Structure, it provides long term finance to
PLDBS & also to its affiliated Branches working in states branches of CLDBS and PLDBS &
individual entrepreneurs are members of CLDB NABARD & LIC Suscribe for its debentures in
large amounts in fact NABARD is refinancing agency to the CLDBS it acts as a link between
NABARD & Government in long term banking transactions
B) Primary Land Development The establishment Banks (PLDBs)
The establishment of land mortgage bank on co-operative lines dates back to the year 1920. In punjab
later during the period 1920-29, many land mortgage banks were established in Punjab, modrar,
mysore, Assam & Bengal. There was not much growth in land mortgage Banks till 1945, however all
 round progress of these growth in land mortgage banks till 1945 In the Year 1947 the LMBS were
renamed as LDBs given to agricultural development
Functions
1.They provide long term finance to the needy farmers for the development of land, agricultural
production &Productivity
2.They provide loans for minor irrigation & for redemption of debts & purchase of land.
3.They finance farmers in purchasing tractors, machinery & equipment
4.They mobilize rural savings.
Exercise No. 6
Preparation of Financial Statements using farm/firm level data
============================================================
PREPARATION OF FINANCIAL STATEMENT FROM FARM/ FIRM DATA
Tools of farm financial analysis-
A. Balance sheet Statement
B. Cash Flow statement.
C. Income Statement
[A] Balance Sheet (or Net worth Statement)
Management component plays a pivotal role in managing higher financial outlays. Nevertheless,
management of finance is equally important even for a small farmer, if not, at the magnitude that is
viewed at by a large farmer in the farm business.
The balance sheet indicates an account of total assets and total liabilities of the farm business
revealing the financial solvency of the business. More especially, it is a statement of the farm business.
The balance sheet indicates an account of total assets and total liabilities of the farm business revealing
the financial solvency of the business. More specifically, it is a statement of the financial position of a
farm business at a particular time, showing its assets, liabilities and equity. If the assets are more than
liabilities it is called net worth or equity and its converse is known as net deficit.
The typical balance sheet (Examples given below) shows assets on the left side and liabilities and
equity on the right side. Both sides are always in balance hence the name balance sheet. Net worth is
placed on the right side, along with liabilities, in order to indicate that like any other creditor the farmer
has a claim against the farm business equal to the equity amount. The balance sheet can be easily
prepared by the farmer in the presence of farm records. It can be prepared by the farmer in the presence
of farm records. It can be prepared at any point of time to know the financial position of the farm
business. It can also be prepared to study the performance of a business over years by preparing the same
number of balance sheets. If the net worth increases over the different periods, it indicates efficient
performance of the business. To prepare a balance sheet the prime requisites are total assets and total
liabilities of the farm.
1.Assets : Assets are those which are owned by the farmer.
2.Liabilities : These refer to all things which are owned to others by the farmer.
Assets are of three types viz; Current, Intermediate or Working and Long term or Fixed. So also the
liabilities. This classification of assets facilitates the analysis of liquidity of the farm business.
1.ASSETS
a.Current Assets : They are very liquid or short term assets. They can be converted into cash, within a
short time, usually one-year. For example, cash on hand, agricultural produce ready for disposal.
Examples : Stocks of Cereals, Pulses, Oil seeds, etc. (i.e. Farm produce ready for sale)
b. Intermediate or Working Assets: These assets take two to five years to convert into cash form.
Examples: Machinery, Equipment, Livestock, Tractor Implements, etc.
Long term Assets or Fixed Assets: An asset that is permanent or will be used continuously for several
years is called a long term asset. It takes longer time to convert into cash due to verification of records,
legal transactions, etc. Examples: Land, Farm buildings, etc.
2.LIABILITIES
a. Current Liabilities: Debts that must be paid in the short term or in very near future.
Examples : Crop loans, Other loans, Cost of maintenance of cattle, etc.
b. Intermediate liabilities: These loans are due for the repayment within a period of two to five years.
Examples: Livestock loans, Machinery loans, etc.
c. Long- term Liabilities: The duration of loan repayment is five or more years.
Examples: Tractor with Implements loan, Orchard development loan, Land development loan, etc.
[B] Income Statement (or Profit and Loss Statement)
It is also called as Income statement. In income statement, the items included are Receipts,
Expenses, Gains and Losses. It could be defined as a summary of receipts and gains minus expenses and
losses during a specified period. This entirely different from balance Sheet in sense that in balance sheet,
we considered assets & liabilities & did not consider operational efficiency in terms of receipts expenses..
It is prepared for the entire farm for one agricultural year. In income statement monetary values are
assigned to inputs and output. It is also prepared over time.
The advantages of this statement are that it indicates the trend in various cost items and whether
there has been any over expenditure on the farm. Thus, it helps to know the success or failure of a
business farm over time. Income statement basically constitutes three items, viz., receipts, expenses and
net income. Income statement of a hypothetical farm is presented in Table.
i. Receipts: Receipts mean the returns obtained from the sale of crop produce and other
supplementary products like milk and eggs, wages, gifts, etc. Gain in the form of appreciation in the
value of assets is also included in the receipts. However, returns from the sale of capital assets, such as
livestock, machinery, farm buildings, etc. are not included because such returns/income are not really
obtained during the period.
ii. Expenses: Operating and fixed costs are recorded here. Losses in the form of depreciation on the
asset value fall under the expenditure item. However, the amounts incurred on the purchase of
capital assets
are not considered.
iii. Net income: It constitutes net cash income, net operating income and net farm income.
iv. Net cash income: It gives the position of cash receipts minus cash expenses only during the period for
which income statement is prepared
v. Net operating income: It is arrived at by deducting operating expenses from the gross income. Fixed
costs are not given any consideration. Operating expenses include crop loans.
vi. Net farm income: Net farm income equals net operating income less fixed costs. Compared to net
cash income and net operating income, it is relatively a better measure of assessing the performance of a
farm. It is the return accrued to own capital and family labour employed.
Income statement prepared for a given farm for a given year may present a very bright picture of
the farm. The same position cannot be taken for granted as the actual position of the farm, since the said
year might have been a good agricultural year with respect to weather, yields, prices, etc. a realistic
position on the performance of a farm can be gauged by preparing income statements over years to show
the actual situation, as the parameters influencing farm business are subject to fluctuations.
C) Cash flow statement-
1.This is also known as cash flow budget or cash flow summary or flow of funds Statement Cash Flow
Statement is summary of cash inflows of cash outflows of business organizations in particular period
2.It is usually prepared for future.
3.Cash Flow statement prepared at the beginning of agril years & check every quarterly.
Example No.1: Balance Sheet of a Hypothetical Farm
Assets Amount Liabilities Amount
(in Rs.) (in Rs.)
Current assets Current liabilities
Cash on hand 10,000 Crop loans to be repaid to institutional 8,000
agencies
Saving in bank 8,000 Cost of cultivation (excluding loans) 6,000
Value of grains ready for 38,500 Other loans (unsecured loans due to for 5,000
disposal immediate repayment)
Livestock products (eggs, 60,000 Cost of maintenance of cattle 3,600
 birds etc.)
Friuts, vegetable, fodder 8,000 Cost in poultry enterprise 25,000
and feed ready for sale
Value of bonds and shares 2,000 Annual instalments 19,000
to be realized in the same
year
Sub total 1,26,500 Sub total 66,600
Intermediate assets Intermediate liabilities
Dairy cattle 10,000 Livestock loans 8,000
Bullocks 9,000 Machinery loan 15,000
Poultry birds 15,000 Unsecured loans 10,000
Machinery and equipment, 15,000
Tractor 1,75,000
Sub total 2,24,000 Sub total 33,000
Long-term assets Long –Term Assets
Land(Book value) 6,00,000 Tractor loan 1,20,000
Farm buildings 25,000 Orchard loan 25,000
Unsecured loans 10,000
Sub total 6,25,000 Sub total 1,55,000
Total assets 9,75,500 Total liabilities 2,54,600
New worth or equity 7,20,900

