Lending to the agriculture sector by banks and institutions is called farm Loan.
Loan Facilities for Short Term Agricultural Operations
- Crop Loans are also called short term loans for “Seasonal Agricultural Operations.
- These loans are provided for raising seasonal crops which are recurring in nature.
- The activities include, among others, ploughing and preparing land for sowing, weeding, transplantation where necessary, acquiring and applying inputs such as seeds, fertilizers, insecticides etc.
- Thus, some money is required to meet the current expenditure for raising the crops on land till the crops are harvested is construed as production or short term credit for seasonal agricultural operations.
Medium-term or long-term credit
- Farmers who are into traditional farming which include a range of crops including sugarcane and pulses besides plantations like tea, coffee and rubber and horticulture.
- For other activities such as irrigation and farm development or buying of equipment, lenders provide loans for a longer period for more than a year.
Kisan Credit Card Scheme
- Crop loans are generally disbursed by the banks through the mode of Kisan Credit Card (KCC).
- The Kisan Credit Card Scheme is in operation throughout the country and is implemented by Commercial Banks, Cooperative Banks and RRBs.
- All farmers including small farmers, marginal farmers, share croppers, oral lessees and tenant farmers are eligible for issuance of KCC.
Main features of KCC scheme
- Assessment of crop loan component based on the scale of finance for the crop plus insurance premium x Extent of area cultivated + 10% of the limit towards post-harvest / household/consumption requirements + 20% of limit towards maintenance expenses of farm assets.
- Validity of KCC for 5 years.
- No withdrawal in the account to remain outstanding for more than 12 months; no need to bring the debit balance in the account to zero at any point of time.
- Interest subvention /incentive for prompt repayment to be available as per the Government of India and / or State Government norms.
- No processing fee up to a limit of Rs. 3.00 lakh.
- One time documentation at the time of first availment and thereafter simple declaration (about crops raised/ proposed) by farmer.
- Disbursement through various delivery channels, including ICT driven channels like ATM/ PoS/ Mobile handsets.
Rate of interest on farm loans
- Banks have to lend at a maximum rate of 7% to farmers with the government offering a subsidy of 3% to borrowers who are prompt in repayment.
- A loan waiver is the waiving of the real or potential liability of the person or party who has taken out a loan through the voluntary action of the person or party who has made the loan.
Why it is necessary sometimes
- Farmers have been unable to repay because of crop failures due to unfavorable climatic condition.
- When there is a bumper crop as has been the case this time and they have to reckon with low prices offered for their produce, including what is called the minimum support price or MSP .
Consequences of waiving the loan
- If these loans are always waived it will encourage borrowers (farmers) to not repay them waiting for such announcement in return the banks will suffer which would indirectly effect our economy.