india

Updated: Feb 21, 2019 14:01 IST

The government is preparing to give a major thrust to expand formal sources of credit, or lending, for more and more farmers, an official has said, on the condition of anonymity.

As part of new measures, the government has issued directions to banks to issue Kisan Credit Cards to farmers within a fortnight of applying.

All fees and related charges, such as Goods and Services Tax and inspection fees, will be waived for farmers with a shortterm credit limit of Rs 3 lakh, according to new norms, the official said.

Kisan Credit Cards were first launched in 1998 to provide ready credit support to farmers, including small farmers for cultivation, consumption and investment needs.

Even though overall credit flow to the rural sector has increased 10 times since 2001, nearly 40% of credit demand in rural areas is still met by informal sources of lending, mainly commission agents and private moneylenders, who often charge usurious interest rates.

Credit limit or loan amount under Kisan Credit Cards are fixed by banks in accordance with the Reserve Bank of India’s “master circular” dated July 4, 2018.

The short-term credit limit under Kisan Credit Cards for the first year is determined by the so-called “scale of finance” for the chosen crop, which is the total cultivation expenses [as decided by a district-level technical committee] multiplied by the extent of area cultivated. To this, 10% of limit towards postharvest and household consumption requirements are added, along with 20% of the limit towards repairs and maintenance of farm assets and crop insurance.

The limit for second and subsequent years is arrived at based on the first-year limit.

The total number of cards in operation in 2017-18 was 45 million with an outstanding of Rs 2.3 lakh crore.

“Small and marginal farmers often tend to complain that up to Rs 1500 are often deducted or has to be repaid as upfront charges on disbursal of a Kisan Credit Card. This move will make formal credit through such credit cards attractive,” said Prof K Mani of the Tamil Nadu Agricultural University.

Farmers get up to Rs 3 lakh credit at subvented (or discounted) interest rate of 7%. Additionally, the interest rate attracts a 3% subvention for farmers who make timely repayment of their outstanding credit.

To prevent distress sale of produce, the benefit of interest subvention is extended for six months after harvests to small and marginal farmers with a Kisan Credit Card against negotiable warehouse receipts or NWRs.

NWRs are essentially receipts issued to depositors of farm produce by warehouses, whereby the produce stored can be transferred to another buyer without actual physical transfer of the commodity.