Example No.2: (Students are instructed to attach the separate sheets here for each Example)
Exercise No. 7
Study of Farm Credit Appraisal Technique and Farm Financial Analysis through
Financial Statement
=====================================================
Agricultural credit-
It is the amount of investment Funds made available for agriculture Production from resources
outside the sector.
Introduction of farm credit Appraisal Technique –
The recommended analytical methods for appraisal are generally discounted cash flow
techniques which take into account the time value of money people generally people to receive
benefits as possible while paying costs as late as possible costs & benefits must take into account the
time at which they occur.
This concept of time preference is fundamental to proper appraisal & so it as necessary to
calculate the Present Value of all Costs & benefits.
An understanding of discounting & Net present value (NPV) Calculations is fundamental to
proper appraisal of projects & programmes. A good understanding of cost benefit Analysis (CBA),
Internal Rate of return, Multi Criteria Analysis (MCA) & cost effective analysis is also essential for
economic appraisal purposes.
1. Net Present Value
 In the NPV model, the revenue and costs of a project are estimated & then are discounted &
compared with the initial investment.
 The Preferred option is that with the highest positive Net Present value Projects with negative
values should be rejected because the present value of the stream of benefits is insufficient to
recover the cast of project compared to other investment appraisal techniques such as the internal
rate of return (IRR) & discounted Payback period, the NPV is viewed as most reliable technique to
support investment appraisal decisions.
 Using different evaluation techniques for same basic data may yield conflicting conclusions.
 In choosing A & B the NPU method may suggest that option A is preferable, while the IRR
method may suggest that B is preferable.
The NPV of project can be estimated wing formula as given below.
NPV = Cash flow / (1 + i)^t – initial investment.
Where,
Bn =Benefits in nth years
Cn =Cost in nth years
I= discount rate
n= Life span of projects.
2. Benefit Cost Ratio (BCR) –
 The BCR is the discounted net revenues divided by the initial investment
 The preferred option is that with the ratio greatest of excess
 In any event, a project with a benefit cost ratio is less than one should generally not proceeds.
 The advantage of this method is simplicity.
 Using the BCR to rank projects can lead to suboptimal a project with a slightly higher BCR
even though the latter project has the capacity to generate much generate economic benefits
because it has a higher NPV Value & involves greater scale.
 The BCR can be calculated using the following formula-
BCR formula = PV of Benefit Expected from the Project / PV of the Cost of the Project.
3. Internal Rate of Return-
 The IRR is the discount rate which, when applied to net revenues of a projects met sets them
equal to initial investment.
 An IRR of 10%.means that with discount rate of 10% the of a project breaks even
 If it is possible for two projects to have the same TRR but have different NPV (Net present
Value) values due to differences in the timing of costs & benefits.
 In addition applying different appraisal techniques to the same basis data may yield
contradictory conclusions. Then by interpolation method the exact IRR is found out Using the
following equation / formula.
[Note : Exercise to the Students- Explain each of these ( Rs and Cs ) ]

Exercise No.8
STUDY OF PERFORMANCE OF MICRO FINANCING INSTITUTIONS NGO’S, SHG’S
=======================================================================
Microfinance: Microfinance, also called microcredit, is a type of banking service provided to low-
income individuals or groups who otherwise would have no other access to financial services.
Extension to small loan to entrepreneur too poor to quality for traditional bank loans.
In developing countries especially, Micro- credit enables very poor people to encourage in sale
employment projects that generate income.
Through micro financing has got its root from development of Gramin Bank in Bangladesh in 1976 in
order to give further fill up to micro- Finance movement.
The RBI loons enabled Access NGO’s engaged external in micro-finance activities to access external
Commercial borrowings (ECA) up to Us $ 5 million during a financial year for permitted
Micro-financing Institutions
A) NGO’S
B) SHG’S
A) SHG’s (Self Help Group)
In the year 1992, the National Bank for Agriculture and Rural Development (NABARD)
introduced a pilot project for linking 500 Self-Help Groups (SHGs) with banks, after thorough
discussions with the RBI, commercial banks and non-governmental organizations (NGOs).
Meaning: Self Help Groups are financial intermediary Committee usually composed of two to 20
local women. Or men between 18 to 40 years.
Structure: A SHG is a Community based on group with 10-20 members.
Structure: Staffing Some NGOS daily on. Paid staff others are based on Volunteers although many
NGOs are international staff in developing to Countries. Other rely on local employees See a person
frogman industrialized country. Or volunteer’s foreign staff may satisfy a donor the supported project
managed by.
Funding: NGOS are usually funded by donations but some avoid Formal Funding & are rain by
volunteers NGOs may have Charitable Status or may be tax- exempt in recognition of their Social
purposes, others may be fronts for political religious or other intersects.
Features: 1.Support Democratic system, 2.function on no profit loss, 3.Non- political in character
4. Clearly defined objectives, 5.Limited external control, 6. Voluntary character, 7.Wide operational
areal and 8. Positive Contribution.
Activities of NGO’s.
1. Great awareness.
2. Protect human rights.
They are usually women from similar social & economic backgrounds, all voluntarily coming
together to save small sums of money on a regular basis
In India, RBI regulations mandates that banks offer financial services, including collateral free loans
to these Group on every low interest rates Beyond their functions as a savings & credit group SHG’S
offer poor women a platform for building solitary.
Goals: 1.Empowering women, 2.Developing leadership abilities among poor & needy people,
3 .Increasing school enrolments, 4.Improving nutrition to child and 5.Use of birth control.
NGOS (Non- Government Organization)
Introduction-
Organizations are independent of government Involvement are known as non-governmental
organization Or NGOS. NGOs are sub group organizations are developed by citizens. Which includes
Clubs & associations which provide services to its Members & others.
Type of NGO:
1. Orientation.
2. Level of participation.
3. Encourage rehabilitation.
4. Gainful employment.
5. Combat man made crisis.
6. Protect environment.
Advantages
1. Ability to experiment freely
2. Flexible in adopting to local needs.
3. Enjoy broad support with people
4. Ability to communicate at all levels.
5. Less restrictions from government
 Disadvantages
1.Lack of funds, 2. lack of dedicated leadership, 3.Inadequate trained personnel, 4.Misuse of
funds and 5. Lack of public participations.

