Bank Finance

for
Farmers

Mukesh Vats
 Topics covered
 Introduction
 Present position
 Formal institutions
 Informal Sources
 Types of credits
 Various schemes
 Securities
 Subsidy linked credit
 Importance of timely repayment
 Contd…
 Re -phasing
 Interest rates
 Project report
 Regulating agencies
 Efficient utilization of credit
 Role of technology and extension
 Misuse of credit
 Way ahead
 Sum up
 Introduction
 Agriculture is a peculiar economic activity where
returns are generated only after long production
cycle.
 Inputs in form of labour , ingredients and energy
are required throughout production cycle.
 The expected income is also uncertain and
depends on several internal and external factors.
 Modern farming methods require many inputs,
which are not generated in farming process .
 Such inputs include hybrid seeds, insecticides,
diesel, chemical fertilisers and equipments etc.
 Contd…

 Generally the surplus generated is not enough to

meet household expenses and money required
for purchase of inputs.
 Farmers have no choice but to approach bank or
other source for credit.
 Since the income generation is linked to many
external factors, sometimes farmer is not able to
repay the loan in time.
 In absence of institutional credit, farmers were
compelled to take loans from money lenders .
 The interest rates were high and farmer were
trapped by money lenders into debt trap.
 Contd…

 The interest rates were sometimes 2-6% per

month.
 The first installment was deducted from principal
making interest rates higher.
 Our government took several steps to save
farmers from debt trap.
 Nationalization of banks was first step towards
this objective.
 Branch network of banks reached to villages and
presently bank branches are located in rural /
semi urban areas.
 Contd…
 In order to ensure credit facilities to farmers,
the banks are required to allocate specific
percentage of landing for agriculture sector.
 GOI is also supporting farmers by providing
interest subsidy.
 NABARD is providing funds to commercial banks,
RRB, cooperative banks and land development
banks for lending directly to farmers.
 Government has taken steps to include entire
rural population under banking network.
 Present position

 Co-operative Banks : Rs 57,500 crores

 Regional Rural Banks : Rs 34,456 crores

 Commercial Banks : Rs 2,74,963 crores

Total : Rs 3,66,919 crores

 Kisan credit cards : 90.64 million

 Formal institutions

 Commercial banks
(public sector or private sector)
 Regional rural banks
 Cooperative banks
 Land development banks/SCARDB
 NBFC
 ADFC
 SFC
 Informal Sources

 Money lenders
 Aarhatiyas
 Contract buyers
 Land lords
 Input suppliers
 bulk buyers
 Sugar factories/processing units
 Types of credits
Production (short term) credit: this type of
credit is extended to farmers to meet day to day
expenditure related to farming and other allied
activities.
Investment (long term) credit: this type of
credit is extended for capital expenditure related
to agriculture and allied activities.
 Benefit of investment is extended over at longer
time interval.
 Interest and time duration of credit facilities
depend on activity selected and economic life of
the project.
 Contd…
 In addition to the production and investment
credit, certain tailor made credits are
extended to farmers i.e.
– Loan against hypothecation of gold
– Housing loan
– Loan under government employment
generation schemes
– Loans to self help groups
– Consumption loans
 Various schemes
 Commercial banks, cooperative banks,
regional rural bank & other institutions are
providing credit facilities to farmers under
various names.
 Now we will discuss the common features of
popular and useful credit schemes offered by
various banks .
 Minor difference in Terms and conditions
may be there from bank to bank.
 Kisan credit card
Purpose:
 Timely and adequate credit to meet cultivation
expenses besides meeting urgent expenses.
 Expenses related to ancillary activities through
simple procedure facilitating release of the loans
as and when required.
Who is eligible for the loan?
 Owner farmers, tenant farmers and share
croppers.
 Agricultural borrowers having good track record
for the last 2 years
 New borrowers can also be financed.
 Contd…
Loan amount
Loan amount is based on land holding ,cropping
pattern and ancillary and contingency needs of
the farmer for one year
 100% of the cultivation cost available as loan
upto Rs. 50000/-.
 85 % of the cost as loan above Rs. 50000/.
 Expenses to meet important ancillary activities
to production can also be financed
 The total limit is inclusive of 20% of production
credit, which includes crop production expenses.
 Working capital for allied agricultural activity, as
contingency credit /consumption loan is also
added.
 Contd…

