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Kisan Credit Cards - KCC Scheme

Rajesh Goyal

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What is Kissan Credit Card:

Kisan Credit Card is a pioneering credit delivery innovation for providing adequate and timely credit to farmers under single window. It is a flexible and simplified procedure, adopting whole farm approach, including short-term, medium-term and long-term credit needs of borrowers for agriculture and allied activities and a reasonable component for consumption need. Under the scheme, beneficiaries are issued with a credit card and a pass book or a credit card cum pass book incorporating the name, address, particulars of land holding, borrowing limit, validity period, a passport size photograph of holder etc., which serves both as an identity card and facilitate recording of transactions on an ongoing basis.

Brief History of Kisan Credit Cards in India :

This scheme was initially announced in Budget speech of Mr Yashwant Sinha, Finance Minister in 1998-99. It was stated in the speech that NABARD would formulate a Model scheme for issue of Kissan Credit Cards to farmers, on the basis of their land holdings, for uniform adoption by banks, so that the farmers may use them to readily purchase agricultural inputs such as seeds, fertilizers, pesticides, etc. and also draw cash for their production needs. Accordingly, NABARD formulated a Model Kisan Credit Card Scheme in consultation with major banks. Model Scheme (Model Scheme was prepared by NABARD on recommendations of R V Gupta Committee), was circulated by RBI to commercial banks and by NABARD to Cooperative. Banks and RRBs in August 1998, with instructions to introduce the same in their respective area of operation.

What Are the benefits of KCC:

(a) It follows a simplified procedure for credit to farmers, a large number of whom are illiterate or poorly educated;

(b) There is no need to apply for loan every year as KCC provides the farmers with a credit facility on ongoing basis or revolving credits;

(c) This allows the farmers to buy seeds, fertilizers and other inputs as per his needs;

(d) Repayment is allowed after harvest period and thus farmer finds it easier to settle the loan by selling his produce;

(e) There is a flexibility of drawal of funds from any branch even when he has gone to town for purchase of agricultural inputs

We give below the broad guidelines issued by RBI for Kisan Credit Card Scheme

Applicability of the Scheme –

It is to be implemented by Commercial Banks , RRBs , and Cooperatives. The implementing banks have the discretion to adopt the scheme to suit institution/location specific requirements.

Activities covered -

Kisan Credit Cards can be issued for short term credit requirements for cultivation of crops, post harvest expenses, produce marketing loan, consumption requirements of farmer household, working capital for maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery etc. and investment credit requirement for agriculture and allied activities like pump sets, sprayers, dairy animals etc.

Eligibility:-

(i) Farmers - Individuals/Joint borrowers (owner cultivators)

(ii) Tenant Farmers, Oral Lessees & Share Croppers

(iii) SHGs or Joint Liability Groups of Farmers including tenant farmers, share croppers etc.

4. Fixation of credit limit/Loan amount

Farmers other than Marginal farmers:

1. Short term limit for 1^st year (in case of single crop in a year) : Scale of finance for the crop (as decided by Distt. Level Technical Committee ) x extent of area cultivated + 10% of limit towards post -harvest / household /consumption requirements + 20% of limit towards repairs and maintenance expenses of farm assets + crop insurance, PAIS and asset insurance.

2. Limit for second & subsequent year : First year limit as above plus 10% of the limit towards cost escalation / increase in scale of finance for every successive year (2nd, 3rd, 4th and 5th year) and estimated Term loan component for the tenure of Kisan Credit Card, i.e., 5 years.

More than one crop in a year:

1. The limit is to be fixed as above depending upon the crops cultivated as per proposed ropping pattern for the first year and an additional 10% of the limit towards cost escalation / increase in scale of finance for every successive year (2nd, 3rd, 4th and 5th year). It is assumed that the farmer adopts the same cropping pattern for the remaining 4 years also. In case the cropping pattern adopted by the farmer is changed in the subsequent year, the limit may be reworked.

Term loans

TL is for investments towards land development, minor irrigation , purchase of farm equipments and allied agricultural activities. The banks may fix the quantum of credit for term loan and working capital limit for agricultural and allied activities, etc., based on the unit cost of the asset/s proposed to be acquired by the farmer, the allied activities already being undertaken on the farm , the bank ’s judgment on repayment capacity vis-a-vis total loan burden devolving on the farmer, including existing loan obligations. The long term loan limit is based on the proposed investments during the 5 year period and the bank’s perception on the repaying capacity of the farmer.