Exercise No.10
Identification and formulation of investment project
======================================================================
In agricultural projects Costs Are easier to identify than benefits. Because the expenditure
pattern is easily visualized. The various types of costs involved in projects are,
1. Project Costs- These includes the value of resources in Maintaining & operation the projects.
2. Associate Costs – These include producing immediate Products & Services of the project for use or
sale.
3. Primary costs or direct Costs-These includes the costs Incurred in Construction, maintenance &
execution of project.
4. Indirect Cost-The Value of goods & services incurred In providing indirect benefits from projects
such as houses ,Schools etc,.
5. Real Costs & nominal Costs- Costs At current market Price are nominal costs whereas as if costs are
deflated by general price index these are termed as real costs.
6. Social Costs- These are technological externalities &Technological spill over occcused to the Society
due to presence of projects i.e., Pollution problems, health hazards.
Benefits are split into two
A] Tangible benefits
B] Intangible benefits.
A] Tangible Benefits:-
Incremental income due to existence of project is obtained from following changes.
1. Improvement in cropping pattern involving high value crops.
2. An increase in the productivity of crops.
3. Adoption of recommended package of practices.
4. Increase the Intensity of cropping
5. Reduction in the cost of cultivation of crops
6. Large scale economies. Due to specialization
B] Intangible Benefits-
These includes better income distribution, national Integration, better standard of living etc
The important stages. In the process of identification are
1) Preliminary study
2) Pre-feasibility study and
3) Project report
Some of the sources through which projects identified are
1) Agricultural and allied programmes proposed in the plans of the country as well as states.
2) Areas identified potential of further development Government surveys.
3) Special development programmes. Like IRDP
4) New projects emerging out of existing projects etc
Formulation of Investment of projects:
The following points are considered while formulating the projects. The location of the
project of & project site must be based on technical analysis & technical feasibility of the project. The
location of the project depend upon available. Physical resource, market Condition, marketing
facilities. Alternatives Investment prospects, administrative experience, farmer’s objectives etc.
Assessment of suitability & adequacy of natural resources in advance based on the scientific
investigations is also essential.
The above aspects of the projects are briefly outlined here under
1.Technical aspects : The issues, which need technical examination are thoroughly analysed here for
example, in the case of -agricultural project’s, the issues includes the aspects relating to the
preproduction, production & post-production aspects, To begin with, we have to examine the soil.
Types, problems associated. With different types of soils, potentiality which the sails affect for
development, irrigation Supply & availability of other complementary inputs as per choice
2. Financial aspects: Here, we have to find out the Sources of raising financial assistance & terms &
conditions of obtaining finance from the Credit agencies. The implementing agency should be in a
position to estimate the financial requirements. & anticipated returns, through farm planning &
budgeting.
3. Commercial aspects: These aspects focus on estimation of effective demand Availability of input
supplies & agreements for output marketing Market potentiality for products needs careful scrutiny.
4. Managerial aspects: If we want successful implementation of the project effective managerial
issues are very crucial. The need to identify the beneficiary is the foremost item once Identification
the process is over, we have to find out the managerial issues are very crucial. The managerial skills
can be sharpened, if necessary technical skills are impacted by the extension agencies who have the
one row responsibility to transfer of technology
5. Organisational aspects: Organisation refers to the process of putting the Priorities is an orderly
form. Prepare the organizational Hierarchy of implementing agency
6. Social Aspects: Here customs, culture, traditions, habits etc of the benefits are considered
7. Economic aspects: Here we have to examine the benefits which the Projects, which the project is
going to Contribute in terms. Of the utilization of scarce resources of the nation. The points of merit
is to whom the project is going to Benefit ie. To one Section of society or entire area of Project.

EXERCISE NO. 10
Project appraisal techniques-Undiscounted measures and their limitations
=================================
Important Investment Appraisal Criteria: criteria are classified into two approach
1. Undiscounted measures
2. Discounted measures
1. Undiscounted measures: The undiscounted measures are the naïve method of choosing the
alternative projects. The Methods listed these measures often mislead in ranking of the project and
hence, choice go wrong.
Undiscounted Measures ignores the time value of money it includes.
a. Ranking by inspection
b. Payback period.
c. Proceeds pre rupee of outlay
d. Average annual proceeds of rupee outlay.
A ) Ranking by Inspection
It is based on the size of costs & length of cash flow Stream. Suppose if the two projects are
with some investment, same net value of production, but with difference in in length of period, then
the project with longer duration is preferred to the one with shorter time period.
B) Proceeds per rupee of outlay
This is worked out by dividing the total proceeds with total amount of investment, and a given
project is ranked based on highest magnitude of parameter.
C. Average Annual proceeds of rupee outlay
This another simple choice criterion and in this procedure, total receipts are first divided by
project life span and the average proceeds obtained per year are divided by initial investment on
project. Here too, ranking is given to the projects, based on the highest magnitude of the estimate.
D. Payback period-
Another Simple method of ranking is the length of time required to get back the investment on
project. Pay back period of the project is estimated by using the straight forward formula:
P=I/E
Where,
P: Payback period of project (Y.)
I: Investment of project (Rs)
E Annual Net Cash Revenue (Rs)
Advantages
 It is simple both in concept & application. It doesn’t involved concept and tedious calculations
and has few hidden assumptions
 It Is rough & ready method. for dealing with risk.
 It emphasizes either earlier Cash inflows, it may be Sensible criterium when firm is pressed
with problem of liquidity.
Limitation
 It fails to consider the time value of money.
 Ignores cash flows beyond the payback period.
 Since the payback period is Measures of project capital Recovery.
 It may divert attention from profitability

[Examples based on Non-Discounting criteria:

(Two examples of each criterion)
(i) Payback period
(ii) Accounting Rate of Return and
(iii) Debt Service Coverage Rate
Exercise No.11
Project Appraisal techniques- Discounted measures
=============================================================
Discounted measures consist:-
1. Net present worth.
2. B:C ratio
3. IRR
4. Profitability Index
1. Net Present worth: This is simply the present worth of the cash flow stream. Sometimes, it is
referred to as Net Present Value (NPV). The choice of discount rate to be used in the measurement of
Net Present Worth (NPW) poses many problems as discussed earlier. NPW is helpful in working out
benefit-cost ratio of the project. The selection criterion of the project depends upon positive value of
net present worth, when discounted at opportunity cost of capital.
This discounted Measure could be satisfactorily done, provide there is correct estimate of
opportunity cost of capital. NPW is an absolute measures, but not relative. NPW of the project is
estimated using the following formula.

Where,
P= Net Cash Flow for 1st year
I = Discount rate
T=Time period.
C = initial Cost of investment
2 Benefit Cost ratio
Absolute value of BC ratio will change based on the interest rate choosen.

3. Internal Rate of Returns-

In the consumption of IRR, the time value of money is accounted. The method of working IRR
provides the knowledge of actual rate of IRR return from different projects. IRR also known as from
marginal efficiency of capital or yield on the investment. IRR is discount rate at which present value
of net cash flow are just equal to zero.ie NPW = 0.

Profitability Index: Here we relate the NPV of the cash flows of the project to the total capital
required (cr) for a project through Profitability Index. It is defined as the ratio of net present values of
the cash flows to the initial capital expenditure (cr). Assuming that all the capital expenditure is
incurred in year zero, the profitability index (PI) is as follows:

PI = NPV/ Co
Where,
PI= Net Present value of cash flow / Original amount invested
Is defined as the ratio of NPV of cash flows to initial capital expenditure
Limitation of project Appraisal-
1. Quality of project analysis depends on the quality of data & forecast made. About Costs & benefits
2. In view of the uncertainty about the future it Impossible to quantity completely the risks.
3. Project analysis is a partial analysis where it is assumed that project will not change the
macroeconomic variable.
4.It is useful device. Where benefits can be quantified.
5. Project analysis. Is useful when there is a definite Starting & Finishing points
6.There is a Conflict of evaluation in project analysis.
7.Project analysis is a useful tool only if major part. Of benefits are quantifiable.
[Examples based on discounting criteria: (Two examples of each criterion)]

1. Net present worth.

2. B:C ratio
3. IRR
4. Profitability Index

(1) Net Present Value (NPV) :

The net present value of a project is equal to sum of the present value of all cash flows
associated with the project.
Symbolically, NPV is expressed as-
CF0 CF1 CFn
NPV = --------- + ---------- +…….....+ -----------
(1+k) (1+k)0 (1+k)n

(CFt)
= ∑ ------------
(1+k)t

Where,
NPV = Net Present Value
CFt = Cash flows occurring at the end of year t
(t = 0, 1,…..,n)
[A cash flow has positive (+) sign whereas cash outflow has negative (-) sign]
n = Life of project and
k = Cost of capital (Interest) used as discount rate.
EXAMPLE 1.
Consider the project which has the following cash flow stream.