Security:
 Loan amount upto Rs 50000/-
……Hypothecation of Crops.
 Above Rs 50000/- upto Rs 100000/-
……(1) Hypothecation of crops.
…...(2) Mortgage of land or third party
guarantee
 Above Rs 100000/-
…..(1) Hypothecation of crops
…..(2) Mortgage of lands
 Contd….
 For loans upto Rs 1 lac to farmers having legal
ownership of agricultural lands with good track
record for last 2 years, no collateral is required
How to repay
It is a revolving cash credit limit with any
number of withdrawals and repayments and is
valid for 3 years.
How to apply
Farmers may contact nearest bank braches
engaged in agricultural advance.
 PRODUCE MARKETING LOAN
 Purpose: To help farmers so as to avoid
distress sale of the produce.
 To enable quick repayment of crop loan dues
and provide liquidity to farmers.
 To offer the facility of loan against the produce
stored in farm houses, in addition to loan
against warehouse receipts.

Eligible Farmers
 All non-defaulter borrowers of bank, who can
store the produce either in their own premises
or in a Warehouse / cold storage.
 Contd…

 Loan amount :
60 - 80% of value of produce depending upon
the place of storage subject to a maximum of
Rs.10 lacs.

 Documents required :
Stock statement for valuation and evidence of
stocks at farmer’s residence/ godown
Warehouse receipt, duly endorsed , if stocked at
warehouse.
 Contd…

SECURITY :
 Loan sanctioned against goods stored in Farmer
godown:
- Primary : Hypothecation of stocks.
- Collateral : Mortgage / Charge over Land or
third party guarantee for loans
above Rs. 50,000/-.

 Loans sanctioned against Warehouse Receipts:

- Primary : Pledge of stocks.
- Collateral : No collateral is required for
loans upto the maximum
permitted limit of Rs.10 lakhs
under the scheme.
 GENERAL CREDIT CARD (GCC)
Purpose: The purpose of scheme is to provide
credit to farmers/ rural people based on the
assessment of cash flow without insistence on
security, purpose or end-use of the credit.

Eligibility:
A. All existing customers of bank having
satisfactorily maintained deposit accounts
including no frills deposit accounts .
B. loan accounts classified as standard assets
will be eligible for availing loan under the
scheme.
C. GCC facility should, however, not be extended
to the KCC borrowers.
 Contd…
Security: Nil
REPAYMENT
 Account will be in the nature of cash credit.
 The outstanding amount should be cleared
when the person has cash which may be at
yearly/ half yearly / quarterly / monthly
intervals.
 It is based on the occupation of the applicant.
 In case amount is not repaid a minimum of 20
% of the amount due along with interest should
at least be repaid.
 How to apply :
Farmers may contact nearest branch.
 Loan for landless farmers
Purpose
 The scheme is meant to provide short term
production and consumption credit.
 Genuine requirements of tenant farmers, share
croppers and oral lessees are considered.
 It will help in increasing their income from
agriculture production activities.
ELIGIBILITY:
 Landless labourer, share croppers, tenant
farmers, oral lessees having no recorded land
records are eligible.
 They should have a permanent residential
address proof & have been residing in village for
at least past 2 years.
 Contd…
Loan amount
 Maximum of Rs 50000/ -out of which
maximum consumption credit will be Rs 10000/
Documents needed:
 (1) Proof of residence
(2) Proof of identity
(3) Affidavit in the prescribed format
Security: Nil

How to apply for this loan

Farmers may contact nearest branch or talk to
officers visiting village.
 AGRICULTURAL GOLD LOANS
Purpose
Banks provide easy finance to farmers /
agriculturists against Gold Ornaments/ gold wares
 Aim is to increase liquidity, production expenses,
Investment expenses related to agriculture &
allied agricultural activities.
Eligibility
Any person engaged in agriculture or allied
activities.
Amount of Loan :Upto 70% of the value of the
ornaments.
Security : Pledge of gold ornaments.
 Contd…

Credit / Overdraft: running account for a period

of 3 years.

Demand Loan / Term Loan : The repayment

period of the loan should be fixed so as to
coincide with the harvesting and marketing
season.
 The total period will not exceed one year from
the disbursement of the loan in case of short-
term loan and 36 months in other cases.

