Easier credit norms for small and marginal farmers

The government has streamlined lending norms in schemes such as the Kisan Credit Card to boost institutional credit flow to small and marginal farmers who make up over 90% of people engaged in agriculture and, as a class, are highly vulnerable to risks. The aim is to cut their dependence on usurious informal private lenders, an official said.

Under revised guidelines, standard security requirements, such as hypothecation of crops, now do not apply to loans of up to Rs1 lakh.

The change is also applicable to loans taken through the Kisan Credit Card, which allows land-holding farmers to meet short-term credit requirements.

“Banks have been advised to waive security requirement for agricultural loans and Kisan Credit Card limits of up to 1 lakh,” the official cited above said on condition of anonymity.

Institutional credit in the agriculture sector refers to all loans disbursed through scheduled commercial banks, cooperatives and regional rural banks. Farmers rely on agricultural credit to purchase various inputs, from fertilizers to irrigation equipment. The 2018-19 Union budget raised the target for farm credit by 10% to Rs11 lakh crore.

Under the Kisan Credit Card scheme, small farmers can also avail of a “flexible limit” of between Rs10,000 and Rs50,000 for post-harvest warehousing needs and setting up of small-scale dairy and poultry farms. For this, branch managers, “based on their assessment,” have now been empowered to disburse the amount “without relating it to the value of land owned by the farmer,” the official added.

Small and marginal farmers as well as share-croppers, defined as non-land-owning cultivators, will also not be required to submit a “no dues” certificate by district authorities for new loans of up to Rs50,000. The step makes farmers already having an outstanding loan eligible for new small loans.

“These measures, inter alia, include steps to provide hassle-free crop loan to small and marginal farmers,” says a Reserve Bank of India report eviewed by HT.

Marginal farmers are those owning up to 1 hectare of land, while small farmers are those owning between 1 and 2 hectares. Since they typically suffer resource constraints, they are charged exorbitant interest rates by private lenders because they are considered high-risk.

Robust farm growth depends on investment and capital formation, or asset creation, in the agriculture sector. According to a Reserve Bank of India (RBI) report, a 10% increase in institutional credit helps to increase a farming household’s investment by close to 3%. However, small farmers tend to depend more on informal credit.

“Landless and marginal farmers depend more on the informal sources for credit for asset creation as compared to the medium and large-size landholders,” according to the second volume of a report prepared by a committee formed by the National Democratic Alliance government (NDA) to identify ways to double farmers’ income.

The report, Status of Farmers’ Income: Strategies for Accelerated Growth, states that “a higher percentage of investment is carried out through informal sources of borrowings such as moneylenders, traders and input dealers by the landless (40.6%), marginal (52.1%) and small farmers (30.8%).” Medium and large farmers avail most of the subsidised institutional loans, the report adds.

The NDA government has been seeking in recent months to alleviate distress faced by farmers owing to a decline in commodity prices and uneven rainfall that has provoked farmers’ protests and demands for loan waivers in parts of the country. Prime Minister Narendra Modi has set the target of doubling farmers’ income by 2022.

Agriculture credit disbursement to small and marginal farmers has grown from Rs. 3.80 lakh crore in 2015-16 to Rs 5.34 lakh crore in 2016-17. The number of their loan accounts grew from 54 million to 77.1 million during this period.

“It is true that these guidelines have been issued to banks by RBI. But two classes of farmers, namely tenant farmers and sharecroppers are still largely excluded from institutional credit because they don’t own land titles. What we need is a change in the definition of farmers to include them. Right now they are categorised as cultivators,” said Ramesh Manjunatha, an economist with Osmania University.