Year Cash flow

0 -10,00,000
1 2,00,000
2 2,00,000
3 3,00,000
4 3,00,000
5 3,50,000

The cost of capital (k) of the firm is 10 %.

Solution:
(CFt)
NPV = ∑ -----------
(1+k)t
 -10,00,000 2,00,000 2,00,000 3,00,000 3,00,000 3,50,000
= ------------ +------------- + ------------ + ------------- + -------------- +-----------
(1+0.10)0 (1+0.10)1 (1+0.10)2 (1+0.10)3 (1+0.10)4 (1+0.10)5

-10,00,000 2,00,000 2,00,000 3,00,000 3,00,000 3,50,000

= ------------ +------------- + ------------ + ------------- + -------------- +-----------
(1) (1.10) (1.21) (1.331) (1.4641) (1.6105)

= -10,00,000+181818.18+165289.25+ 225394.44 + 204904.03+

217323.81

= -5270.30 NPV = -5270.30.

Decision Rule : The decision rule associate with net present value
is- “Accept the project if the NPV is positive and
Reject the project if the NPV is negative. (If the
NPV is ‘0’, it is the matter of indifference.)

EXAMPLE 2.
Estimate the NPV of the project with following financial information. The cost of
capital is to be considered as 10 per cent.
Year Cash flow
0 30,00,000
1 6,00,000
2 6,00,000
3 9,00,000
4 9,00,000
5 10,50,000

Solution :
(2) Benefit-cost ratio (B:C Ratio)

There are two ways of defining this criterion:

(i) It is the ratio of present value of benefit to the initial investment.
PBV
BCR = -----------
I
Where, PVB = Present value of benefit
I = Initial Investment
(ii) It is the ratio of net present value to Initial Investment.

NPV PVB-I PVB

NBCR = ---------- = ------------- = ----------- - 1
I I I
Where, NBCR = Net benefit cost ratio
NPV = Net present value
PVB = Present value of benefit
I = Initial investment
Decision Rule associate with these two criteria of BCR:
Sr. No. When BCR When NBCR Rule

1 BCR > 1 NBCR > 0 Accept the Project

2 BCR = 1 NBCR = 0 Indifferent

3 BCR < 1 NBCR < 0 Reject the Project

EXAMPLE 1.
Work out the BCR and NBCR with the following data of the project.
i) Initial Investment =Rs.1,00,000/-
ii) Benefits : Year 1st = Rs.25000/=
Year 2nd = Rs.40000/-
Year 3rd = Rs.40000/-
Year 4th = Rs.50000/-
iii) Cost of capital for the firm is 12 per cent.

SOLUTION :
PVB
 BCR = ------------
I

25000 40000 40000 500000

= [ ----------- + ------------ + ----------- + ------------- ] ÷ 100000
(1+0.12)1 (1+0.12)2 (1+0.12)3 (1+0.12)4

25000 40000 40000 500000

= [------------ + ----------- + ------------ + -----------] ÷ 100000
(1.12) (1.2544) (1.4049) (1.5735)
22321.43 + 31887.75 + 28471.78 + 31776.29
= -----------------------------------------------------------
100000

114457.25
= --------------- = 1.1445
100000

BCR = 1.1445.

Now, we calculate the NBCR-

PVB
NBCR = ---------- - 1
I

= 1.1445-1
= 0.1445

Decision : BCR NBCR

1.14 0.1445
≥1 ≥1
As the BCR is ≥ 1 (unity), and also the NBCR is also ≥ 0, the project can be accepted.

EXAMPLE 2.
Estimate the BCR and NBCR of the project with the following information.
i) Initial Investment benefit is Rs.2,00,000/-
ii) Benefits : Year 1st = Rs.50,000/-
Year 2nd = Rs.80,000/-
Year 3rd = Rs.80,000/-
Year 4th = Rs.1,00,000/-
iii) Cost of capital for the firm is 10 per cent.

Solution : (I) PVB

BCR = ------------
I

(ii) Calculation of NCBR:

PVB
NBCR = ---------- - 1
 I

(3) Internal Rate of Return (IRR) :

(a) It is the Original Method of Computing IRR:
The Internal Rate of Return of a project is the discount rate, the rate which makes the
present value equal to zero.
It is the discount rate expressed in the equation form as-

CF0 CF1 CFn

0 = ----------- + ---------- + …….. + ------------
(1+r)0 (1+r)1 (1+r)n

n (CFt)
0 = ∑ ------------
t=1 (1+r) t
Where,
CFt = Cash flow at the end of the year
r = Discount rate
n = Life of the project.
(b) Another Method of Computation of IRR :
The another method which is being discussed is generally employed for the estimation of
IRR of a project.
Internal Rate = [Lower Discount + [Difference between the two discount
of Return Rate] rates]  [Present worth of cash flow at the
Lower discount rate / Absolute difference
between the present worth of the cash flow
at the two discount rates]
Example 1.

Estimate the IRR of cashew project of one hectare area with following financial data.

Gross Discount
Cost Discount
Year Income Factor
(Rs.) Factor (25 %)
(Rs.) (30 %)
End of 20, 000 -- 0.262 0.207
6th Year
7th 4250 10260 0.21 0.159
8th 4792 12550 0.168 0.123
9th 5368 14530 0.134 0.094
10th 5975 16275 0.107 0.073
11th 6456 19396 0.086 0.056
12th 7187 21470 0.069 0.043
Soluation:

Estimation of the IRR of a Cashew project of one hectare.

i) Net Income : Gross Income – Cost
ii) NPV = Net Income * Discount Factor -1st
iii) NPV = Net Income * Discount Factor -2nd

Gross Net Discount Discount Net Present

Cost Factor Net Present Worth
Year Income Income Factor
(Rs.) worth (Rs.)
(Rs.) (Rs.) (25%) (30%) (Rs.)
End of
20000 --- - 25000 0.262 - 6550.00 0.207 - 5175.00
6th Year
7th 4250 10260 6010 0.21 1262.01 0.159 955.59
th
8 4792 12550 7758 0.168 1303.30 0.123 954.23
9th 5368 14530 9162 0.134 1227.71 0.094 861.23
10th 5975 16275 10300 0.107 1102.10 0.073 751.90
11th 6456 19396 12940 0.086 1112.84 0.056 724.64
th
12 7187 21470 14283 0.069 985.53 0.043 614.17
4443.49 - 313.24

IRR = LDR + [Difference between the two discount rates] * [Present worth of
cash flow at the Lower discount rate / Absolute difference
between the present worth of the cash flow at the two discount
rates]

IRR = 25 + [ 5 ] * [ 443.49 / (443.49 + 313.24)

