Why in the news?

  • The Union Finance Minister urged rural banks to enhance the disbursement of agricultural credit to meet the increasing financial needs of a rapidly transforming rural India.

Agricultural Credit in India

  • What is it?:
    • Agricultural credit refers to financial support extended to farmers for agricultural and allied activities such as crop production, purchase of inputs, and investment in farm machinery and infrastructure. 
    • It plays a crucial role in ensuring timely availability of capital, enhancing productivity, and reducing dependence on moneylenders.
  • Importance of Agricultural Credit:
    • Helps improve capital formation and modernisation of agriculture.
    • Reduces dependence on informal lenders.
    • Enables purchase of inputs and equipment.
    • Facilitates risk management through schemes like KCC and crop insurance.
  • Institutional Structure for Agricultural Credit:
    • Cooperative Credit Institutions: Three tier system
      • Cooperatives provide short- and long-term credit, often refinanced by NABARD.
      • Primary Level: Primary Agricultural Credit Societies (PACS)- village level.
      • Intermediate Level: District Central Cooperative Banks (DCCBs).
      • State Level: State Cooperative Banks (SCBs).
    • Regional Rural Banks:
      • Serve small and marginal farmers.
      • Provide short- and medium-term agricultural loans.
    • Commercial Banks:
      • Major source of institutional agricultural credit today.
      • Promote direct lending and crop loans under schemes like Kisan Credit Card (KCC).
    • National Bank for Agriculture and Rural Development(NABARD):
      • Apex institution for agricultural and rural credit.​
      • Provides refinance support to RRBs and cooperative banks.
      • Manages Long Term Rural Credit Fund and other refinance schemes.
  • Major Government Schemes:
    • Kisan Credit Card (KCC):
      • Provide short-term credit for farmers.
      • As of March 2024, 7.75 crore accounts with ₹9.81 lakh crore outstanding
    • Pradhan Mantri Kisan Samman Nidhi (PM-KISAN):
      • Direct income support
      • ₹6,000 per year in three instalments
    • Pradhan Mantri Fasal Bima Yojana (PMFBY):
      • Crop insurance Scheme
      • Premium: 2% (Kharif Crops), 1.5% (Rabi Crops), 5% (Horticulture Crops)
    • Interest Subvention Scheme (ISS):
      • Subsidy on crop loan interest
      • 2–3% to promote timely repayment.
    • AtmaNirbhar Bharat – KCC Saturation Drive:
      • Cover 2.5 crore new KCC holders
      • Provides ₹2 lakh crore credit boost under the drive
    • Other Initiatives:
      • Digitisation of PACS and integration with Core Banking Systems.
      • Doubling of farmers’ income target through enhanced credit access.
      • Credit guarantee schemes to support agri-startups and FPOs (Farmer Producer Organisations).
      • Strengthening of RRBs through recapitalisation and consolidation drives.
  • Challenges
    • Regional disparity: Higher credit flow in southern and western states.
    • Limited reach: Small and marginal farmers face exclusion due to collateral requirements.
    • Reliance on Non-Institutional Credit: Limited Institutional credit penetration forces rural marginal farmers to rely on Money lenders.
    • High non-performing assets (NPAs) in cooperative and RRB sectors.​
    • Dependence on short-term loans: Constrains capital formation.
    • Delay in credit delivery & procedural complexity.
  • Way Forward:
    • Enhance credit reach to tenants and small farmers via JLGs/SHGs.
    • Focus on long-term investment credit for capital formation.
    • Improve digital access and financial literacy among rural farmers.
    • Promote inclusive growth by balancing regional disparities.
    • Strengthen cooperative credit through structural and governance reforms.

 

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