PIYUSH GADE

BAILOUT TO BREAKOUT: DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

FROM BAILOUT TO BREAKOUT- DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

RESEARCH PAPER BY- PIYUSH ARUN GADE (STUDENT ID-9080307227)

MASTERS STUDENT, SECOND YEAR,

ECONOMETRICS & QUANTITATIVE ECONOMICS PROGRAM

UNIVERSITY OF WISCONSIN, MADISON

Acknowledgements: I express my sincere gratitude toward Professor Chris Taber, Dept of Economics, UW Madison, for his crucial inputs and his timely and
valuable counsel in tough times

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 PIYUSH GADE
BAILOUT TO BREAKOUT: DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

Abstract: This paper analyzes the impact of the debt relief on the condition of the debtor, especially the small and marginal farmers of India, by examining the
“Agriculture Debt Waiver and Debt Relief Scheme” launched in 2008 in India, by employing the Regression Discontinuity Design approach. The treatment rules
induce a quasi-random design near the cutoff which can be used to estimate the LATE. I test the continuity of the running variable using Manipulation Testing using
Local-Polynomial Density Estimation (Cattaneo and Jansson, 2018) as well as approximate sign test using the g-order statistics (Bugni and Canay, 2018). I also
employ the graphical tests using the Data-Driven Regression Discontinuity Plots (Cattaneo and Jansson, 2018) to examine the continuity of the pre-program
covariates as well as the discontinuity of the post-program outcomes around the cutoff. As additional robustness check, I employ Local Polynomial Regression
Discontinuity Estimation with Robust Bias-Corrected Confidence Intervals and Inference Procedures (Calonico, Cattaneo, Farrell and Titiunik, 2018). I have employed
both the Sharp and Fuzzy RDD approaches of estimation. As an extension, I used the treatment indicator as IV and examined the results using 2SLS IV regression.
Contrary to the expectations, I find no significant improvement in the condition of the defaulter borrowers after receiving full and unconditional debt relief, even
though the overall indebtedness is reduced. There is no visible change in savings and consumption. Investment and productivity slightly decline. There is negative
perception about the future access to credit and the number of new loan applications go down. The data and results are insufficient to conclude whether the debt
relief to small and marginal farmers would actually lead to moral hazard.

Introduction: National Sample Survey Organization (NSSO) released a report on the “Indebtedness of Farmer Households” released by in May 2005. According to
it, of the 89.35 million farmer households in India, 43.42 million farmer households which is around 48.6%, were reported to be indebted to either formal or informal
or both sources of credit. This indebtedness, if carried over to the period next to the one in which money was borrowed, it can lead to the classical case of debt
overhang, which could make it difficult for household to newly borrow money, even though new borrowing is actually a good investment that would more than pay
for itself.

Myers (1977) showed that debt overhang can lead to under-investment and household debts may induce deadweight loss in the aggregate economy. Also, indebtedness
is likely to distort investment decisions. India is often in news for farmer suicides. Patel et al. claim that farmers with certain socioeconomic characteristics–those
with marginal landholdings, who cultivate cash crops and are indebted–are at particular risk of committing suicide. The definition of an indebted farming household
is: “if it had any loan in cash or kind and its value at the time of transaction was 300 rupees ($5) or more”, as per the National Sample Survey Organization’s “Situation
Assessment Survey of Farmers” in 2003. This is a significant amount from Indian standards since Planning Commission stated that 25 rupees ($0.4) a day is an
“adequate” daily income in rural India.

Figure 1 taken from Kennedy (2013), plots the correlation between indebtedness and suicides. It shows that there is clear association between the percentage of
indebted farmers and suicide rates (r = 0 · 729, p = 0 · 018). A one per cent increase in the percentage of indebted farmers would respectively result in a 0 · 549 increase
in the suicide rate as shown by Kennedy (2013). The same study also concludes that relieving indebted farmers may be effective at reducing suicide rates in India.

The aforementioned facts are more strikingly observed in case of small and marginal farmers, which have landholdings below 2 hectares. In the “India Rural
Development Report 2012-13” prepared by the IDFC Rural Development Network, it has been observed that Small farms are more efficient, especially in cultivating
labor-intensive crops or tending livestock, but land holdings are too small to generate sufficient household income. Thus, even though small and marginal farmers
could be more efficient, they are less equipped to successfully pay off the debt as well as are more at the receiving end of the adverse consequences of indebtedness
mentioned above. It is in this context, that the study of farm loan waivers is significant.