How to apply
Contact nearest Branch dealing in Agricultural
advance.
Gold loans

 Fast

 Economical

 Safe way to
liquidity
 SCHEME FOR DEBT SWAPPING
Purpose
 To extend loans to farmers for paying back
loans taken from non-institutional lenders
(money lenders etc.)
 To enable farmers in distress, meet their crop
production needs.
Who is eligible
 All existing farmer borrowers as well as other
farmers in the operational area of the branch.
Loan amount
 The scheme will be for farmers owning land.
 The quantum of loan granted shall be 100% if
the debt is on account of cultivation or agri.
activity, with a maximum of Rs 50000/.
Documents needed:
(1) Affidavit, as per Bank format
(2) A letter from the earlier lender confirming
the facts mentioned in the Affidavit

Security
 Charge over assets and documents pledged
with the non-institutional lender etc.
 Dues of the non-institutional lenders are cleared
obtaining documents.
 Collateral security by charge on agriculture
property shall be taken for this loan.

How to repay :
 The loan is repayable in half yearly / yearly
installments in 3 to 5 years.
 Purchase of land
Purpose:
To assist Small & Marginal farmers and landless
agricultural labour for purchase of Land
 Checking fragmentation of land holdings &
development of Wasteland & fallow lands.
Who is eligible:
Small & Marginal Farmers owning less than 5
acres of un-irrigated /2.5 acres of irrigated land
in their own names or agricultural labour.
 The borrowers should have a record of proper
repayment of the loan .
Loan amount: Cost of land, Provision of irrigation
facilities & land development & Purchase of farm
equipments.
 Registration charges & stamp duty.
 Contd…
 Loan amount will be 85 % of the cost of the
land.
 Maximum of Rs 5 lakhs
Security
Mortgage of land to be purchased

How to repay :
9-10 years beginning after the gestation
period, with half-yearly installments.
 Gestation period of 1 year for the developed
land and 2 years for the land proposed to be
developed.
 Setting agri-clinic & agri-business center

Purpose
The scheme as been formulated for providing
self employment opportunities to technically
qualified persons
 To augment extension services for farmers.

Who is eligible :
Agricultural graduates / graduates in subjects
allied to agriculture like horticulture, animal
husbandry, forestry, dairy, veterinary, poultry,
fisheries and other activities.
 List of activities
 Seed processing & marketing units.
 Plant tissue culture lab & hardening units.
 Vermiculture, Bio-Fertilisers, Bio-Pesticides Units
 Apiary (bee keeping) & Honey, Bee Products,
processing units.
 Agency of Agri. Insurance Services.
 Soil and water testing laboratories.
 Pest surveillance, diagnostic and control
services.
 Maintenance, repairs and custom-hiring of
agricultural implements & Micro irrigation
system.
 Rural credit

 Multiple options
 Easy sanction
 Few securities
 Low interest
rates are main
features
 Contd…
 Agri service centers including three previous
activities.
 Setting up of cold chain from the farm level to
marketing.
 Post harvest management centers for sorting,
grading, storage and packaging.
 Setting up of metallic / concrete storage
structure.
 Retail marketing outlets for processed products.
 Rural marketing of farm inputs/ outputs.
 Any combination of two or more above activities
along with any other viable activities selected by
the graduates.
 Contd…
 Provision of extension & consultancy services.
 Hatcheries and production of Fingerlings for
Aquaculture.
 Provision of livestock health cover, setting up
veterinary dispensaries & services including
frozen Semen Banks & Liquid Nitrogen supply.
 Setting up of information technology kiosks in
rural areas.
 Animal Feed processing and testing units.
 Value addition units.
 Contd…
Loan amount
Individual Activity - Rs.10 lac
Group Activity - Rs.50 lacs (maximum)
 In case of group projects, if the group consists
of 5 or more persons, all except one of them
would have to be agriculture graduate.
 Loan amount upto Rs 5.00 lacs is 100%
 Loans above Rs 5 lacs upto 85 % of the cost

SOFT LOAN ASSISTANCE:

50 % of margin is contributed by the applicant is
provided by NABARD as Soft loan without any
interest.
 Contd…
SUBSIDY:
Credit linked capital subsidy @25% of the capital
cost of the project funded through bank loan.
 Subsidy would be 33.33% in respect of
borrowers belonging to SC, ST, women and
those from North-Eastern and Hill States.
 In addition to the above subsidy, full interest
subsidy would be eligible for the first two years
of the project.
 The capital subsidy will be back-ended with
minimum 3 years lock-in period.
 The interest subsidy would, however, be
concurrent.
 Contd…
SECURITY :
 Upto Rs. 5.00 lacs-Hypothecation of assets
created.
 Above Rs. 5.00 lacs: Hypothecation of assets
created & Mortgage of land or Third party
guarantee.
How to repay
The loan should be repaid in 5-10 years with
grace period of maximum 2 years.