Maximum Total Amount : The short term loan limit arrived for the 5th year plus the estimated long term loan requirement will be the Maximum Permissible Limit (MPL) and treated as the Kisan Credit Card Limit.

Fixation of Sub-limits :

i) The card limit is to be bifurcated into separate sub limits for short term cash credit limit cum savings account and term loans because interest rates are different.

ii) Drawing limit for short term cash credit should be fixed based on the cropping pattern and the amounts for crop production, repairs and maintenance of farm assets and consumption may be allowed to be drawn as per the convenience of the farmer. In case the revision of scale of finance for any year by the District Level Committee exceeds the notional hike of 10%, contemplated while fixing the 5 year limit, a revised drawable limit may be fixed and the farmer be advised about the same. In case such revisions require the card limit itself to be enhanced (4th or 5th year), the same may be done and the farmer be so advised. For term loans, installments may be allowed to be withdrawn based on the nature of investment and repayment schedule drawn as per the economic life of the proposed investments. At any point of time the total liability should be within the drawing limit of the concerned year.

For Marginal Farmers:

A flexible limit of Rs.10,000 to Rs.50,000 be provided (as Flexi KCC) based on the land holding and crops grown including post harvest warehouse storage related credit needs and other farm expenses, consumption needs, etc., plus small term loan investments like purchase of farm equipments, establishing mini dairy/backyard poultry as per assessment of Branch Manager without relating it to the value of land. The composite KCC limit is to be fixed for a period of 5 years on this basis.

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5. Disbursement :

The short term component of the KCC limit is in the nature of revolving cash credit facility. There should be no restriction in number of debits and credits.

6. Delivery channels -

The amount can be drawn (a) from branch (b) through cheque facility (c) through ATM / Debit cards (d) through Business Correspondents and ultra thin branches (e) through PoS available in Sugar Mills/ Contract farming companies, etc., especially for tie-up advances (f) through PoS available with input dealers or (g) as mobile based transfer transactions at agricultural input dealers and mandies. As the CC limit and the term loan limit are two distinct components of the aggregate card limit bearing different rates of interest and repayment periods two separate electronic cards may be issued.

7. Validity / Renewal

KING FEATURES

i. Banks may determine the validity period of KCC and its periodic review.

iii. When the bank has granted extension and/or re-schedulement of the period of repayment on account of natural calamities affecting the farmer, the period for reckoning the status of operations as satisfactory or otherwise, would get extended together with the extended amount of limit. When the proposed extension is beyond one crop season, the aggregate of debits for which extension is granted, is to be transferred to a separate term loan account with stipulation for repayment in installments.

8. Repayment Period:

The repayment period may be fixed by banks as per the anticipated harvesting and marketing period for the crops for which a loan has been granted.

9. Margin: To be decided by banks.

10. Security:

a) Hypothecation of crops up to card limit of Rs. 1.00 lakh as per the extant RBI guidelines.

b) With tie-up for recovery: Banks may consider sanctioning loans on hypothecation of crops up to card limit of Rs.3.00 lakh without insisting on collateral security.

c) Collateral security may be obtained at the discretion of Bank for loan limits above Rs.1.00 lakh in case of non tie-up and above Rs.3.00 lakh in case of tie-up advances.

11. Classification of account as NPA

The extant prudential norms for income recognition, asset-classification and provisioning will continue to apply for loans granted under revised KCC Scheme.

12. Other Conditions:

Besides the mandatory crop insurance, the KCC holder should have the option to take benefit of Assets Insurance, Personal Accident Insurance Scheme (PAIS), and Health Insurance (wherever product is available) and have premium paid through his KCC account. Necessary premium will have to be paid on the basis of agreed ratio between bank and farmer to the insurance companies from KCC accounts. Farmer beneficiaries should be made aware of the insurance cover available and their consent (except in case of crop insurance, it being mandatory) is to be obtained, at the application stage itsel

• All new KCC must be issued as per the revised guidelines of the KCC Scheme. At the time of renewal of existing KCC; farmers must be issued smart card cum debit card.

What are the Benefits to Banks

(a) Work load of rural branches is considerably reduced as there is no need for repeated appraisal and processing of loan papers. Scheme.

(b) Simplification of documentation and disbursement procedure.

(c) Improvement in recycling of funds and better recovery of loans.

(d) Reduction in transaction cost to the banks.

(e) Better Banker - Client relationships

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