When the State Took Over
The first All India Debt and Investment Survey was conducted in 1951. The report that was published in 1954 was a landmark and led to the establishment of the then Imperial Bank, which later became the State Bank of India (SBI). By 1957, the government declared that the cooperative credit system was not adequately capitalized. The State therefore needed to help it with some equity. In fact from 1957 onwards, the government started contributing equity to cooperatives. Along with it came controls, audits, eventually politicization, and the near death of the cooperative system.

A Time of Nationalization and Crisis
The next phase was between 1969 and 1971. In 1969 the social control of banks was introduced and 1971 saw the nationalization of banks. Immediately these banks were mandated to open a large number of rural branches. By that time it had become clear that the Green Revolution, which was about 5 years old then, needed a nation wide rural credit system, if it had to spread beyond the initial 30 odd districts. Indira Gandhi, the then Prime Minister, ordered the nationalized banks to open thousands of branches. Emergency was declared on 26th June 1975. It was a period of severe political crisis.
One of the points in the twenty point programme which accompanied the Emergency was a ban on money lenders. But the obvious fact was that if you ban moneylenders, you had to have an alternative. That led to another set of institutions.

On 15th August 1975 the first regional rural bank called the Prathama Gramin Bank was inaugurated in the Muradabad district of Uttar Pradesh. In fact the Regional Rural Bank Act followed a whole year later in 1976, with the sole aim to completely root out moneylenders.

IRDP – In Namesake Alone
One institutional layer after another was not working because only the supply side was kept in mind In 1980 when Indira Gandhi came back to power for the second time after three years of the Janata rule, she took a small programme of the Janata government in Rajasthan called the ‘Antyodaya Programme’ and converted it into a nation wide programme called the Integrated Rural Development Programme (IRDP). Despite its name, IRDP was actually a subsidized loan based asset giving programme for the poor.
In some ways it become the first micro credit programme in India. The target for IRDP was 600 poor households per block. There were about 5000 development blocks in India at that time, which translates to 3 million households per annum. Between 1980 to 1999, the IRDP gave out 56 million loans. It is arguably the world’s largest micro credit programme but unfortunately it had very unhappy results. Studies showed that repayment rates were poor. In fact the stabilized repayment rate for IRDP was as low as 18 per cent. Further there was wrong selection of borrowers. Those who were truly poor were not selected. There were leakages in giving out the subsidies.