How to apply : contact nearest branch for the

application and produce certificates of
qualification and experience, if any.
 FINANCING DAIRY UNITS
PURPOSE
 For construction of shed, purchase of milch
animals, milking machine, chaff cutter etc.
 Who is eligible:
(a) Individual farmers ( members of the milk
procuring societies)
(b) less than 65 years of age.
(c) Individual dairy unit having less than 10
animal - should own minimum 0.25 acre of land
for every 5 animals for growing fodder.
(d) Individual dairy unit having 10 animals and
above - should own or lease a minimum of one
acre of land for cultivation of fodder for every 5
animals.
 Contd…
LOAN AMOUNT: 100% for loans upto Rs 50000/-
 90% of the cost for loans above Rs 50000/- with a
maximum of Rs 5 lakh as Term loan

WORKING CAPITAL: A working capital @ Rs.2500/- per

animal per year may be Sanctioned for purchase of feed,
fodder and medicine.
Security
Hypothecation of assets created for loans upto Rs 1.00
lac .
 For loans Over Rs.1 lac -Mortgage of landed property /
third party guarantee
How to repay
 The loan should be repaid in monthly installments over a
period of 5 lactations
Dairy farming
 SCHEME FOR FINANCING FARM MACHINERY

Purpose
Bank is extending financial assistance for
purchase of farm machinery like implements,
threshers, sprayers (both mechanical and
motorized) bullock and cart etc.

Who is eligible: farmers cultivating lands are

eligible for the loan.

Loan amount
For loans upto Rs 50000/ - 100% of the cost
For loan above Rs 50000/ - 90% of the cost of
the asset to be purchased.
 Contd…
Security:
a. For loans upto Rs.50,000/-: Hypothecation of
assets created out of Banks finance.
b. For loans above Rs.50,000/- Hypothecation of
assets created out of Banks finance and charge
over the land.
Documents needed:
Land records, quotation for the assets to be
purchased
How to repay
Repayment in half yearly/ yearly installments
depending on the harvest of the crops.
 Maximum period is 7 years
 TRACTOR LOANS

Purpose : Agricultural term loans are sanctioned

for purchase of new tractors, accessories and
implements.

Who is eligible :
Farmers (individually/jointly ) or Persons offering
security like NSCs, KVPs, the Bank Fixed
Deposits, surrender value of LIC policy, gold
ornaments etc. to cover more than 60% of the
loan amount are eligible for the loan.
 Banks are also following different criteria
depending on their own policies.
 Contd…
Loan amount
Upto 95 % of the cost of the Tractor, trailer and
accessories.
 The cost includes the Registration charges and
insurance premium not exceeding Rs 15,000/-.
 Additional loan equal to 10% of tractor loan for
repairs may be provided for at the time of
sanction.
 Bank finance only for models of tractors which
have passed the commercial test from
organizations viz. Central Farm Machinery
Training and Testing Institute (CFMTTI) Budni
(Madhya Pradesh) or Farm Machinery Training
and Testing Institute (FMTTI), Hissar.
 Contd…
Security
 Hypothecation of the tractor, accessories and
implements.
 Noting of Bank hypothecation in the RC Book is
compulsory in all the cases.
 Collateral Security like NSCs, KVPs, Banks Fixed
Deposits ,Surrender value of LIC policy etc. OR
Mortgage of agricultural lands.