1. The Agriculture Debt Waiver and Debt Relief Scheme (ADWDRS), 2008

In this context, the Agriculture Debt Waiver and Debt Relief Scheme (ADWDRS), 2008 was launched in May 2008 to address the problems and difficulties faced by
the farming community in repayment of loans taken by them and helping them qualify for fresh loans by freeing up the collateral. Under the scheme, a complete
waiver of the ‘eligible amount’ was to be provided to the Marginal and Small farmers while a one-time debt relief of 25 percent of the ‘eligible amount’ was to be
provided to the ‘other farmers’ subject to payment of the balance 75% of the ‘eligible amount’.

Fig 1 This shows that there is a clear association between the percentage of
indebted farmers and suicide rates (r = 0 · 729, p = 0 · 018). With a high
proportion of indebted farmers but low suicide rate, Punjab, is an outlier.
Punjab has by far the lowest proportion of marginal farmers. This indicates
that indebtedness is less likely to lead to suicide where farmers have larger
landholdings, more resources, and therefore a greater ability to endure
difficult periods. Source-Kennedy, 2013.

Thus, the full unconditional one-time waiver is the ‘debt waiver’ part of the scheme while the conditional partial debt relief is the ‘debt relief’ part of the scheme.

Agricultural loans meeting the following set of conditions were to be covered under the scheme- Loans disbursed between 1 April 1997 and 21 March 2007; overdue
as on 31 December 2007; and remaining unpaid up to 29 February 2008. The scheme came into force with immediate effect. As many as 3.73 crore farmers were
benefitted to the extent of Rs. 52,259.86 crore as per the report from the Press Information Bureau. This made it one of the largest programs in the history of debt
relief. The stated goal of the program was to strengthen the household balance sheets in the rural sector to stimulate consumption and productive investment. This
would get the people out of the debt overhang and would expectedly restore access to credit.

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BAILOUT TO BREAKOUT: DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

In agriculture Census, the operational holdings are categorized in five size classes as follows in Table 1-

Table 1: Categorization of farmers: This shows that the ADWDRS scheme was primarily targeted
Category Size class towards the small and marginal farmers

Marginal Below 1 hectare Thus, according to the scheme, those who had pledged less than 2 hectares of land qualified for full
unconditional debt waiver while those who pledged more than 2 hectares qualified for conditional
debt relief. This implied that Small and Marginal Farmers were supposed to benefit from the
Small 1- 2 hectare scheme in the form of debt waiver. It is also to be noted that the full debt waiver was mandatory
while the conditional debt waiver was optional. The full debt waiver cases were settled
Semi-medium 2-4 hectare immediately, one month after the scheme was announced, while for the conditional partial debt
relief, the scheme was extended twice and went on up to 30th June 2010, since those who opted for
Medium 4-10 hectare the partial debt relief took time to settled the remaining 75 percent of the balance.

If a borrower was granted debt relief, the borrower’s account was closed which was akin to the loan
Large 10 & above being repaid. Their collaterals were formally cleared off on the official land documents which
implied that they were eligible for new loans by repledging the freed-up collaterals. Banks were
recapitalized for the full amount of the loans written off under the program. Each bank received a transfer from the Reserve Bank of India equivalent to the amount
of non-performing loans written off.

2. Setting and data

The data has been borrowed from Kanz, Martin -2016 ("What Does Debt Relief Do for Development? Evidence from India's Bailout for Rural Households." American
Economic Journal: Applied Economics, 8 (4): 66-99.). The main data pertains to four districts in the state of Gujarat namely – Anand, Gandhinagar, Kheda and
Mehsana, which are geographically contiguous to each other. The primary data is mostly account level data on debt relief amounts as well as the pledged land
collateral. The other part of the data is the survey data of 2897 households in the close proximity of the 2 hectares cutoff. The data is quite homogenous as the majority
of the loans are crop loans. The loan amount that the borrower obtained varied and is proportional to the amount of land pledged. The second type of loan is investment
loan. The sample is restricted to ± 0.5 hectares of the 2 hectares collateral cutoff. This bandwidth is chosen as per the cross-validation procedure prescribed by Imbens
and Kalyanaraman (2012). There are 5554 households within the sample. Table 2 below represents the summary statistics for the bank data and survey data

VARIABLES (1) (2) (3) (4) (5)