=25 + 5 * [443.49 / 756.73]
= 25 + 5* [0.586]
= 25 + 2.93
= 27.93

Example 2.
Estimate the IRR for a sericulture project with data given in the table.
Cost Gross Income Discount Factor Discount Factor
Year
(Rs) (Rs.) (40 %) (40 %)
1 38,900 --- 0.7143 0.6993
2 9239 28475 0.5102 0.4890
3 10575 32550 0.3644 0.3419
4 11952 35610 0.2603 0.2391
5 12858 39802 0.1859 0.1672
Solution :
Estimation of the IRR for the sericulture project with data given-
i) Net Income = Gross Income – Cost
ii) NPV = Net Income * Discount Factor -1st
iii) NPV = Net Income * Discount Factor -2nd

Exercise No. 13

STUDY OF NETWORK TECHNIQUE- PERT AND CPM ANALYSIS

=====================================
Introduction: Number of new techniques of management t planning and control have emerged in
recent years these tool s are grouped under head of “Network ‘or flow plants ” These were
independently and concurrently developed by military and industry personnel . these techniques
includes PERT, CPM and CPS , the network is composed of a series of sequentially related
events and activities.
1) CPM : Critical Path Method: The CPM technique was developed by the depend company to
reduce the time and cost involved in bringing new products from research laboratory to the
production line are management realized that by proper planning and scheduling a level of the
company would consume less time money. CPM is mostly used in construction industry.
CPM is used for evaluation of project. CPM is primarily concerned with trade-off between
cost and time. It has been applied mostly to projects employ fairly Stable technology & are relatively
risk free. Hence its orientation is deterministic. CPM developed by EL Dupont for chemical plant
shutdown project. Developed in the late 1950. CPM is a used for planting, Scheduling, Coordination
& control of activities in project. Hence, it is assured that the activity durations are Fixed & Certain.
CPM used to compute the earliest and latest possible start time for each activity. The process
differentiates the critical & non- critical activities to reduce the time & avoid the queue generation in
process.
2 PERT: Programme Evaluation and Review Technique
The PERT was developed as a results of a research project of the U.S Navy related to the
Polaris Fleet Ballistic Missile programme. The objective of the project PERT was to develop,
test and implement a methodology for providing management with integrated and quantities’
of progress to date and the outlook for accomplishing the objectives of the feet. Ballistic
missile programme validity of established plans and schedules for accomplishing shines the
programme objectives and effects of changes proposed in established plans. PERT is program in
which planning, scheduling, organizing, coordinating and controlling of uncertain activities take
 place. It is aimed to reduce the time & cost of project. The technique studies and represents the
tasks undertaken to complete a project. To identify the least time for completing a task and
minimum time required to complete the whole project. PERT was time as a variable which
represents the planned resources application along with performance specification. In this
technique, first of all the project is divided into activities & events. After that proper sequence is
ascertained of a network is a constrained. PERT is eminently suitable for research & development
and programme, aerospace projects, other projects involving new technology.
Terms used in Network Analysis
1) Activity: Activity consumer’s time and occurs between two between two event for network
analysis. Activity represents an act that is required to be alone in order to go from one event to
another. The activities are represented in a network diagram by an arrow.
2) Events: Events are meaningful go also for which we are shooting , two events are connected by
an activity and therefore they are at the beginning and end of the activity In a network
diagrammed events are denoted by a box.
3) Positive slack: Additional time available to the firm for complete a series of activities in a to be
completed within the required a time.
4) Negative slack: Such timeout of time that is not available to the firm to complete the series of
activities in a given slack path and still allow the activity to be completed within the required time.
1) Critical path: In a network the path with the largest negative or the smallest positive slack
6) Network: A series of related activities and events it is a flow Plan, a graphic or pictorial
representation.
Why CPM or PERT for project management?
PERT/CPM is capable of giving answers to the following questions to the project manager.
1.When will the project be finished.
2.When is each individual part of scheduled to start and finish.
3.Of the numerous jobs in project, which one must be timed to avoid being late.
Exercise No.14
CASE STUDY ANALYSIS OF AGRICULTURAL PROJECTS
========================================================================
Agricultural Projects:
Projects are the cutting edges of development. They are meant for increasing the output
from the given resources.
Evaluation of projects needs projecting the future trend of output, sales, expected costs,
returns, flow of funds, etc.
Types of Agricultural Projects
1. Water Resource Development Projects:
These projects include irrigation projects, ground water projects, and projects for land
reclamation, drainage projects, salinity prevention and flood control. These projects are aimed at
bringing about overall agricultural development, by bringing water to the project area, providing
drainage and reclaiming salinity. Suitability of soil to sustain production over time under irrigation
must be carefully examined.
2. Agricultural Credit Projects:
These are called "on-lending projects". These projects provide credit to the farmers for farm
investment for increasing agricultural production, raising their standard of living and the economy as
a whole. These projects need to be defined in terms of farm investment and investment on agro-
industries and ancillary industries, such as investment programme on livestock, machinery, etc.
3. Apicultural Development Projects:
These are the projects aimed at improving farm economy of individuals and regional
development. Here, diversified cropping systems approach as well as farming systems approach is
followed for bringing about the development of agriculture.
4. Agro-Industries and Commercial Development Projects:
Projects of input supply, services to farming, projects concerned with processing, storage,
market development, projects for fisheries development, and projects for development of co-
operative farms are cited under this category.
Phases in Project Cycle
The important phases in project cycle are:
 1) Conception or Identification,
2) Formulation or Preparation of the project,
3) Appraisal or Analysis,
4) Implementation,
5) Monitoring, and
6) Evaluation