How to repay the loan: maximum period of 9

years, including a grace period not exceeding 12
months. The installments shall be payable half-
yearly / yearly.
 MINOR IRRIGATION
Purpose
 Loan is provided for activities like digging (open
or bore wells), deepening & energisation of wells
(oil engine or electrical pump set )
 Installation of drip / sprinkler system and lift
irrigation system.
Who is eligible
 Farmers having source of water for development
are eligible for the loan.
Loan amount
 loans upto Rs 50000/-(100 % of the project cost)
 loans above Rs 50000/-(upto 85 % of the project
cost)
 Contd…
Documents required
(1) Land records
(2) Quotation for the equipments proposed to be
purchased
(3) Estimate for the civil works
(4) Geologist certificate if applicable
Security
 A) Where movable assets are not created:
– (i) Upto Rs 10000/ Personal guarantee
– (ii) above Rs 10000/ Personal guarantee and
Mortgage of land
 B) Where movable assets are created
– (i) Upto Rs 50000/ Hypothecation of assets
created
– (ii) Above Rs 50000 Hypothecation of assets and
mortgage of land
 Poultry loans
Purpose
 Loans can be extended to both existing farmers
and new farmers.
 Construction of poultry shed , feed room and
purchase of equipments are covered
Who is eligible
Those having experience or undergone training
in poultry farming
 The farmers must possess land for construction
of poultry shed which should be at least 500
meters away from existing poultry farms.
 Potable water source should also be available
nearby.
 Contd…
ECONOMIC UNIT SIZE:
The minimum flock size should be 5000 birds.
 Financing for 10,000 -15, 000 birds or part or
more.
Loan amount : Upto 75 % of the cost.
Upto Rs 3 lacs for every 5000 birds.
 Loan amount under the scheme will be Rs 9-10
lacs per farmer.
Security:
Hypothecation of assets created and Mortgage
of land on which the poultry shed and other
infrastructure is constructed.
 RURAL GODOWNS
Purpose
The scheme was launched for creating scientific
storage of grains.
 It will prevent distress sale of produce after
harvest.
 It will also promote pledge financing and
marketing credit.
Who is eligible :
1. Individuals / Farmers.
2. Co-operatives, Agro-processing co-operative
societies.
3. Group of Farmers/Growers.
4. NGOs
5. Self Help Groups.
 Contd…
 The godown can be constructed in any area
outside the limits of a Municipal Corporation.
 Rural godowns located in Food Parks are also
eligible.
Loan amount
 Depending on the project cost.
 Back end subsidy for the projects financed by
the Banks ,depending on the location, type of
beneficiary and capacity of the godowns.
 Banks will finance upto 80 % of the Project cost

Security
 Mortgage /charge of Land and godown
 COMMERCIAL PRODUCTION UNITS OF ORGANIC
INPUTS
Purpose:
 The scheme has been formulated to promote
organic farming in the country.
 Manufacturing of organic inputs such as
biofertilisers, vermicompost, fruit and vegetable
waste compost are considered finance.

Who is eligible
Individuals, group of farmers/growers,
cooperatives, NGOs are eligible
 Existing units (for expansion/renovation) engaged
in the production are also eligible.
 Contd…

Loan amount
50% of the Project cost as Bank loan
 25% of the cost will be provided as subsidy from
Government
 Cost of the project depends on the location,
capacity, technology etc.

Repayment
Repayable in 8 - 10 years, with a grace period of
2 years.
 REPAIRS, MAINTENANCE AND ADDITION OF NEW
IMPLEMENTS
Purpose: assisting the farmers, who are regular
in their repayments for repairs / maintenance of
tractor.
 Purchase of additional implements.

Eligibility:
 Borrowers who have already availed the tractor,
power tiller or combined harvester loan facility.
 The accounts are closed or regular
 Paid a minimum of 2 yearly installments or 4
half yearly installments.
 Contd…
 Quantum of Loan:
 Repairs: Maximum of Rs. 50,000/-
Addition of new implements: Up to a Maximum
of Rs. 1,00,000/-
 Margin:
Up to Rs. 50, 000 - NIL
Above Rs. 50, 000 - 15 -25%
 Security:
 Hypothecation of tractor (value to be assessed
based on the age and condition of the vehicle)
and new implements.
 Noting of Banks Charge with Road Transport
Authority on tractor.
 FINANCING FARMERS FOR PURCHASE OF TRUCKS
AND OTHER TRANSPORT VEHICLES

