Kisan Credit Card (KCC) is an initiative by the Government of India to ensure that farmers of the country have access to credit at an affordable rate. This scheme was launched in August 1998 based on the recommendations of a special committee formed for inputs on loans and agricultural welfare. KCC may also be referred to as Kisan Credit Card Loan as it offers term loan to farmers in order for them to cover the costs of cultivation, harvest and farm maintenance. Let us learn more about the how Kisan credit card loan works and its benefits.
Objective of Kisan Credit Card Scheme
It was found that farmers had to heavily rely on non-institutional credit sources for their farming needs such as purchase of seeds, pesticides, fertilizers, etc. Banks or other financial intuitions had lengthy and cumbersome processes which used to deter farmers from approaching them and also caused unnecessary delays.
However, the informal or unorganized lending market exploited farmers. Their exorbitant interest rates ensured that the farmer community remained in debt perpetually. Hence, the Kisan Credit Card scheme was launched to guarantee availability of sufficient, timely and cost-effective funds to farmers in a hassle-free manner.
Features of Kisan Credit Card Loan
- All agricultural farmers are eligible to benefit from the Kisan Credit Card Scheme. This includes farmers who own their own land, tenant farmers, share croppers and lessees.
- The National Crop Insurance Scheme covers the crops eligible for KCC. The scheme offers some protection to the farmers in a poor crop season.
- The biggest advantage of this scheme is the simplicity of the credit process. This translates into quicker and timely availability of funds for the farmers.
- There is minimal paperwork and documentation involved.
- There is a lot of flexibility in the repayment tenure of the Kisan Credit Card Loan. There is also a possibility of extending the repayment period in case of a bad crop turnout due to natural calamities. Farmers are also offered subvention for timely and prompt repayments.
- It ensures assured availability of financial resources at affordable interest rates.
- It provides insurance coverage (personal accident and asset) for the recipient of the Kisan Credit Cards.
- It provides facility to withdraw cash as per the farmer’s requirements.
The credit card provided to the farmers under this scheme is usable as plastic money and also for cash withdrawal. The farmers also receive a passbook which contains all the relevant details such as name, address, details of landholding, credit limit, validity, etc.
Scope of Kisan Credit Card Loan
At the time of launch, the KCC Scheme worked towards helping the farmers to meet their production related expenses. However, later the scope got expanded and now farmers can use this scheme to raise funds for other allied expenses as well. It includes:
- Expenses related to crop production
- Funds for day-to-day activities (Working Capital)
- Expenses towards maintenance of farming assets and other allied activities such as dairy animals, etc.
- Marketing related expenses
Quantum of Loan
A host of factors are taken into account by the lending institutions while deciding the quantum of loan. These include the crop being cultivated, size or area of cultivation, farmer’s earning ability and previous credit history. For instance, in SBI the first year short term credit limit is determined basis the crops cultivated as per the proposed cropping pattern along with the scale of finance. For subsequent years, the loan limit is increased by a certain percentage.
The broad guidelines regarding the collateral security for Kisan Credit Card Loans are decided by RBI and communicated from time to time. However, the financial institutions participating in the Kisan Credit Card Scheme are allowed to make variations provided they comply with the overall guidelines. Hence, they differ in their collateral security requirements. For instance, SBI does not require any collateral deposits for loans up to the amount of ₹ 1 Lakh. Bank of India requires standing crops to be hypothecated for loans up to ₹ 50,000. Loans exceeding that limit require collateral in the form of land mortgage, etc.
Rate of Interest
Kisan Credit Card loan interest rate is at the discretion of the bank / financial institution. Though the same is monitored by the RBI and is usually in line with the Base Rate.
Apart from the interest on the loan, there are some other additional charges involved in the Scheme. These include processing fees, insurance premium, etc. However, in many cases the lending institutions waive off these charges for the interest of the farmers. For example, SBI does not levy any processing charges for loan up to the value of ₹ 3 Lakhs.
The repayment tenure of the Kisan Credit Card Loan is determined by the bank or the financial institution offering the credit. It takes place only after harvest.
- For short term credit, they usually take into account the anticipated harvesting and marketing period of the crops.
- Long term loans are generally repayable within five years of disbursement.
Institutions offering Kisan Credit Card Loan
Kisan Credit Card is offered by many public sector banks, co-operative banks and rural banks in India. Some of them are:
- State Bank of India (SBI)
- Bank of India (BOI)
- Industrial Development Bank of India (IDBI)
- National Payments Corporation of India (NPCI)