Figure : Project cycle

►Evaluation ►Identification
►
Formulation
Monitoring

▼
Appraisal ►
Implementation▼
Project is considered as a cycle (Fig.) because, each phase not only grows out of the preceding one,
but leads into the subsequent phase and it is a self-renewing cycle, so that new projects come out of
the old ones in a continuous manner.
Conception or Identification of the Project
In agricultural projects, costs are easier to identify than benefits because the expenditure
pattern is easily visualized. The various types of costs involved in the projects are:
i) Project Costs: These include the value of the resources in maintaining and operating the projects.
ii) Associated Costs: Costs that are incurred to produce immediate products and services of the
projects for use or sale.
iii) Primary costs or Direct costs: These include costs incurred in construction, maintenance and
execution of the projects.
iv) Indirect costs or Secondary costs: Value of goods and services incurred in providing indirect
benefits from the projects such as houses, schools, hospitals, etc.
v) Real costs and Nominal costs: Costs at current market prices are nominal costs, whereas if costs
are deflated by general price index, these are termed as real costs.
vi) Social costs: These are technological externalities and technological spill-over accrued to the
society due to presence of projects, i.e., Pollution problems, health hazards, salinity conditions, etc.
Formulation or Preparation
The following points are considered while formulating the projects. The location of the
project and project site must be based on technical analysis and technical feasibility of the project.
The location of the project depends upon available physical resources, market conditions, marketing
facilities, alternative investment prospects, administrative experience, farmers' objectives, technical
skill, motivations, demand for products, etc.
Due consideration is to be given to all the aspects such as technical, financial, commercial,
managerial, organizational of the missing links in the formulation of the projects.
Technical Aspects: The issues which need technical examination are thoroughly analyses here. For
example, in the case of agricultural projects, the issues include the aspects relating to the pre-
production, production and post-production aspects.
Financial Aspects: Here, we have to find out the sources of raising financial assistance and terms
and conditions of obtaining finance from the credit agencies. The implementing agency should be in
a position to estimate financial requirements and anticipated returns, through farm planning and
budgeting.
Commercial Aspects: These aspects focus on the estimation of effective demand, availability of
input supplies and arrangements for the output marketing. Market potentiality for the products needs
a careful scrutiny.
Managerial Aspects: If we want successful implementation of the projects, effective managerial
issues are very crucial. The need to identify the beneficiary is the foremost item. Once identification
process is over, we have to find out the managerial competence of the beneficiaries.
Organizational Aspects: Organization refers to the process of putting the priorities in an orderly
form. Prepare the organizational hierarchy. Of the implementing agency, the availability of staff at
various cadres, demarcation of authority and linking of authority and responsibility, etc., are expected
to be dealt with, under this aspect. For proper administration of the projects, efficient personnel and
other requirements are indispensable.
Social Aspects: Here, customs, culture, traditions and habits, etc., of the beneficiaries are
considered. The other relevant implications like the probable changes in the living standards,
material welfare, consumption habits, income distribution effects, etc., fall under this coverage.
Economic Aspects: Here, we have to examine the benefits, which the project is going to contribute
in terms of the utilization of scarce resources of the nation. The point of merits is to whom the
project is going to benefit i.e., to one section of the society or the entire area of the project. The
indirect effect like, the income distribution, needs to be assessed.
Appraisal or Analysis: Appraisal should take place before the implementation of the project. It is
done independently by specialists. In the appraisal stage, it is important to know whether the project
is technically feasible according to the data available. The technical data for assessing the feasibility
of the project should be consistent with the information available in the office of the sanctioning
authority or elsewhere.
Implementation: This is the most crucial phase of the project cycle. The secret of successful
implementation depends upon the extent of realism put into the plans drawn before-hand. It is often
not uncommon, to notice our plans getting deviated from the reality. Here the role of prudent
decisions by the personnel in charge of implementation to tackle the situation comes into play.
Project implementation can be divided into three different periods, viz., investment period,
development period, and full-production period.
Monitoring: Monitoring is the timely collection and analysis of data on the progress of a project,
with the objective of identifying constraints which impede successful implementation. This is highly
desirable, particularly when projects fail, to be completed as per time schedule or in the process of
attaining the set goals. It is imperative to get the feedback on the problems faced so that effective
measures can be taken up to plug the deficiencies, which hamper the speedy implementation.
Evaluation: This is the last phase of the project cycle. It is not confined to the completed project.
Evaluation can be done several times during the life of a project. In the evaluation process, it is
important to see, how far the objectives set out in the project are achieved. Deficiencies, snags or
failures to achieve the objectives may be analysed and appropriate solutions to such failures
answered. Evaluation process is to be completed I three phases. They are mid-course evaluation,
concurrent evaluation and ex-post evaluation. In the first phase, evaluation is attempted before any
change occurs in the existing situation. This is primarily meant to assess economic feasibility of the
projects, since it is done at the very beginning. This type of analysis is otherwise called pre-project
evaluation.

* * *
EXERCISE NO. 15

Study of Risk and Management Strategies- CROP INSURANCE SCHEME

======================================================================

Agricultural Production is contorted withy risk and uncertain by conditions. As agricultural

Production being biological and seasonal in nature we don’t know the nature of difficult proposition
to make right decisions and their when the Production environment is risky and uncertain.,
Changes in weather, Price and other socioecomics factor occurs bet time periods in which
investment decisions are made and the final outcome. Due to this farmers have to consider various
management strategies’ relevant to risk and to risk and uncertainty conditions.
Risk and Uncertainty: Earlier the economists did not make any did reference between risk and
uncertainty. According to recent view, risk is measurable, while uncertainly is not measurable.
Risk is defined as a situation when all possible outcomes are known for give management
decision and probability associated with each possible outcome is known risk is measured
through probability of rain, weather forecast subjective.
Probabilities are measurable through certain concept, but uncertainty situation prevails when
all possible outcome of the events are unknown,
Sources of Risk:
1) Production Risk : In industrial businesses we have a technical output relationship with known
gauntly of input but , such standardized relationship does not exist – in Agricultural production
output of crops and livestock is subject to change due to weather disease. Insects weed and
inadequate technology these factors cannot be predicted accurately and hence result in the
variability of the output.
Production risk is divided into two components
i. Weather risk
ii. Technical risk
Yield risk may be arising due to change in production costs , institutional factors changes in
management the cost of production for unit of output is also changing due to productivity levels
and magnitude of costs both overtime and space. When technology is changing is particular place.
It would have greater bearing on production risk .the new technology though it bring higher level of
profit , it would also involve greater variation of the output Because of this for factor the farmers are
reluctant to as per technology as per expectation.
2) Price Risk or Marketing Risk: Marketing risk is also called as Price risk because process are
determined due to interesting of demand and supply in the market Production of crops and
livestock is influenced by Prices in the market which are beyond the control of farmers and the
consumers prices of commodities vary from year to year season to season and exhibit season
variation . It there is less time log between. Production and Marketing activity, we could expect less
price risk for agricultural commodities. But this is not the case with most of agricultural
commodities because there is enough time for Prices to fluctuate when the commodities move from
production centre to consumption centre. Supply of commodity is very much affected if there is
situation of weather risk and Production risk. demand for a commodity is mainly changing due to
consumer’s income, habits taste Preferences , export policies and overall general economic
measures takes up by the government with regards to stabilization of Prices
3) Financial Risk: This type of risk increases with increased amount of borrowed money in the
farm business. This aspect is explained by the principle of increasing risk. According to this
principle, it borrowing increases there would be greater risk of foregoing the equity capital in the
event of losses and this leads to increases in the dept-equity ratio.
Management Strategies
I) Diversification
Selection of suitable crop and livestock enterprises is the first step indiverst faction.
Through diversification process, the farm entrepreneur Produces several products rather than single
product with the hope that when returns from one enterprise is low , it is compensated by the higher
returns from the other enterprise, Through diversification process we see that idle resources . Are put
to use and income variability of enterprises is reduced. This means the farmer should select
enterprises in his cropping scheme with less income variability. If the Prices and or the incomes of
the enterprises have correlation nearer to +1, then such enterprises should not be included in
diversification process. If correlation coefficient is negatively significant, then the two enterprises
must be selected as the most suitable in to reduce the variability. The enterprises with zero correlation
coefficient are the most suitable enterprises for crop diversification. If their income variability and
ranges are less such enterprises is selected in the cropping scheme.
II) Insurance
We have many types insurances in farming to reduce production risk and financial risk.
Crop insurance scheme reduces production risk and production risk .financial risk livestock insurance
provide safety against the fatal disease of cattle. Farm assets are insured against the if burglary, fire or
any other damage. The decision whether to go to insurance
Л =F(O–r)–p

Where,
Л = Profit obtained by going for insurance
F = Financial reserve required.
O = Opportunity cost for financial resource .in format
r = Interest earned on financial resaves
P = Insurance premium paid by the farmer.