Bank Data Observation Mean Std deviation min Max
Amount eligible for debt relief 5,554 33,498 36,823 0 751,594

Total loan amount overdue 5,524 52,915 48,538 0 882,806

Land pledged 5,554 1.967 0.286 1.500 2.519
No. of years since disbursement 4,808 3.913 2.290 0 13
Total interest overdue 5,414 12,595 17,009 0 319,810
Total principal overdue 5,514 40,627 43,351 0 830,000
Survey Data
Total difference in debt pre & post 2,302 2.127 165.2 -1,310 3,900
program
Log of this total difference 1,810 0.0562 1.170 -4.605 3.974
Proportion of formal credit 2,729 58.04 45.58 0 100
Proportion of Informal credit 2,727 15.64 31.80 0 100
Log of agricultural revenue p/a 2,450 9.508 0.997 5.151 15.96
Log of consumption in past 30 5,554 9.639 1.035 0 10.61
days (durable consumption)
Log consumption in past one year 2,897 3.912 4.053 0 11.61
(durable consumption)
Log of investment p/a 2,479 8.011 0.873 4.871 13.55
Log of savings 2,391 6.316 2.603 0 14.08
No. of new loan applications 2,894 1.767 0.423 1 2
Number of groups i.e 26 26 26 26 26
bankdistrictid
Table 2 Summary statistics

3. Empirical Strategy

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BAILOUT TO BREAKOUT: DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

Since households below 2 hectares received unconditional debt waiver and households above two hectares had the option to choose whether to take partial debt relief
or not, this generates a discontinuity in the amount of debt relief. This also generates a quasi-random variation in the treatment status which makes it possible to use
the Regression Discontinuity Design as described in Imbens, Guido W., and Thomas Lemieux. (2008) as well as Hahn, Jinyong, Petra Todd, and Wilbert Van der
Klaauw. (2001). The identification strategy relies on the fact that the forcing variable which is “hectares from cutoff” i.e hfc = 𝑋𝑖 is deterministic of the treatment
status 𝑇𝑖 , with hfc < 0 implying 𝑇𝑖 = 1 and hfc > 0 implying 𝑇𝑖 = 0 ∀ i. The Local average Treatment effect (LATE) of receiving the full and unconditional debt relief
can be estimated as the difference between the regression functions at the cutoff i.e hfc = 0.

τ RD = lim x↓0 E [ 𝒚𝒊 | 𝒙𝒊 = 0 ] – lim x↑0 E [ 𝒚𝒊 | 𝒙𝒊 = 0 ]

The intuition involved is that the households in the immediate vicinity of the cutoff (hfc= 0) do not differ in their observable characteristics pre-program and cannot
change their treatment status (which is retrospectively determined) once the program has been announced. Thus, any differences in observed ex -post outcomes i.e
outcomes after the program can be attributed solely to the difference in treatment status or variation in debt relief arising from a household’s documented landholding
prior to the program i.e hfc. Thus, hfc is deterministic of the treatment status. The right hand of the equation is estimated using the Local Polynomial Regression
technique as prescribed by Cleveland (1981). Here the outcome of interest 𝑦𝑖 is regressed on the polynomial of the forcing variable 𝑋𝑖 , in the neighborhood of 𝑋𝑖 ∈
[-0.5, 0] to obtain the second part of the right hand side and 𝑋𝑖 ∈ [0, +0.5]. The difference between the two estimates is the Treatment effect. This is equivalent to
the standard equation for OLS regression i.e

𝒚𝒊 = α + ϒ 𝑻𝒊 + f (𝑿𝒊 ) + 𝝐𝒊

̂ is the treatment effect (LATE) for a household receiving

Here, 𝑦𝑖 is the outcome variable, 𝑇𝑖 is the treatment status, 𝑋𝑖 is the forcing variable and 𝜖𝑖 is the error term. ϒ
the full and unconditional debt relief.

Thus, 𝑇𝑖 = 1 implies the Treatment group and 𝑇𝑖 = 0 implied the Control group. Treatment group is the households receiving full and unconditional debt relief (hfc
>0) while the Control group is the households not qualifying for full debt relief (hfc >0). Thus, this is more of an “intention to treat’’ mechanism than comparison of
actual treated and not treated. Thus, the results from the baseline specifications should be interpreted as a lower bound.

