Agricultural Credit

Agricultural credit is financial assistance provided to the farm sector for production, technology adoption, and infrastructure development.

• Agricultural credit Importance:
  • Drives economic growth.
  • Encourages adoption of modern technologies.
  • Supports farmers in managing production costs.

---

Key Challenges in Agricultural Credit

1. Capital Formation: Lack of adequate infrastructure investments.
2. Regional Disparities: Uneven credit distribution across regions.
3. Dependence on Non-Institutional Sources:
   • Small/marginal farmers rely on high-interest credit.
   • Vulnerable groups include tenant farmers, landless laborers, and sharecroppers.
4. Low Price Realization:
   • Farmers face difficulties in selling produce at fair prices.
   • Leads to financial distress.
5. Loan Waivers:
   • Weakens credit culture.
   • Impacts state financial stability.

---

Priority Sector Lending (PSL) for Agriculture

• Mandated Target:
  • 18% of Adjusted Net Bank Credit (ANBC).
    • ANBC serves as the base for calculating a bank’s mandatory PSL targets, which require a specific percentage of a bank’s credit to be allocated to sectors such as agriculture, MSMEs, education, and housing.
    • ANBC = Net Bank Credit (NBC) + Investments eligible under PSL – Deductions for exemptions
      • As per RBI norms, domestic scheduled commercial banks (excluding regional rural banks) are required to allocate 40% of their ANBC towards PSL.
      • Foreign banks with fewer than 20 branches are required to allocate 32% of their ANBC towards PSL.
  • Sub-target of 10% for Small & Marginal Farmers (landholdings up to 2 hectares).
• Weaker Sections:
  • Includes tenant farmers, sharecroppers, landless laborers, and small/marginal farmers.

---

Categories of Agricultural Credit

1. Farm Credit:
   • Crop loans for traditional/non-traditional plantations and horticulture.
   • Medium/long-term loans for purchasing machinery and developing farm infrastructure.
   • Loans for pre/post-harvest activities (spraying, harvesting, grading, and transport).
   • Loans under the Kisan Credit Card (KCC) scheme.
     • It was introduced by the Reserve Bank of India (RBI) and NABARD (National Bank for Agriculture and Rural Development) in 1998 to streamline credit access for farmers.
       • Key Features of the KCC:
       • Purpose:
         • To meet short-term credit needs for crop cultivation.
         • To cover post-harvest expenses.
         • For consumption needs related to agriculture.
         • To finance the purchase of agricultural inputs (e.g., seeds, fertilizers, pesticides).
         • To support activities like animal husbandry, fisheries, and allied activities.
       • Loan Limit:
         • The loan amount depends on the farmer’s landholding, cropping pattern, and credit history.
         • Credit limits are usually determined based on the scale of finance and operational costs.
       • Interest Rates:
         • KCC loans typically come with lower interest rates compared to regular loans.
         • The government often provides interest subsidies, reducing effective rates further for timely repayment.
       • Repayment:
         • Flexible repayment schedules are aligned with crop harvest cycles.
         • Typically, short-term loans are repaid within 12 months, but this may vary based on the loan type.
       • Insurance Cover:
         • KCC holders are provided with insurance coverage under the Personal Accident Insurance Scheme (PAIS) for accidental death or disability.
       • Validity:
         • The KCC is generally valid for 5 years and can be renewed thereafter.
       • Eligibility:
         • Farmers engaged in crop production.
         • Tenant farmers, oral lessees, and sharecroppers.
         • Farmers involved in animal husbandry, fisheries, and other allied activities.
       • Credit Delivery Mechanism:
         • The card is linked to a savings account, allowing farmers to withdraw funds through ATMs or via bank branches.
   • Loans for distressed farmers indebted to non-institutional lenders.
2. Agriculture Infrastructure:
   • Construction of storage facilities (warehouses, silos, cold storage).
   • Soil conservation, watershed development, and agri-biotechnology projects.
   • Renewable energy projects, including solar pumps and bio-gas plants.
3. Ancillary Activities:
   • Loans for agri-clinics, start-ups, and food/agro-processing.
   • Financing custom service units (e.g., fleets of tractors and threshers).

---

Loan Limits

• Individual Farmers:
  • Up to ₹75 lakh for loans against negotiable warehouse receipts (NWRs).
  • ₹50 lakh for loans against non-NWRs.
• Farmer Producer Organizations (FPOs):
  • Loans up to ₹5 crore for farming with pre-assured marketing.
• Startups:
  • Loans up to ₹50 crore for agriculture-related projects.

---

Special Focus Areas

1. Solar Agriculture:
   • Loans for installing solar pumps or power plants on farmland.
2. Custom Hiring Services:
   • Financing for service providers offering farming equipment on a rental basis.
3. On-Lending:
   • Loans extended by banks to NBFCs and MFIs for agriculture sector financing.

---

Significance of Kisan Credit Card (KCC)

• Provides a flexible credit facility to farmers for crop production and allied activities.
• Covers working capital and consumption needs.

---

Key Policies Supporting Agricultural Credit

1. Interest Subvention Scheme:
   • Subsidized interest rates for short-term crop loans.
2. Crop Insurance:
   • Protection against crop loss due to unforeseen events.
3. Priority Sector Lending (PSL):
   • Ensures flow of credit to agriculture and allied activities.

---

MCQ

What is the primary role of agricultural credit?
A. Build rural roads
B. Facilitate adoption of new farming technologies
C. Enhance industrial production
D. Manage urban housing projects

Answer: B

What is a major challenge in agricultural credit?
A. Lack of modern farming tools
B. Overuse of fertilizers
C. Dependency on non-institutional credit sources
D. Absence of crop insurance schemes

Answer: C

• X
• Instagram
• WhatsApp