Introduction to Agricultural Credit and Its Classification
Agricultural credit is the lifeblood of modern commercial farming, enabling farmers to procure critical inputs like high-yielding variety seeds, fertilizers, irrigation equipment, and machinery. Credit is classified based on duration, purpose, and source.
- Short-Term Credit (Crop Loans): Repayment period up to 15 months, primarily utilized for seasonal agricultural operations such as tillage, sowing, weeding, and purchasing fertilizers.
- Medium-Term Credit: Repayment period ranges from 15 months to 5 years, required for purchasing pump sets, minor agricultural implements, and breeding cattle.
- Long-Term Credit: Repayment period exceeds 5 years and can extend up to 20 years, utilized for permanent land improvements, orchard establishment, sinking tubewells, and purchasing heavy tractors and combined harvesters.
Institutional Sources of Agricultural Credit
Institutional credit agencies operate under the regulated framework of the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD). They offer low-interest rates, developmental orientation, and structured repayment schedules.
- Commercial Banks: Play a dominant role in direct agricultural lending, priority sector lending (PSL) mandates, and Kisan Credit Card (KCC) issuance.
- Regional Rural Banks (RRBs): Established in 1975 based on the recommendations of the Narasimham Working Group, specifically to cater to small and marginal farmers, agricultural laborers, and rural artisans.
- Cooperative Credit Institutions: Structured as a three-tier system comprising State Cooperative Banks (Apex level at the state), Central Cooperative Banks (District level), and Primary Agricultural Credit Societies (Village level).
Non-Institutional Sources of Agricultural Credit
Non-institutional lenders include moneylenders, traders, commission agents, landlords, relatives, and friends. Historically, they have been the primary source of rural credit due to the ease of access and absence of bureaucratic paperwork, albeit with major disadvantages.
- Moneylenders: Professional and agricultural moneylenders charge exorbitant interest rates, often leading to perpetual indebtedness and land alienation of smallholders.
- Traders and Commission Agents: Advance credit against future crop yields, often compelling farmers to sell their produce at distress prices immediately after harvest.
- Informal Networks: Friends and relatives provide interest-free or low-interest loans during emergencies, though volumes are limited and unpredictable.
Apex Institution: NABARD and Its Role in Credit Supply
The National Bank for Agriculture and Rural Development (NABARD) was established on July 12, 1982, upon the recommendations of the B. Sivaraman Committee, by merging the Agricultural Credit Department and Rural Planning and Credit Cell of RBI, and the Agricultural Refinance and Development Corporation (ARDC).
- It regulates and inspects Regional Rural Banks (RRBs) and Cooperative Banks.
- It manages the Rural Infrastructure Development Fund (RIDF) to finance ongoing rural infrastructure projects.
Kisan Credit Card (KCC) Scheme and Priority Sector Lending
Introduced in 1998-99 based on the recommendations of the R. V. Gupta Committee, the Kisan Credit Card (KCC) scheme revolutionised short-term institutional credit delivery by providing adequate and timely credit support to farmers from the banking system.
- Coverage: Extended to crop husbandry, animal husbandry, and fisheries activities.
- Interest Subvention: The Government of India provides interest subvention to ensure prompt-paying farmers receive short-term crop loans at an effective rate of 4% per annum.
- Priority Sector Lending (PSL): Domestic commercial banks are mandated to allocate 18% of their Adjusted Net Bank Credit (ANBC) to agriculture, with sub-targets for small and marginal farmers.
| Feature / Parameter | Institutional Sources | Non-Institutional Sources |
|---|---|---|
| Regulating Authority | RBI / NABARD / Government | Unregulated / Informal |
| Interest Rate | Low and Government-subsidized (7% to 12%) | Exorbitant (24% to 60%+ per annum) |
| Purpose of Loan | Productive agricultural investments | Consumption, social ceremonies, and debt servicing |
| Collateral Requirement | Land titles, gold, surety, or hypothecation | Personal trust, crop mortgage, future produce |
| Flexibility & Speed | Bureaucratic and time-consuming | Immediate, flexible, and doorstep availability |
| Tier Level | Name of Institution | Operational Scope |
|---|---|---|
| Apex Level | State Cooperative Bank (SCB) | Operates at the State level, coordinates Central Cooperative Banks |
| Intermediate Level | Central Cooperative Bank (CCB) | Operates at the District level, links apex bank with primary societies |
| Grassroots Level | Primary Agricultural Credit Society (PACS) | Operates at the Village level, deals directly with farmers |
S = State Cooperative Bank (Apex), C = Central Cooperative Bank (District), P = Primary Agricultural Credit Society (Village/Grassroots).
Sivaraman refers to the B. Sivaraman Committee that recommended NABARD, and 1982 is the founding year (July 12, 1982).
- NABARD was established on July 12, 1982, upon the recommendation of the B. Sivaraman Committee.
- The Kisan Credit Card (KCC) scheme was introduced in 1998-99 on the recommendation of the R.V. Gupta Committee.
- Regional Rural Banks (RRBs) were established on October 2, 1975, following the Narasimham Working Group recommendations.
- Primary Agricultural Credit Societies (PACS) operate at the grassroots village level in the cooperative credit structure.
- Priority Sector Lending (PSL) target for agriculture for domestic commercial banks is 18% of Adjusted Net Bank Credit (ANBC).
- Short-term agricultural loans are provided for a period up to 15 months.
- Long-term agricultural credit exceeding 5 years is primarily utilized for land development and purchasing heavy machinery.
- The apex refinancing institution for agricultural and rural development in India is NABARD.
- Confusing the establishment year of NABARD (1982) with the establishment year of RRBs (1975).
- Assuming that commercial banks lend exclusively to large farmers, ignoring the mandatory priority sector lending sub-targets for small and marginal farmers.
- Believing that PACS provide long-term credit; PACS primarily provide short-term and medium-term crop loans.