Note4Students

From UPSC perspective, the following things are important :

Prelims level: PACS

Mains level: Rural banking mechanisms

The Union Budget has announced Rs 2,516 crore for computerization of 63,000 Primary Agricultural Credit Societies (PACS) over the next five years.

Primary Agricultural Credit Societies (PACS)

PACS are village level cooperative credit societies that serve as the last link in a three-tier cooperative credit structure headed by the State Cooperative Banks (SCB) at the state level.
Credit from the SCBs is transferred to the district central cooperative banks, or DCCBs, that operate at the district level.
The DCCBs work with PACS, which deal directly with farmers.
Since these are cooperative bodies, individual farmers are members of the PACS, and office-bearers are elected from within them.
A village can have multiple PACS.

What is its lending mechanism?

PACS are involved in short term lending — or what is known as crop loan.
At the start of the cropping cycle, farmers avail credit to finance their requirement of seeds, fertilisers etc.
Banks extend this credit at 7 per cent interest, of which 3 per cent is subsidised by the Centre, and 2 per cent by the state government.
Effectively, farmers avail the crop loans at 2 per cent interest only.

NABARD’s annual report of 2021-22 shows that 59.6 per cent of the loans were extended to the small and marginal farmers.
A report published by the Reserve Bank of India on December 27, 2022 put the number of PACS at 1.02 lakh.
At the end of March 2021, only 47,297 of them were in profit.
The same report said PACS had reported lending worth Rs 1,43,044 crore and NPAs of Rs 72,550 crore. Maharashtra has 20,897 PACS of which 11,326 are in losses.

The attraction of the PACS lies in the last mile connectivity they offer.
For farmers, timely access to capital is necessary at the start of their agricultural activities.
PACS have the capacity to extend credit with minimal paperwork within a short time.