Banks are looking to ask RBI to allow them to renew the scheme for small and marginal farmers for an amount upto ₹3 lakh, provided they pay only the interest amount
MUMBAI : Faced with rising bad loans in the agriculture sector, banks are seeking flexibility in loan repayments under the Kisan Credit scheme from Reserve Bank of India, according to three people aware of the matter. Banks are looking to ask RBI to allow them to renew the scheme for small and marginal farmers for an amount upto ₹3 lakh, provided they pay only the interest amount, they added. KCC comes up for renewal in the June-July period every year.
“All KCCs are supposed to liquidate their entire outstanding at the year-end, and fresh loans are given for the same limit. For MSME industry cash credit limit is rolled over for the next year if they serve only the interest. There is no requirement for repaying the principal. We are therefore saying that facilities which are available for the non-agriculture sector should be available for the agriculture sector," said a senior banker aware of the matter.
At the end of March, 2020, the KCC loans for banks stood at ₹7.09 lakh crore to 6.7 crore active KCC card users, which constitute about 40% of the total agricultural loans given by them.
A report by State bank of India dated December 2020 said the KCC portfolio of banks has suffered over the years on account of crop losses, unremunerated prices, debt waivers and the rigidity of the loan product. It therefore needs to be re-examined closely, SBI report had said.
Launched in 1998-99 by then finance Yashwant Sinha, KCC is meant to help farmers take decisions on how to use the cash for cultivation rather than banks funding suppliers, which was the case until then. Over the years, the KCC has become one of the most popular schemes for agricultural loans because of the interest subvention scheme and Prompt Repayment Incentive aggregating to 4% offered by the government, up to a limit of ₹3 lakhs per borrower.
Issued to farmers based on their land holdings, KCC operates like a normal credit card. Farmers can use them for the purchase of seeds, fertilizers and pesticides, besides production needs, but in many cases, this doesn’t happen and farmers use them for raising money to take care of family weddings and medical needs.
A loan granted for short duration crops is treated as an NPA (non-performing asset) if the instalment of principal or interest remains overdue for two crop seasons. Loans granted for long-duration crops turn NPAs if the instalment of principal or interest remains overdue for one crop season. It is not unusual at some banks that a new loan cycle begins even before the existing loans are repaid fully, bankers said.
Agriculture is one of the largest sources of bad loans for most banks. Gross NPA in agriculture loans constituted 15.85% of total credit of SBI at the end of March 2020 compared to 11.56% in March 2019. For fiscal year 2020- 2021 the agriculture NPAs stood lower at 13.7% on account of moratorium. According to RBI’s Trends and Progress Report, total gross NPA in agriculture stood at 1.26 lakh crore at the end of March 2020, which is 15% of the total NPA.
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