If, Л > 0, it is desirable for the farm to go for insurance, i.e. The returns from the insurance
policy are more than the cost and similarly, if Л < 0, it is worthless to do insurance .
III) Agronomic Practices: To reduce Production risk, crop rotation, suitable varieties, deep tillage,
mulching, etc. should be adopted .
IV) Market risk management: If commodity Prices are changing to a greater degree. Then the price
risk arising from market is more. Following are the methods proposed to reduce the marketing risk.
Selling the farm products at different points of time sue to financial obligation farmers sell their
produce immediately after the ban. During the harvesting. Periods generally prices will well be low
for commodities in the market due to large arrivals. Such sale at harvest period are said to be distress
sales. If farms axed such selling Practical, they can get ruminative prices for their products the
knowledge regarding supply and demand for the farm products and Prices prevailing in the
different markets and other market operating is essential .for perishable commodities , storage
facilities freezing facilities, processing facilities are required to get remunerative Prices .Hedging is
another measure adopted by the farmers and the traders to safeguard against price risk. Hedging
practice is followed by studying the future market.
Government Price policies and Programme
Minimum support price, procurement - Price levy price, issue price etc, are set for various
agricultural commodities by the government every year to bring about price stabilization support
price provided protection for the farmers against fall in the prices of farm products.
V) Financial Risk Management
For reducing the financial risk we require many strategies which are aimed at liquidity and
slovenly of the farm business. slovenly by definition refers to business ability to meet the long -
term financial requirement of the farm liquid it strategies should aim at as to how to build up
the farm business to meet the short - term cash requirement At macro level fiction policies
formulated by RBI are aimed at to provide different measures to safeguard against the financial
risk
CROP INSURANCE SCHEME,
Agricultural Production is fraught with risk and uncertainty conditions.
Risks are very many and generally measurable whereas uncertainty situations are not amenable
measurement. This general distinction is last in modern usage and hence, both terms are used
interchangeably weather uncertainly, Price risk and Production risk are the major types confronting
Indian Agricultural.
Crop insurance is being given Prime importance by government of India Primarily with the idea of
safeguarding the farmers against crop losses during drought and flood years.
Crop Insurance Scheme
1. In the year 1970, an expert committee on crop insurance under the chairmanship of
Dharmanarayan was appointed by Government of India to examine and analyses administrative a
financial implication of the scheme with view to introducing it.
2. In 1973 GOI had set up General Insurance Company (GIC) to carry out all types Insurance
thought nation with four subsidiary insurance companies.
3. At instance GOI, GIC first introduced crop insurance scheme in 1973 on experimental basis in
Gujarat, only H4 cotton was considered for the implementation of scheme
4. Area based Crop insurance scheme was subsequently introduced from 1979 by GIC on a Pilot
basis in selected area. Pt the actual average yield of Carolinas less than the guaranteed yield of crop,
then indemnity would become Payable to all the insured farmer borrowers sum assured was 100 %
of crop loan but a ceiling was imposed with regard to payment of indemnity, i.e. 5000 per farmer.
Borrowed in case of dry land and this scheme was implemented by 12 starters in India up to 1984.
5. In year 1985 CCIS Comprehensive crop Insure scheme was introduced by GIC in all states.
Convention of CCIS into National Crop Insurance Scheme (NCIS) implemented in (1999-2000) by
Atal Bihari Bajpai .That Crop insurance scheme started from Rabi season 2000.
6. The Indemnity is calculated on following formula-
Shortfall in the yield of Crop
Indemnity = ________________________________ X Sum Insured
Threshold yield of Crop
Advanced of Crop Insurance Scheme
1. It stabilizes the farm business during the period of crop failure.
2. The farmer can act much more confidently in farm business as there is protection against
hazards of farming.
3. The necessary payment of premium inculcates a habit of thrift among the farmers
4. It prevents the farmers to approach non institutional agencies during crop failure.
5. It enhances the use of modern input to boost the productivity in agriculture
6. In high risk areas, crop insurance serves as a catalyst in bringing areas under cultivation
which otherwise remain uncultivated.
Suggestions for Crop Insurance

1. All Crop and all farmers should be brought under the purview of the scheme.

2. The preview rates should vary with the nature and index of crop Production in different areas.

3. The defined unit area for paying indemnity should be a village or a group of village as against
block as is being considered at present

4. Threshold yield should be worked out by considering indices of crop production over a ten
years period as against five years period etc.

