An agricultural loan is given to farmers for the purpose buying new land or modernising or purchasing farm machinery, constructing irrigation channels, building grain storage sheds or any other farm activity. Banks and lending institutions have classified these loans into different types based on the end-purpose. The Central and State governments have also provided a strong impetus to credit facilities for the farming community. They have come up with a number of measures and schemes to help the agriculturalists generate more income and profit for themselves.
Types of Agricultural Loans
The common types of agricultural loans provided by banks in India are:
- Crop Loan / Kisan Credit Card (KCC)
- Agriculture Term Loan
- Agriculture Working Capital Loan
- Farm Mechanisation Loan
- Agricultural Gold Loan
- Horticulture Loan
- Forestry Loan
- Loan for Allied or Miscellaneous Activities
Here is a look at some of these loans in some detail.
Agricultural Loan: Crop Loan / Kisan Credit Card (KCC)
A crop loan is usually a short-term loan meant for seasonal financial requirements of farmers. These requirements may stem from the regular processes involved in farming such as seed purchase, sowing, weeding, raising crops and so on. Most of the expenses are of small amounts but require some form of borrowing for the farmer to meet these costs, as they usually do not have enough spare cash handy for such overheads.
These costs are recurring in nature and require the farmers to approach the banks for finance on a regular basis. However, as taking any loan is a comparatively lengthy process, in the earlier days farmers usually avoided going to the banks and relied instead on the easily accessible local moneylenders. Banks and the government realised this and came up with the Kisan Credit Card (KCC) scheme that allowed the farming community to easily get access to finance at low interest rates and better repayment schedules.
All nationalised banks in India and some private banks offer the Kisan Credit Card scheme to their rural customers. The Government of India has also advised banks to turn the card into a smart-cum-debit card that can be used for multiple purposes.
Here are some more details on the Kisan Credit Card:
- The card can be obtained by even small farmers, tenant farmers, sharecroppers and oral lessees, self help groups or joint liability groups, among others. The assessment norms have been simplified for marginal farmers.
- The banks assess the farmer’s eligibility based on land they have for cultivation. The amount of finance to which the farmer is eligible is assessed on a scale that is provided by the District Level Technical Committee in that particular district. In addition, the credit history of the farmer is also taken into account. The calculation of the limit is based on the following formula:
(Scale of Finance Prescribed for the Crop Loan) + (Insurance Premium) x (Size of Cultivated Area) + (10% of the Limit (this is allocated for post-harvest, household or consumption requirements))+ (20% of the Card Limit for Maintenance of Farm Assets
- The card comes with a personal accident insurance option that covers any risk to the farmer such as accidental death or permanent disability.
- The Kisan Credit Card is valid for 5 years and can be used to meet both term credit as well as finance for consumables.
- Banks charge an interest of 7% per annum for one year or up to the due date for repayment, whichever is earlier. The interest rate is reduced by up to 3%, in case the outstanding amount on the card is paid back promptly. Any credit taken using the card has to be returned within a year of taking the loan. However, banks do not require the farmer to bring the outstanding amount to Nil at any point of time.
- The bank requires the farmer to provide a simple declaration on the crops raised or proposed to be raised for this agricultural loan.
- The documents needed to avail the Kisan Credit Card are a copy of ID proof, copy of the farmer’s address proof and the duly filled application form.
- The banks also provide interest on the credit balance people have on their card. In addition, there is no collateral needed for the card up to certain limits. For example, State Bank waives off collateral security for a limit of Rs. 1 lakh on this agricultural loan.