4. Discontinuity in effective debt relief

For the identification strategy to be valid, there has to be discontinuity in the treatment status and subsequently in debt relief. I generated a new variable called
“effectiveDR” i.e. effective debt relief, which is equal to the product of amount eligible for debt relief and bailoutshare divided by the total debt pre-program. This
variable effectively measures the effective amount of debt relief relative the indebtedness before the program, so that the relief effect is captured more accurately.

Discontinuity in the debt relief will be visible only if the rules of bailout are followed in
letter and spirit. Fig 2 indicates that this is indeed the case which implies that the
discontinuity in the debt relief amounts in economically meaningful.

Fig 2: shows the scatter-plot of the log of effective debt relief and the forcing variable
implying that the rules of the scheme translate into economically meaningful
discontinuity in debt relief

5. Robustness checks and identification

If there is manipulation in the forcing variable, the indicator variable 𝑻𝒊 = 1 (hfc<0) is not exogenously determined and thus this would violate the Local Random
assignment assumption. Sorting, if it exists, would therefore produce a discontinuity not only in the distribution of pretreatment covariates but also in the density of
the forcing variable as pointed out in McCrary (2008). If there is no manipulation, the density of the forcing variable as well as the pre-program covariates above and
below the cutoff in the narrow bandwidth is similar, which implies there is Local Random Assignment effect at the cutoff. Continuity of the running variable is at the
heart of the Regression Discontinuity Design. Random assignment implies continuity (assuming the exclusion restriction). However, the reverse may or may not hold
as pointed out by Cuesta and Imai (2006).

There is possibility of manipulation if people are able to anticipate the scheme and strategically manipulate the land records. Manipulation could also happen if the
debtors are able to bribe the banks in changing the records. Fig 3 reports two separate histograms, one for hfc <0 and the other for hfc > 0.

This raises the possibility of manipulation ex-post. However, this bunching is mostly because of the cooperative accounts which are almost half in number. It is to be
noted that the cooperative bank accounts allowed “Interest Subvention Scheme” announced in 2006-07 and are more accessible to the rural population, which certainly
could have caused a spike. Nevertheless, it will be shown that even if we exclude the cooperative banks from the analysis, as a robustness check, the results don’t
differ much. Ex-ante manipulation is also possible if the rules and timing could have been anticipated prior to the deadline or the same cutoff could have been used
of the previous programs.

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BAILOUT TO BREAKOUT: DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

Fig 3 – Histogram for hfc above and below the cutoff shows bunching just below the cutoff

Since the lands were already pledged and the eligibility is decided retrospectively, the ex-ante manipulation could be ruled out. This is bolstered by the fact that there
was no other program with the similar cutoff rules. Similarly, since the full unconditional debt relief cases sorted out immediately in the month succeeding the
effective date of the program coming into effect as also since the program came into effect immediately after announcement, the ex-post manipulation could be ruled
out too, since there was hardly any time for such a manipulation. It must be noted that manipulation is a tough task since it is very difficult to manipulate the electronic
land record and the records with the bank and this could not be done within a month.

Fig 4: Histogram for the density of forcing variable for all accounts and excluding cooperatives

Also, if the 2 hectares cutoff had been used previously, the pre-program
characteristics would be discontinuous. It would be shown that this is not the
case. The second identification assumption requires that ex ante observables
and pre-program outcomes are continuous in the assignment variable hfc.
Intuitively, this ensures that estimates are not biased by preexisting differences
between the treatment and control groups around the discontinuity.

One of the two testable implications of a stronger identification assumption

proposed by Lee (2008), is individuals have imprecise control over the
running variable, which translates into the density of the running variable
being continuous at the cut-off. I conducted a manipulation test based on a
novel local-polynomial density estimator proposed by Cattaneo and Jansson
(2018).

