When a farmer needs to dig a well, buy a tractor, or level their land for irrigation, a short-term loan repaid in a few months is simply not enough. These are long-term investments that take years to generate returns. For decades, India’s rural credit system had a significant gap here – short-term credit was available, but financing for permanent agricultural improvements was hard to come by. That gap gave birth to a specialized class of co-operative institutions dedicated entirely to long-term credit: the Land Development Banks, which today operate as State Co-operative Agriculture and Rural Development Banks (SCARDBs) and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs).
Table of Contents
- The gap that long-term credit was meant to fill
- From Land Mortgage Banks to SCARDBs: an evolving mandate
- The two-tier structure: SCARDBs and PCARDBs
- SCARDBs – the state-level apex institutions
- PCARDBs – the primary-level institutions
- What purposes does long-term credit serve?
- The role of NABARD in supporting the structure
- Structural changes and challenges
The gap that long-term credit was meant to fill
India’s rural co-operative credit structure has historically served two separate purposes. Short-term credit institutions – State Co-operative Banks, District Central Co-operative Banks, and Primary Agricultural Credit Societies – work in a three-tier structure to meet seasonal and operational needs like buying seeds or fertilizers. But when a farmer wants to sink a borewell, construct a farm shed, or purchase heavy machinery, the repayment cycle stretches well beyond a season. Such investments require a different kind of financing – one where the loan tenure runs from five to twenty years.
This need was recognized as early as the 1920s. The first Land Development Bank (LDB) was established at Jhang in Punjab in 1920, marking the beginning of institutionalized long-term agricultural credit in India. The idea, however, really gained ground after the Land Mortgage Banks Act was passed in the 1930s, following which similar banks began to spread across different states. These institutions were originally called Land Mortgage Banks – a name that reflected their core method of lending against the mortgage of agricultural land.
From Land Mortgage Banks to SCARDBs: an evolving mandate
The early Land Mortgage Banks had a narrow focus: lend against land, help farmers redeem old debts, and support basic land improvement. But India’s agricultural economy demanded more. The long-term credit structure had its beginning in the early 1920s specifically to provide long-term loans to farmers to redeem debts on land, and the first Central Land Mortgage Bank was established in Madras (now Chennai) in 1929 to centralize debenture issuance and coordinate the working of primary-level banks across what was then the Madras Presidency.
Over time, the scope expanded significantly. At the instance of NABARD in 1982, LDBs started financing agriculture and rural development activities including wastelands. By the late 1980s and early 1990s, these banks had moved well beyond land-related lending – they were financing village and cottage industries, rural artisans, and even rural housing schemes under National Housing Bank (NHB) refinancing in states like Kerala, Karnataka, Maharashtra, Uttar Pradesh, and West Bengal. The Agriculture Credit Review Committee (ACRC) in 1989 also emphasized a broader role for these banks, recommending they cover agriculture and allied activities, wastelands, and the non-farm sector. Given this expanded mandate, the name was updated to reflect the broader purpose: Land Development Banks were formally reconstituted as State Co-operative Agriculture and Rural Development Banks (SCARDBs).
The two-tier structure: SCARDBs and PCARDBs
The long-term co-operative credit structure operates through a two-tier system in most states, though some states follow a unitary model.
SCARDBs – the state-level apex institutions
SCARDBs function as the apex institution at the state level in the long-term co-operative credit structure. They raise funds, channel them to the primary level, and directly finance long-term rural credit requirements. Their key functions include providing medium- and long-term loans for land reclamation, irrigation, farm mechanization, plantation development, dairy, poultry, fisheries, agro-industrial activities, and rural infrastructure. Loan repayment periods typically range from 3 to 20 years depending on the nature of the project.
One of the primary ways SCARDBs raise funds is through debentures. These debentures – issued in regular, rural, and special development variants – carry fixed interest rates, have maturities of 7 to 15 years, and are guaranteed by the state government. Financial institutions like LIC, commercial banks, co-operative banks, and NABARD subscribe to these debentures. This structure allows SCARDBs to mobilize long-duration funds, matching their liability profile to the long tenure of the loans they disburse. Other fund sources include share capital, loans from NABARD, and government subsidy reimbursements.