* * *
Exercise No. 16
Financial Instrument methods- e-banking, kisan card
and core banking
==========================================
I) e- Banking and Internet Banking
Internet banking and e-banking means any was with a personal competes and a browses can
get connected to his bank's website to perform any of the virtual banking functions. In internet
banking system the bank has a centralized database. i.e. wed internet. All the services that the bank
provide has a centralized database i.e. web enabled any service can be selected and further interaction
is dictated by the nature of service .The traditional branch model of bank is now giving place to an
attentive delivery channels with ATM network, Once the branch offices or the branch are connected
through terrestrial and satellite links, there would the no any, physical identity for any branch. It
would be a borderless entity permitting anytime, anywhere and anyhow banking. The network which
connects the various locations and gives connectivity to the control office within the organization is
called internet. Their network are limited to organization for which they are act up.
Internet Banking in India
The Reserve Bank of India continued a working group on internet banking. The group
divided the internet banking products in India into their types based on table of access granted. They
are-
1) Information only system: General purpose information like internet gate branch location, bank
products and these features, loan and deposit calculation as provided in the bank's website. There
exist facilities for downloading various types of application forms. The commutation is normally
done through e-mail. There is no interacting between the consumes and the bank application
system, no identification of the customer is done, In this system there is no possibility of any
authorized person getting into production system of bank through internet.
2) Electronic Information Transfer System: The system provides customizes specific
information in the form of account balances, transformation details and statement of accounts. The
information is still largely is of the seed only formant. Identification and theorizations of the
customer is through password, the information is elected from the bank application system either
in batch mode of office line mode. The application system cannot directly access through the
internet.
 3) Fully Electronic Translation system: This system allows bide national capacities.
Transformation cans the submitted by the customer for online update. This system suggests high
degree of accuracy and control. In this environment, web service and application system are linked
over secure infrastructure. It compares technology conversing computerization, national security
inters bank payment gateway and legal instatement.
a) Automated Tells Machine (ATM): ATM is designed to perform the most important function
to bank. It is operated by plastic card with a special teacher, the plastic cancel is splicing cheque,
personal attendance of the customs, banking hues summit and paper based verification ATM itself
can provide information about customers account and also service instructive from customs. An
ATM is a electronic fund transfer terminal capacity of haling cash deposits, transfer between
accounts, balance enquires, cash with drawls and pay bills. It may be online of offline. The online
ATM enables the customs to avoid banking facilities from anywhere, in offline the traditions are
confined to that particulars ATM assigned. Any customer possessing ATM card issued by the
thread payment network system can go to any ATM linked to shared payment network and
perform his transitions.
b) Credit Card / Debit Card: The credit card holds is compared to spread whenever and wherever
he wants to spend, with his credit card within the limits fixed by his bank. Credit card is a part paid
card, where as debit card is prepaid care with some soused value, Every time a person uses this card,
the internet banking house gets money Tran strand to its account from the bank of the buys, The buys
account is debited with the exact amount of purchase, An individual has to open an account with
issuing bank which gives debit card with a personal identification thumbed (PIN), when the makes a
purchase he enter his PIN on shops PAN pad. When the card is shaped through the electronic
terminal, it dials the acquiring bank system either mantis card of VISA that validates the PIN and
finds and from the issuing bank whites to accept of decline and The transaction, Ate customs can
never overspend because the system subjects any information which exceeds the balance in his
account, The bank never faces a default because the amount spent is debited immediately form the
customs account.
c) Smart Card: Banks are adding chips to this current morganatic strip cards to enhance security and
offers new service, called smart cares, smart cards allow towards of times of information apostate an
magnetic stripe cards, In addition, these Cando are highly service, most suitable and perform multiple
further, ?They hold a large amount of personal informant, from medical and health history to personal
banking and personal preferences.
Services availed through e-Banking
1) Bill payment service:
 One can facilitate payment of electricity and telephone bills, mobile phone, credit card
and insurance premium bills as cash bank has tie-up to with various companies across the country. To
pay year bills, all you need to do is complete a temple one time sequestration for each bill. One can
also setup standing introjections online to pay your security bills, automatically. Generally the bank
does not charge customs for online bill payment.
2) Fund transfer:
One can transfer why amount from one account to other of the same of any also then bank,
Customer cash send money anywhere in India, Once you login to your account, you need to mention
the payees account numbers, his bank and the branch. The transfer will take please in a day of 80,
where as in traditional method, it takes about 3 working days.
3) Credit Card Customers:
With internet banking, informer cannot only pay there and card bills online but also get a
loan on this can do. If one hero his /her credit card, he/she can support lost card online.
4) Railway pass :
This is something that would internet all the common people. An Indian railway has tied up
with ICICI bank and one can now make his railway pass for local theists online. The passes will be
delivered to you at your doorstep.
5) Investing through Internet Banking :
One can now open an FD online through funds frontier. Now invests with interlinked
demand account and bank account can easily trade in the stock market and the amount will the
automatically debited from this selective bank accounts and The shaves will the credited in this
dreamt account.
6) Other uses :
a) Recharging mobile phones.
b) Shopping
Advantages of e-Banking:
1) No operational their bound
2) No geographical boundaries
3) Low satiation cost
4) Fast transformation
5) Personal pressure of the account holds not equiseta
Security precautions:
1) Personal information like PIN should not be shared with others.
2) Pass avoid mailers should not be stored.
 3) PIN of password should be charged immediately before destining the mails.
CORE BANKING: Core banking is a general term used to describe services provided by a group of
networked bank bathed. Bank customs may occur this fund and other transactions from only of the
member branch office.
Core banking is normally defined as business conducted by a banking institution with its
stall and small business customer. Many banks that the stain customers as there are banking
customers and have separate line of business for manage small business. Larger business is managed
via the corporate banking division of the institution. Core banking basically is depending and leading
of money, Nowadays, most blankness core banking application to support their operations where
CORE stand for “Centralized Online Real-time Exchange." This basically means that the
entire bank's branches accuser applications from captained data entries. This basically means that all
the banks branches occur application from catalysed data centres. This means that the deposits made
are selected immediately on the bank's sources and the customers can withdraw the deposits money
from any of the bank's branches throughout the wolver. Few decades ago it and to take at lead day for
the amount to suggest in the account because each branch had this local services and the data from
sever in branch to serve in the data centre happened only at the end of the day. (EOD). Normal Core
Banking further will have income deposit accounts, loan, mortgages and payments.
Banks make these services available occurs multiple channels like time's interest banking and
branches.
Core Banking Solutions: Core banking solution one banking application on a platform enamelling a
phased, standings approach and list people improve operations, reduce costs and prepare to growth.
Implementing modules, comportment bard enterprise situation ensures aster integration with your
existing technologies.
The platform where communication technology and information technology are managed
to suit core needs of banking is known as core banking solution.
II) KISAN CREDIT CARD
The Genesis:
Given the enormity of the credit requirements on one hard and the vagaries of the nature on
the other, financing agriculture has been a gigantic task for banks in India. Endowing timeliness and
adequacy of credit to farmers have posed the most serious challenges to banks engaged in financing
agriculture. Financial actor retimes, other in as a part of the liberalization of the Indian economy in
the beginning of nineties, has inured a spirit of competitiveness and enterprise the banks in this
endeavours for sewing this customs in the best possible manner, NABARD has been playing a
proactive and catalytic role in guiding the banks to meet the emerging challenges. Towards this and,
 several innovative strategies have been eluded by NABARD. The instrument of Kisan Credit Card
(KCC) is one of the key products developed to improve the farmer is accessibility to bank credit,
simplify credit delivery mechanism and provide more availability in use of credit. Model Scheme of
Kisan Credit Card formulated by NABARD in 1998-99 is being implemented in all the stated and
Union territories. About 1.94 crore Kisan Credit Cards have loan issued up to 31 October 2001 by the
banks throughout the country. It is envisaged that every eligible agricultural farmers world the
provided with a Kisan Credit Card by 31st March, 2004. In accordance with the announcement in the
GOI budget 2001-02, Personal Accident Insurance Scheme (PAIS) has been introduced as a 'add on
benefit' and all the Kisan Credit Card holes would lie issued for Rs.50,000 at a nominal premium of
Rs.15/- per annum as agreed to by General Income (Public Sectors) Association.
Objective of Kisan Credit Card (KCC)
As a processing credit delivery innovation, Kisan Credit Card Scheme as of provision of
adequate and timely support from the banking system to the farmers for this cultivation needs
including purchase of inputs in a terrible and cost effective manners.
Contents of Credit Card
a) Beneficiates covered under the scheme are issued with a credit card and a pass book of a credit
cum pass book incorporating the name, address, particulates of land holding, blossoming limit,
validity period, purpose singe photograph of holds, etc, which may serve both as an identity card
and facilitates recording of transactions on an in going basis.
b) They are required to produce the card cum pass book wherever he/she operated the account.
Salient features of KCC Scheme
1. Eligible farmers to the provided with a Kisan Credit Card and a pass book of card cum pass book.
2. Revolving cash credit facility involving any number of dismal and repayments within the limit.
3. Limit to see tired on the basis of operational hard holding, cropping pattern and scale of finance.
Entire production credit needs for full year plus accuracy action ties related to crop production to be
confidences while fixing limit.
4. Sub limits may lie fixed at the discretion of banks.
5. Card Valid for 3 years subject to annual services, as incentive for good performances, credit limits
could lie enhanced to take come of increase in cost, charge in cropping pattern, etc.
6. Each deicidal to lie repaid within on maximum period of 12 months.
7. Conversion / re-schedulement of loans also permissible in case of damage to crops due to national
calamities.
8. Security, margin, rate of interest, etc. as per RBI names.
9. Operations may be through issuing branch (and also PACS in the care of co-operative branches)
through others derogated branches at dissection of bank.
10. Withdrawals through ships/cheques occupied by card and passbook.
Advantages of the Kisan Credit Card (KCC)
A) Advantages to Farmers
1. Access to adequate and timely credit to farmers.
2. Full year's credit requirement of the borrowers taken crore of.
3. Minimum paper work and simplification of documentation for drawl of touch from the bank.
4. Flexibility to draw cash and buy inputs.
5. Assured availability of credit at any time enabling reduced interest burden for the fictive.
6. Secretion of the facility for 3 years subject to annual review and satisfactory operations and
provision for enhancement.
7. Flexibility of drawls from branch often than the issuing branch at the dissolution of the bank.
B) Benefits of the Scheme to the Banks
1. Reduction in work load for branch staff by avoidance of separate appraisal and processing of from
papers under KCC Scheme.
2. Minimum paper work and simplification of documentation for drawls fo funds from the bank.
3. Improvement in saucing of funds and better securers of loans.
4. Reduction in Transaction cost to the banks.
5. Better banker’s client relationship.