Factors Affecting Institutional Finance of Tea Industry: An Empirical Detection in Select Tea Gardens

Abstract

The source of financing of tea industry is made up of equity from the promoter in the form of land and cash, loans from commercial banks, assistance from Tea Board and NABARD. The tea industry needs high initial capital investment and continuous flow of working capital during the production phase. It is recognized that the loans provided to tea gardens for the planting of tea and its maintenance per unit of land is inadequate. The financial institutions have not been able to establish well designed procedures for loan sanctions and disbursement. In addition, the financial performance has been weak and most of the borrowers have not been able to pay interest and principals on their borrowed money. As a result, profit after tax to net-worth was very low i.e., 1.2 per cent in 2008-09. Moreover, tea was placed as priority sector lending item with reduced interest rate. Hence, the paper is an attempt to identify the factors influencing institutional finance in select tea gardens of Barak Valley. The study found that banks and financial institutions in the study area are not maintaining the national pace of credit channelization. The study has identified four factors viz., average profit, number of financial institutions, debt equity ratio and tax burden out of eight identified factors are the most influencing factors for deployment of institutional finance to tea gardens.

Keywords: Tea Gardens, Factors, Credit Deployment, Debt Equity Mix, Profitability

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