PURPOSE:
 Loan is sanctioned for purchase of New trucks &
other new vehicles like tempo, matador, jeeps,
pickup vans, mini-trucks, two-wheelers to farmers
for transport of agricultural inputs/produce.
ELIGIBILITY:
 Owners, Tenants or lessees of land and engaged
in farming or allied agricultural activity.
 Loan for purchase of trucks is given to farmers
whose land holding is 3 acres or more.
 Loans for purchase of light/medium vehicles is
also be available to farmers whose land holding is
smaller, i.e. 2 acres or more.
 FINANCING FORESTRY DEVELOPMENT
PROGRAMMES

PURPOSE: Term Loan is provided for the

development of nurseries, Plantation and raising
forestry trees upto harvesting .
 Loan for inter-cropping is also considered
depending upon the crops to be grown.
ELIGIBILITY:
 Farmers, having ownership/ lease-hold/
perpetual tenancy rights over land in their name
shall be eligible for availing loan under the
scheme.
EXTENT OF LOAN: as per actual cost.
 FINANCING PIGGERY DEVELOPMENT
PURPOSE : For breeding and rearing of pigs.
ELIGIBILITY:
 Farmers and agricultural labourers desirous of
undertaking piggery as additional activity
 Persons taking up such activity on commercial
scale.
EXTENT OF LOAN :
 Need based as per actuals.
REPAYMENT OF LOAN:
 Production Credit: Working capital loan to be
repaid in a maximum period of one and half
years.
 Investment Credit: Repayment of the loan is to
be made in yearly installments.
 FINANCING AGRI-BUSINESS PROJECTS
WITH VENTURE CAPITAL ASSISTANCE
 PURPOSE To provide Venture Capital
Assistance to agri-business projects.
 Assisting producer groups/organizations in
formulation of economically viable agri-business
projects.
 ELIGIBILITY:
 Assistance under the scheme will be available to
Individuals, Farmers, Producer Groups, Self
help groups, agripreneurs, units in agri-export
zones, and Agriculture graduates Individually or
in groups
 Projects to be dependent upon agricultural or
allied produce.
 Contd…
 Projects will provide access to producers as
assured market.
 Projects which will encourage farmers to
diversify into high value crops.

 Quantum of loan :
 The intending project must be over Rs.50 lakh in
size (Rs. 25 lakh in case of North-Eastern States
and other Hilly Areas).
 Projects recommended by State SFACs can be
considered for higher assistance under the
Project Development Facility (PDF).
 Contd…

EXTENT OF VENTURE CAPITAL ASSISTANCE:

 The amount of Venture Capital Assistance shall
be the lowest of :
 10 per cent of the project cost OR
 26 per cent of project equity OR
 Rs 75.00 lakh.

REPAYMENT OF LOAN :
 Repayment of loan shall be 5-6 years excluding
gestation period.
 Securities
 Issue of securities required for sanction of loans
is a matter of debate.
 Bankers, as per prevailing practice insist on
security for sanction of any loan.
 However, the poor farmers, landless people,
members of weaker sections of society are not
able to provide the same.
 RBI has relaxed the norms for securities and
collaterals for small loans.
 Traditional securities offered against loans are
land, house, gold and NSC/ Fixed Deposit
Receipt etc.
 Contd…

 In order to provide bank finance to low income

group, the banks are now accepting the assets
created and stock of goods produced as
security.
 The security norms have been further relaxed
for financing self help groups, joint liability
groups etc.
 The norms have been relaxed for professionals
also who are coming forward with knowledge
based enterprises.
 Subsidy linked credit
 Some activities and programmes launched for
specific purpose are some times not viable.
 Similarly some of the innovative or need based
activities (e.g. increasing storage capacity of
food grains) are promoted by government for
overall gain to national economy.
 The activities like organic farming, cultivation of
medicinal plants ,micro irrigation , solar energy
etc. are on the priority list of the planners.
 In order to promote these activities, govt. is
offering subsidy to the farmers /entrepreneurs.
 Contd…

 After experimenting with various alternatives ,

the subsidy is now being routed through banks.
 In order to prevent any misuse of the subsidy,
the back end subsidy is now provided.
 Farmers can take advantage of the subsidy
provided by govt. to increase their income.
 The information related to programmes &
subsidy etc. is available with concerned
department of state or central government.
 Importance of timely repayment
 The banks or any other financial institutions
provide loans to needy persons out of deposits
collected.
 Confidence of depositors in banking system is
very important for proper functioning of banks.
 Timely repayment will ensure recycling of funds
in the system.
 Viability of any venture is also effected if the
burden of interest increases.
 Timely repayment results in increased credit
absorption capacity of the farmers.
 Contd…

