Namrata choudhry bank lending and capital formation
The role of public investment in agricultural capital formation has declined even sharper. The fall would have been sharper but for the private investment which has filled the gap. This raises the question about the complementarities between private and public investment. Even more important is the determinants of the capital formation. Traditionally banks have played a role in capital formation. Interestingly the capital formation has alos happened through informal channels for which very little data is available. The paper examines the impact of bank lending on capital formation and consequent impact on the production. The correlation between the direct and indirect bank credit on the capital formation is 93% and coefficient of determination is 88%. Our studies show that there is an influence on bank lending on capital formation both public and private which consequently impacts the production patterns. Capital formation does lead to increase in production. There is a strong correlation between the public and private capital formation and agricultural production. The impact as measured by the coefficient of determination is less than 50%.
Published on: Mar 3, 2016
Transcripts - Namrata choudhry bank lending and capital formation
1Does Bank Lending InfluenceCapital Formation andAgricultural Production ?OBJECTIVES• To examine the patterns in public andprivate capital formation in theagricultural sector.– The role of banks in capital formation.• The impact of the above on theagricultural production• Analyzing the gaps in the existingmodel and recommendations.
2Some Studies• Ghulati and Bhalta (2002)Stagnation of capital formation inagriculture.Public sector investment has declined inreal terms while private sector has notbeen able to fill this gap.The extent of deceleration, in particular onpublic sector account and further thereasons for the decline.They examine the temporal behavior andstructure of public and private GCFA.
3• Purohit and Reddy (1999)Existence of high complementaritiesbetween public and private capitalformationVariations across the Indian states both intheir agricultural development and capitalformation• Sharma, et al (2000)– Conceptual aspects of overdues, recoveryand prudential norms,– Impact of NPAs on health of Rural FIs.– Analyze the patterns of NPAs• Impact on the recovery of loans in theseinstitutions.
4• Ghulati and Bhalta (2002)– Loan disbursements of RFIs haveincreased– NPAs too have shown a correspondingincrease.– Bad debt as percentage of loansoutstanding increased from 3.58 in 1980 to4.2 in 1992 and declined thereafter.DATA SET
5285207078152491526103-04236905685743591388102-03182384658149691225001-02188254048539271298000-01129683646642211308399-0081173309438701102598-9963352944339791196397-9849862744846681150896-9736742381448491084195-9611891614543951044190-91IndirectFinanceDirectFinancePublicPrivateYears1.3104-051.2703-041.2401-021.2800-011.3799-001.2698-991.4397-981.5196-971.5795-961.9290-91% of GDPyear
6Bank Lending to agriculture0100002000030000400005000060000700001 2 3 4 5 6 7 8YearsBanklendingdirectandindirectIndirect lendingDirect lending1432.58524915261101436.3643591388191494.6249691225081482.9439271298071460.5742211308361475.4238701102551361.7039791196341313.0646681150831304.4448491084121169.364395104411PRODUCTIONyearPUBLICCAPITALFORMATIONPRIVATECAPITALFORMATION
7PRIVATE CAPITAL FORMATION050001000015000200001 2 3 4 5 6 7 8 9 10YEARSCAPITALFORMATIONSeries1PUBLIC CAPITAL FORMATION01000200030004000500060001 2 3 4 5 6 7 8 9 10YEARSCAPITALFORMATIONSeries1
8ANALYSISOLS MODEL0.14562.56860.42330.6506Prod0.2971.44740.29260.5409Public CF0.00056126.21180.88220.9393Private CFR2RSIGNIFICANCEF-valueCOEFFICIENTOFDETERMINATIONCORELATIONCOEFFICIENTFUNCTIONS
9• Bank lending is showing an increase.• NPAs shows a decline.• Increasing trend towards direct credit compared tothe indirect mode.• The private bank lending moving upwards.– Likely to ease the pressure on the co-operativebanks which had borne the brunt of lendingtowards farm operations• The association exists between the two componentsof capital formation viz. public and private capitalformation.• There is an influence on bank lending oncapital formation both public and private– Consequent impact on the production patterns.• Importance of finance cannot beunderestimated– Provide the context for banks to step up theirlending mechanisms.• Movement from informal to formal lendingmechanism
10• Capital formation depends also onother factors which we have not takeninto account.• Agricultural lending still remains adomain of the informal sector.• Very few studies have been undertaken.• The need to bring this sector to mainstream• No reliable data sources to measure its role• Bank lending influences private capitalformation highly.– The correlation between the direct andindirect bank credit on the capital formationis 93% and coefficient of determination is88%.• Measuring the impact of direct and indirectbank lending on public capital formation iscomparatively lower.• The association as measured by the coefficientof determination is only 29%.
11• Capital formation does lead to increase inproduction.• There is a strong correlation between the public andprivate capital formation and agricultural production.• The impact as measured by the coefficient ofdetermination is less than 50% .• Production is subjected in different degrees toinfluences from land salinity, rainfall and labor costs.THANK YOUPRESENTED BY:NAMRATACHOUDHARY