Table 4 Manipulation testing based on density discontinuity - The upper left panel shows the summary statistics for Control (hfc>2) and Treatment (hfc>2) units. The
model is unrestricted and uses triangular kernel which is default. The test
. rddensity hfc
Computing data-driven bandwidth selectors.
statistic uses a q=3 polynomial. Different bandwidths are chosen for
unrestricted model with polynomial order p=2. The bandwidth choices are
RD Manipulation Test using local polynomial density estimation.
.126 and .154, which reduce the effective sample sizes to 873 and 759 for
Cutoff c = 0 Left of c Right of c Number of obs = 5554 treatment and control group respectively. The final manipulation test is Tq
Model = unrestricted
Number of obs 3263 2291 BW method = comb =−5.2054, with a p-value of 0.000. Therefore, in this application there is
Eff. Number of obs 873 759 Kernel = triangular
Order est. (p) 2 2 VCE method = jackknife
statistical evidence of systematic manipulation of the running variable. T stat
Order bias (q) 3 3 is -5.2054. The p value is that we would observe a test statistic less than -
BW est. (h) 0.126 0.154
5.2054 or greater than 5.2054 if the null of no manipulation were really true.
Running variable: hfc.
P value tells that it is unlikely that we observe such extreme T stat if the null
Method T P>|T| of no manipulation were true. Therefore, we reject the null of no
Robust -5.2054 0.0000 manipulation.

I then try to plot the density graphs. See Fig 6. Which clearly shows the discontinuity in the forcing variable. However, there is no bias correction. And the test has
subsequently low power. Thus, I use the restricted testing. The manipulation tests take the form

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BAILOUT TO BREAKOUT: DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

Fig 6: Estimated discontinuity in the forcing variable

In unrestricted testing, it is a 2-sample problem, where the estimators are unrelated and the
standard error formula reduces to:

However, in the restricted testing, the standard error is different because cross restrictions
are incorporated. The SE formula becomes

leading to different asymptotic variance which is the source of power gain. Thus, I ran the
restricted test, the results of which are shown in Table 5. Thus, based on the above arguments,
the validity of the RDD is affirmed.

. rddensity hfc, fitselect(restricted) vce(plugin)

Computing data-driven bandwidth selectors. Table 5: The result is not statistically significant and the
null of no manipulation cannot be rejected. In this case,
RD Manipulation Test using local polynomial density estimation.
because the restricted model is being used, a common
Cutoff c = 0 Left of c Right of c Number of obs = 5554 bandwidth for both control and treatment units is selected.
Model = restricted
This value is .319 with the choice p = 2 and employing now
Number of obs 3263 2291 BW method = comb
Eff. Number of obs 1993 1432 Kernel = triangular the plug-in standard errors estimator (instead of the
Order est. (p) 2 2 VCE method = plugin jackknife method, as used before). This empirical finding
Order bias (q) 3 3 shows that cannot reject the null hypothesis of no
BW est. (h) 0.319 0.319
manipulation (p-value is .9014), which provides empirical
Running variable: hfc. evidence in favor of the validity of the RD design.

Method T P>|T|

Robust -0.1239 0.9014

I also conduct the same tests by dropping the observations corresponding to the co-operative banks and see the results. The reason for this is most of the bunching is
accounted for by the cooperative banks. So the test should be conducted for all lending institutions involved except the cooperative banks. As expected, the unrestricted
rddensity test shows a p-value of more than 1. Thus, the null of no manipulation cannot be rejected. It means that there is no scope of manipulation except for the
cooperative banks. This makes it obvious to see all the regression results with and without cooperative institutions taken into consideration which will be subsequently
done. I also ran the restricted version of the test for the sample without the cooperative institutions, which has more power and gives better results. This has a p-value
of .3676 which rules out the scope of rejection of the null of no manipulation. Thus, the possibility of manipulation is ruled out in the sample without cooperative
loans and validates the RD design.

Both the test results are shown below in Table 6.

. rddensity hfc, fitselect(restricted) vce(plugin) . rddensity hfc, plot

Computing data-driven bandwidth selectors. Computing data-driven bandwidth selectors.

RD Manipulation Test using local polynomial density estimation. RD Manipulation Test using local polynomial density estimation.

Cutoff c = 0 Left of c Right of c Number of obs = 2942 Cutoff c = 0 Left of c Right of c Number of obs = 2942
Model = restricted Model = unrestricted
Number of obs 1528 1414 BW method = comb Number of obs 1528 1414 BW method = comb
Eff. Number of obs 1300 1184 Kernel = triangular Eff. Number of obs 406 539 Kernel = triangular
Order est. (p) 2 2 VCE method = plugin Order est. (p) 2 2 VCE method = jackknife
Order bias (q) 3 3 Order bias (q) 3 3
BW est. (h) 0.421 0.421 BW est. (h) 0.139 0.176

Running variable: hfc. Running variable: hfc.