In states like Maharashtra and Gujarat, the SCARDB operates directly through its own branches at the district and sub-district level – this is the unitary structure. In states like Karnataka, Tamil Nadu, and Andhra Pradesh, the two-tier model is followed where primary-level banks (PCARDBs) operate under the umbrella of the state SCARDB.
PCARDBs – the primary-level institutions
Primary Land Development Banks were originally organized to cover one or a few taluks in a district; at present they are eligible to cover one development block. All land owners in the area are eligible to become members and borrow funds by mortgaging their land. These banks function at the district or taluk level and are the direct interface between the long-term credit system and the individual farmer or rural borrower.
Members of a PCARDB are classified in two ways: the principal borrower who takes the loan is enrolled as an ‘A’ class member, while others who have an interest in the mortgaged property (such as co-owners) are admitted as ‘B’ class members. When a PCARDB sanctions a loan, it obtains a mortgage deed from the borrower and assigns this to the SCARDB at the state level. The SCARDB then floats debentures against the security of these mortgage deeds and raises funds from the market – completing the credit delivery cycle.
What purposes does long-term credit serve?
The credit delivered through this structure covers a wide range of agricultural and rural development needs. SCARDBs provide agricultural development loans for land reclamation, well construction, irrigation, farm mechanization, and plantation development; allied sector loans for dairy, poultry, fisheries, and animal husbandry; agro-industrial loans for processing, storage, and marketing; rural infrastructure loans for roads, drainage, and electrification; and non-farm sector loans for small industries and rural crafts.
Security for these loans is primarily through land mortgage. The loan eligibility is typically fixed at 60 percent of the land valuation, with hypothecation of assets and surety treated as collateral. Interest rates on long-term loans are kept relatively low to remain within the repayment capacity of farmers.
The role of NABARD in supporting the structure
No discussion of long-term co-operative credit is complete without acknowledging the role of NABARD (National Bank for Agriculture and Rural Development). NABARD provides refinance assistance to SCARDBs, subscribes to the debentures they issue, offers policy guidance, and supports capacity development at the primary bank level. The relationship between SCARDBs and NABARD is central to keeping the flow of long-term rural credit functional, especially since the debenture market alone cannot always fully meet the funding needs of these institutions.
At the national level, the National Co-operative Agriculture and Rural Development Banks’ Federation Limited (NAFCARD) serves as the federation of SCARDBs across India – coordinating policy advocacy, research, training, resource mobilization, and liaison with the central government and NABARD.
Structural changes and challenges
The long-term co-operative credit structure has not remained static. In some states, integration has taken place at the apex level. For instance, in Andhra Pradesh, the SCARDB was merged with the Andhra Pradesh State Co-operative Bank in 1995 to form a unified structure. A similar merger occurred in Chhattisgarh in 2014. In most states formed after 1960, State Co-operative Banks also perform investment credit operations in agriculture and rural sectors where a separate long-term credit structure does not exist.
The broader challenge for SCARDBs and PCARDBs today involves rising Non-Performing Assets (NPAs), thin capital bases, and competition from commercial banks and microfinance institutions that have expanded into rural lending. Recovery performance has been a persistent concern, and the revival of this structure has been a subject of deliberation both at NABARD and at the central government level.
Despite these challenges, the fundamental rationale for this structure remains valid. Long-term investment credit for agriculture – whether for a borewell in Rajasthan, a cold storage unit in Punjab, or a fish pond in Kerala – cannot always be accessed through commercial channels at affordable rates. SCARDBs and PCARDBs were built to serve exactly this need, and their continued relevance depends on structural reforms that strengthen their financial health and governance.
What do you think? Given that commercial banks have significantly expanded their reach into rural lending over the past two decades, do co-operative long-term credit institutions like SCARDBs still serve a purpose that commercial banks cannot adequately fulfil? And if the two-tier structure of SCARDBs and PCARDBs is to be revived, what reforms should take priority – financial recapitalization, governance changes, or both?
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