 Low overdue position encourages banks to

pump more funds into the sector.
 Timely repayment is particularly more important
in case of co-operative banks and regional rural
banks as their und base is small.
 Low overdue position in respect of loans
sanctioned to self help groups has resulted in
increased interest of bankers in the sector.
 Re -phasing
 The farmers or banks always make some
assumptions while deciding about viability of
various projects.
 As we are aware, agriculture production
depends on several factors which are not in the
control of farmers.
 Some times , the farmers are not able to repay
the loans due to natural calamities etc.
 In order to provide relief to farmers, the banks
re-phase the loans.
 The repayment period is increased and the
farmers are not considered as defaulters for
fresh loans.
 Interest rates
 Interest is primary source of income for banking
sector.
 Earlier the interest rates were controlled by RBI.
 After liberalization, the banks were given powers
to fix interest rates.
 However, agriculture is a priority sector and
banks can avail refinance facility from NABARD
for agriculture advances, interest charges are
lower than commercial activities.
 Government of India is also subsidizing the
interest charged on short term loans for
boosting farm sector.
 Project report
 Though the short terms loans can be availed
without submission of any project report.
 Banks insist on a project report for sanction of
investment credit.
 Standard project reports are also prepared for
some area based schemes being implemented in
limited area.
 Project reports in respect of high investment
project are prepared by professionals.
 Farmers can also approach extension agencies,
concerned govt. departments, NABARD DDMs,
LDM office etc. for guidance.
 Regulating agencies
 The formal credit institutions are regulated by
various agencies.
 RBI is regulating entire banking sector and also
supervising operations of various banks.
 NABARD has been given special responsibilities
for supervising and guiding rural credit
institution like co-operative banks & RRBs.
 Registrar of co-operative societies also has
regulatory powers in respect of co operative
banks.
 RBI has appointed banking ombudsman in all
states to look into complaints of public.
 Efficient utilization of credit
 We have already discussed about need of credit
for agriculture sector.
 However ,credit must be utilized efficiently to
get full benefit of it.
 Farmers are required to conduct proper market
survey before buying any input or machinery.
 Similarly, the completion of various activities as
per schedule is also very important.
 Since income generation is primary objective of
any production / investment credit, the
production must start as per schedule to keep
viability intact.
 Role of technology and extension
 Use of right technology is key to success of any
venture.
 We have already discussed this in detail.
 Since farming is a high a risk activity, use of
right technology will ensure success of venture.
 Extension agencies play a key role in transfer of
technology to farmers.
 The farmers should consult the extension
agencies before submitting application for loan.
 The present approach of following the neighbors
decision may result in trouble.
 Misuse of credit
 Generally the farmers avail credit for productive
purposes.
 In some cases they take credit for house
building etc.
 Sometimes credit facilities are also availed for
meeting consumption needs.
 However, instances of gross misuse of credit
have been reported.
 The spread of consumerism to rural areas is
one of the reason.
 Sometimes the loan is also diverted for meeting
marriage or health related expenses.
 Contd…
 When a loan amount is diverted for non
productive purposes, there is no increase in
income.
 The farmers are not able to repay the loan.
 It leads to situation known as debt trap.
 In such cases the agencies are compelled to
take coercive measures for recovery.
 It is therefore always advisable to use the credit
for the purpose for which it was availed.
 Way ahead
 Agriculture credit from formal sources is
increasing at a fast rate.
 However, the production is not increasing at
the same rate.
 There could be few reasons behind this
1. Replacement of non institutional credit
agencies by banks
2. Misuse of loans
3. Missing links such as technology, marketing
facilities, price realization etc.
 Need of the hour is to identify the link and
steps required to fill the gaps in the system.
 Education & awareness creation are two
necessary steps which may prove to be useful.
 Sum up
 We have learnt about various schemes of
banks for providing credit to farmers.
 Credit, if used efficiently, can bring prosperity
to rural people.
 Since the loans carry interest, timely
repayment is very important.
 There is need to insulate farmers against
various risks related to rainfall, draught, price
variation etc.
 Credit alone can not solve problems related to
agriculture sector.
THANK
YOU