Method T P>|T| Method T P>|T|

Robust 0.9010 0.3676 Robust 1.6094 0.1075

Table 6 a. Unrestricted rddensity test, dropping cooperative banks Table 6 b. Restricted rddensity test, dropping the cooperative banks observations.
observations. The p-value is above .1 which implies that the null The p-value is .3676, which makes it hard to reject the null of no manipulation
of no manipulation cannot be rejected,which validates our RD design.

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BAILOUT TO BREAKOUT: DOES DEBT RELIEF LIFT THE POOR OUT OF ADVERSITY?

The adjoining figure shows how the density plot looks after dropping the cooperative banks
observations.

Fig 7: rddensity plot after dropping the observations with coop == 1

Subsequently, I tried to test the density of the running variable, an idea proposed by McCrary, using
the approximate sign test using the G-order statistics as prescribed by Bugni and Canay (2019). This
test is asymptotically valid in the sense that it has limiting rejection probability under the null
hypothesis not exceeding the nominal level. The results of the test with cooperatives included show
that the null of no manipulation can be rejected as the p value is 0.

. rdcont hfc, alpha(.002)

RDD non-randomized approximate sign test
Table 7 a: Approximate sign test on hfc shows the p value to be 0
Running variable: hfc implying that the null of no manipulation can be rejected.
Cutoff c = 0 Left of c Right of c Number of obs = 5554
q = 403 However, if the same test is run again without taking the cooperative
Number of obs 3263 2291 banks into account, the p value comes out to be 0.368, which implies
that the null of no-manipulation cannot be rejected.
Eff. number of obs 287 116
Eff. neighborhood -0.020 0.020

p-value 0.000

. drop if coop == 1 Table 7 b: Approximate sign test on hfc, dropping the cooperative
(2,612 observations deleted) banks observations, shows the p-value to be 0.368 implying that the null
of no manipulation can be rejected.
. rdcont hfc
This again rules out the possibility of manipulation in the sample without
(1 missing value generated)
cooperative banks. Thus, it is clear that without taking cooperative banks
RDD non-randomized approximate sign test into account, the possibility of manipulation is nullified.
Running variable: hfc
Cutoff c = 0 Left of c Right of c Number of obs = 2942 However, dropping so many observations is not at all a good idea. Let us
q = 356 keep those observations. Nevertheless, it is important to account for the
Number of obs 1528 1414 spike in the number of loans below the cutoff if manipulation is not the
real reason.
Eff. number of obs 169 187
Eff. neighborhood -0.050 0.050 The Government of India had launched an Interest Subvention Scheme
2007, which promised lower interest rates on loans on the condition of
p-value 0.368 paying them on time. Secondly, the National Rural Employment
Guarantee Act was launched in 2005, which caused a boost in rural
demand, particularly among small and marginal farmers with greater income insecurity than the ‘other’ farmers. Thirdly, India’s GDP saw a consistent rise in the
GDP since 2001 (Planning Commission of India, GDP data, 1951 to 2014). Fourthly, the tightened PSL norms required banks to lend more to the rural agricultural
sector. All these factors, collectively, should have caused a spike in loans among small and marginal farmers, particularly at the Co-operative banks. Co-operative
institutions play a very important role in rural credit delivery and the operating space for the cooperative institutions is mostly confined to the rural areas. The short-
term cooperative credit systems have 50 percent more accounts than Commercial and RRB’s taken together as per Mishra 2010. They are also dominant in their reach
to the rural hinterland not just in the number of clients but also accessibility to the small and marginal farmers. In the data, for hfc > 0, the number of loans from
cooperatives is 877 and others are 1414. While for hfc < 0, i.e for the small and marginal farmers, the numbers are 1528 and 1735 respectively.

Thus, it can be seen that for ‘other’ farmers, the borrowing is much less from cooperatives as compared to the other sources. While for the ‘small and marginal
farmers’ the borrowing from cooperatives is more than that from the commercial. Infact, in the narrow margin of hfc between -.05 and .05, for ‘other farmers’ the
non-cooperative loans are almost double the cooperative loans while for the ‘small and marginal’ farmers, the cooperative loans are almost double that of the non-
cooperative loans. Also, the amount of land needed to be pledged in cooperatives is less than what is needed in other financial institutions. Moreover, as pointed out
the Priority Sector Lending norms required the domestic commercial banks are RRB’s to lend a substantial proportion of their lending to the agricultural sector. The
following table shows the steady increase in the priority sector lending due to constant revision of the norms in favor of PSL.