Agriculture contributes around 15% to India's GDP but employs over 50% of the population. Rural areas are home to over 70% of India's population, many of whom are poor farmers dependent on agriculture. The government prioritizes raising agricultural productivity to reduce poverty. Formal agricultural financing through banks has grown over time from money lenders to include cooperative banks, nationalized banks, regional rural banks, and now a multi-agency approach including public, private, and foreign banks. Key agricultural financing products include crop loans and Kisan Credit Cards (KCC), which consolidate short and long-term credit needs. However, many small and marginal farmers still lack adequate access to agricultural credit.
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Agricultural finance
1.
2. Contribution of agriculture to India’s GDP – around
15% only. Employment 54% or thereabout.
However, very important.
Rural areas -- home to more than 70 percent of the
India’s 1.1 billion people, a large number of whom
are poor. Rural poor mainly depend on rain-fed
agriculture and fragile forests for their livelihoods.
Government of India places high priority on reducing
poverty by raising agricultural productivity.
Finance from formal sources --- key driver.
3. Money lenders -- major source of credit to agriculture till
1935. Very high ROI; farmers permanently indebted.
With passing of Reserve Bank of India Act, agricultural
credit received impetus.
Cooperative Banks started to play a bigger role.
Nationalization of banks provided real impetus.
Establishment of RRBs.
Presently – A Multi Agency Approach (Public + Private +
Foreign Banks, RRBs, Coop Banks).
Priority Sector Lending's.
Establishment of NABARD
5. Marginal Farmer (MF): A Cultivator with a land holding of
1 hectare or less (2.5 acres).
Small Farmer (SF): A Cultivator with a land holding of 2
hectares (5 acres) or less.
Other Farmer: Cultivator who is not a SF or MF.
6. Finance can be direct or indirect.
Direct Agricultural advances - advances given by
banks directly to farmers for agricultural purposes.
Crop Loans (Finance for raising of crops)
Medium and long-term loans for purchase of
agricultural implements and machinery, irrigation
projects, Land Development Schemes, cold storages,
loans for purposes allied to agriculture (Dairy, Poultry
etc)
7. Indirect finance -- finance provided by banks to
farmers indirectly, i.e., through other agencies.
for financing distribution of fertilisers, pesticides, seeds
for financing distribution of inputs for allied activities
such as, cattle feed, poultry feed, etc.
Loans to Electricity Boards
Finance extended to dealers in drip irrigation/sprinkler
irrigation system/agricultural machinery.
Loans to commission agents in rural/semi-urban areas
for meeting their working capital requirements on
account of credit extended to farmers for supply of
inputs.
Lending to Non Banking Financial Companies
(NBFCs) for on-lending to agriculture.
9. Established in 1982 – To provide undivided attention and
pointed focus for agriculture &rural development.
NABARD's refinance functions cover planning, dispensation
and monitoring of credit involving:
• Framing policy and guidelines for rural financial institutions.
• Providing credit facilities to issuing organizations.
• Preparation of potential-linked credit plans annually for all
districts for identification of credit potential.
• Monitoring the flow of ground level rural credit.
10. Slow Down in Agricultural and Rural Non-Farm Growth –
Even Punjab, Haryana registered a slow down.
Weak Framework for Sustainable Water Management
and Irrigation (Inequitable water allocation, Deteriorating
irrigation infrastructure).
Inadequate Access to Land and Finance (Despite so
many agencies, financial exclusion is a reality)
Weak Natural Resources Management.
Weak delivery of basic services in rural areas.
Institutional Weaknesses (Coop banks continue to be
weak)
Money lenders still a force.
Quality of SHGs needs a review.
11. Crop Loan KCC
1. Demand Loan
2. Issued each crop season
3. Rate of interest loan
amount based.
4. Single repayment
stipulated to happen after
marketing or 9 months
which ever is earlier
5. Separate term loan
6. Savings account needed
to operate the account
7. Need to visit branch for all
operations.
1. Cash Credit
2. Issued for 3 to 5 years for
peak crop requirements
3. ROI loan amount based:
Incentives since 2007.
4. Greater frequency of drawal
and payment into account
5. KCC covers term loans also
6. Theoretically savings account
not needed. Can use cheque
books in the KCC account.
7. KCC can be used in input
shops and other branches
12. • The procedural lacunae that had set in over the period of
time in the crop loan delivery system and the very slow
growth in credit disbursements recorded in the 90’s was
the reason for developing and introducing KCC in 1998-99.
• The KCC scheme, in its current shape includes
– (a) financing the short-term needs of the farmers for carrying on
the seasonal agricultural operations, purchase of agricultural
inputs etc and
– (b) term loan for investment in agriculture and allied activities and
– (c) a reasonable amount of loan to the meet the consumption
needs and other working capital needs
– (d) Operations in a flexible and cost effective manner.
15. Most accounts not operated through Cheque books- cheque
not accepted in the front desk- with CBS this may change
Cheques not accepted in other branches- may change with
CBS
Insurance offered free of cost to SB accounts but PAIS is
charged to KCC
Application forms not available in the banking hall. Given only
after initial scrutiny
No bank has arrangement with input suppliers for acceptance
of KCC for purchase of input by farmers. Not a plastic card-
some banks have made it ATM cards for withdrawal- not yet
fully covered.
Interest charged half yearly. Banks charge penal interest too!
16. Data shows that many small and marginal farmers not
covered by agricultural credit and KC
Consumption and NFS limits added. If this is so the
limits are much lower than the SOF
SOF process lacks transparency.
No information or pamphlets on how to use the KCC
The facility for frequent drawal not explained to the
farmers?
The crop insurance and PAIS discourages small farmers
as they do not seem to benefit.
