Kisan Credit Card

Kisan Credit Card scheme was introduced by NDA Government in August 1998 with the aim to provide adequate and timely short-term credit needs of farmers during the cropping season. It was first proposed in the Budget 1998-99 by then Finance Minister Yashwant Sinha. Consequent to this, NABARD had prepared a Model Kisan Credit Card Scheme in consultation with the Major Banks on the basis of R V Gupta Committee.

Objective & Rationale Behind Kisan Credit Card Scheme

Due to lack of awareness among farmers and unnecessary delays, cumbersome procedure and improper practices adopted by institutional lending agencies; a large number of Farmers heavily depend on non-institutional sources of credit for their frequent needs to purchase farm inputs such as seeds, fertilizers, pesticides etc. The non-institutional credit is not only expensive but also counter-productive. The Kisan Credit Card scheme was launched to provide adequate, timely and cost effective institutional credit from the banking system to the farmers for their cultivation needs. Farmers can not only purchase inputs but also can withdraw cash from this credit card for their input needs.

How Kisan Credit Card Scheme works?

Kisan Credit Cards are issued to the farmers on the basis of their land holdings and other criteria such as timely payment of past credits etc. Farmers covered under the Kisan Credit Card scheme 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 may serve both as an identity card and facilitate recording of transactions on an ongoing basis.

Salient Features of the Scheme

The Kisan Credit Card  scheme is implemented by public sector commercial banks, RRBs and cooperative banks. It was launched to provides short term loans in the form of production credit. However, later its scope was extended to term loans for agriculture and allied activities and reasonable component for consumption loan. Thus, currently this scheme provides:

• Production credit
• Working capital requirements for allied activities
• Ancillary credit requirements related to crop production
• Contingent needs and
• Accidental insurance of KCC borrowers.

Crop loans disbursed under KCC scheme for notified crops are covered under National Crop Insurance scheme. The purpose of the scheme is to protect the interest of farmers against crop loss caused by natural calamities, pest attacks etc.

Benefits of Kisan Credit Card Scheme

• Simplifies disbursement procedures
• Removes rigidity regarding cash and kind
• No need to apply for a loan for every crop
• Assured availability of credit at any time enabling reduced interest burden for the farmer.
• Helps buy seeds, fertilizers at farmer’s convenience and choice
• Helps buy on cash-avail discount from dealers
• Credit facility for 3 years – no need for seasonal appraisal
• Maximum credit limit based on agriculture income
• Any number of withdrawals subject to credit limit
• Repayment only after harvest
• Rate of interest as applicable to agriculture advance
• Security, margin and documentation norms as applicable to agricultural advance
• Access to adequate and timely credit to farmers
• Full year’s credit requirement of the borrower taken care of.
• Minimum paper work and simplification of documentation for drawal of funds from the bank.
• Flexibility to draw cash and buy inputs.
• Assured availability of credit at any time enabling reduced interest burden for the farmer.
• Flexibility of drawals from a branch other than the issuing branch at the discretion of the bank.

Features of Kisan Credit Card Scheme

• Farmers eligible for production credit of Rs. 5000 or more are eligible for issue of Kisan Credit Card.
• Eligible farmers to be provided with a Kisan Credit Card and a pass book or card-cum-pass book.
• Revolving cash credit facility involving any number of drawls and repayments within the limit.
• Limit to be fixed on the basis of operational land holding, cropping pattern and scale of finance.
• Entire production credit needs for full year plus ancillary activities related to crop production to be considered while fixing limit.
• Sub-limits may be fixed at the discretion of banks.
• Card valid for 3 years subject to annual review. As incentive for good performance, credit limits could be enhanced to take care of increase in costs, change in cropping pattern, etc.
• Each drawals to be repaid within a maximum period of 12 months.
• Conversion/re-scheduling of loans also permissible in case of damage to crops due to natural calamities.
• Security, margin, rate of interest, etc. as per RBI norms.
• Operations may be through issuing branch (and also PACS in the case of Cooperative Banks) through other designated branches at the discretion of bank.
• Withdrawals through slips/cheques accompanied by card and passbook.

Benefits to Banks

• Reduction in work load for branch staff by avoidance of repeat appraisal and processing of loan papers under Kisan Credit Card Scheme.
• Minimum paper work and simplification of documentation for drawal of funds from the bank.
• Improvement in recycling of funds and better recovery of loans.
• Reduction in transaction cost to the banks.
• Better Banker – Client relationships.

Insurance Under KCC

Kisan Credit Card holders are covered by a personal accident insurance. This cover is available when the person enters the scheme. The cover is as follows:

• Death : `50,000
• Disability: `25000
• Maximum Age to enter : 70 years

How farmers use Kisan Credit Cards?

Under KCC scheme, the loan amount is disbursed in cash through drawings made via withdrawal slips accompanied by KCC-cum-passbook. Cheque books are also issued to literate KCC holders enjoying KCC limit of Rs. 25000 and above.

Interest and other charges on Kisan Credit Cards

The interest rates on Kisan Credit Cards varies from bank to bank and also on borrowing limits. Generally, 9% per annum interest rate is charged for KCC borrowing limit up to Rs. 3 Lakh. However, central government provides interest subvention to the financing institutions. If the track record of the card holder is good; a further 2% interest subsidy is provided. After three years sound track record, a card holder can also get the credit limit enhanced.

Apart from that there are some overhead costs for borrowing under KCC. These include processing fee, charges on land mortgage deed, passport photo charges, insurance premium etc.