Land Development Bank

 Already, co-operative credit institutions were started and were working successfully in providing short-period credit to farmers. The Government wanted a special credit institution which would cater to the long-term credit needs of the farmers. Such an institution should be able to assist farmers with long-term loans carrying modest rates of interest and convenient methods of repayment.

The Government started the land mortgage banks for this purpose; these banks have now come to be called the land development banks.

The land development banks were setup during the 1920s but their progress has been quite slow. After independence, they have been enjoying a great measure of prosperity, but whatever progress has been achieved is concentrated in only a few states viz., Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra and Gujarat. There are two types of land development banks in the country. At state level, there are Central Land Development Banks, and under each central bank, there are primary land development banks. In some states, there is one Central Land Development Bank for the state which has branches all over the state.

Sources of Funds

There are three important sources of funds of land development banks:

(a) their own share capital and accumulated reserves

(b) deposits from the general public, and

(c) issue of bonds or debentures.

The first two sources did not assume any significance and land development banks largely depend upon the third source. They are issued by the Central Land Development   Banks and they carry a fixed rate of interest. The period of the debentures varies from 20-25 years. The banks issue two types of debentures, namely ordinary and rural debentures. The period of rural debentures varies between 7 and 15 years. The banks are required to create regular sinking funds to provide for repayment of the debentures.

The debentures are generally guaranteed by the State Governments regarding payment of interest and repayment of principal. They are subscribed for by the public, the cooperative banks, commercial banks, the State Bank of India, the LIC and the Reserve Bank of India. These debentures are classified as trustee securities. The Reserve Bank lends on the security of these debentures, if they are guaranteed by the concerned state Government.

The Working of the LDBs

The Land Development Banks provide long-term loans to the agriculturists for permanent improvements on land. They usually charge a percent interest. They grant loans against the security of land or other agricultural property. Loans are usually given on the first mortgage and sometimes even on the second mortgage of land or agricultural property. Generally, they give loans up to 50 per cent of the market value of the mortgaged property.

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