Surge in bad loans under the Kisan Credit Card (KCC) scheme

Context

Recent data reveals that bad loans under the Kisan Credit Card (KCC) scheme have surged by 42% over the last 4 years, highlighting the financial stress in the agricultural sector.

Kisan Credit Card (KCC) Scheme (1998)

• • It is designed to provide short-term credit to farmers for agricultural and allied activities, based on the suggestions of the R.V. Gupta Committee.

• Features:

• • Issued by industrial banks, cooperative banks, and regional rural banks.
  • Covers crop manufacturing needs (seeds, fertilizers, pesticides etc.).
  • Includes running capital for allied activities like dairy, rooster, and fisheries.
  • Can be used for farm equipment, irrigation, and post-harvest prices.
  • A KCC loan is categorised as NPA if unpaid within 3 years of disbursal.

Current Trends in Agricultural NPAs

• According to records from the RBI, the outstanding NPAs in KCC accounts of scheduled business banks (except for nearby rural banks) increased from ₹68,547 crore at the end of March 2021 to ₹97,543 crore by December 2024.
• It underscores the growing challenges confronted by farmers in repaying their loans.

Major Causes of Rising NPAs in Agriculture

• Unpredictable Weather and Climate Change: Erratic rainfall, common droughts, floods, and changing weather patterns immediately impact crop yields, making it tough for farmers to pay off loans.
• Low Farm Income and Market Volatility: Despite government aid, farmers often struggle with low productivity and unremunerative charges.
• Loan Waiver Schemes and Moral Hazard: State and primary governments regularly announce loan waivers as a alleviation measure, encouraging willful defaults.
• Inadequate Risk Management through Banks: Banks are sanctioning loans without sound risk evaluation.
• Structural Weakness in Agricultural Finance: Small and marginal farmers, who form 86% of India’s farming network, have constressed access to institutional credit.
• Delay in Crop Insurance Settlements: Pradhan Mantri Fasal Bima Yojana (PMFBY) has confronted delays in claim settlements, leaving farmers not able to pay off loans.

Implications of Rising Agricultural NPAs

• Stress on Banking System: High NPAs lessen the capability of banks to extend sparkling loans, impacting ordinary agricultural credit growth.
• Increased Fiscal Burden: The government frequently compensates banks for loan waivers, stressing fiscal assets and diverting fund from efficient rural investments.
• Economic and Social Distress: Indebtedness is a key motive behind farmer suicides, specifically in states like Maharashtra, Karnataka, and Punjab.
• Credit Crunch for Genuine Farmers: Due to better default prices, banks tighten credit score norms, making it hard for true, creditworthy farmers to access loans.

Measures to Address Rising Agricultural NPAs

• Strengthening Crop Insurance and Risk Mitigation: Faster declare settlements under PMFBY and expansion of insurance coverage can lessen financial misery.
• Improving Credit Discipline: Restricting loan waivers to sincerely distressed farmers and ensuring centered alleviation can prevent willful defaults.
• Enhancing Institutional Credit Access: Expanding Kisan Credit Card (KCC) coverage to all small and marginal farmers.
• Strengthening Bank Supervision and Credit Monitoring: Implementing technology-driven mortgage monitoring to pick out early signs and symptoms of misery.
• Encouraging Diversification and Value-Addition: Promoting agribusiness, food processing, and non-farm activity.

Source: The Indian Express

UPSC Prelims Practice Question

Q. Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes?

1. Working capital for maintenance of farm assets
2. Purchase of combine harvesters, tractors and mini trucks
3. Consumption requirements of farm households
4. Post-harvest expenses
5. Construction of family house and setting up of village cold storage facility

Select the correct answer using the code given below:

(a) 1, 2 and 5 only

(b) 1, 3 and 4 only

(c) 2, 3, 4 and 5 only

(d) 1, 2, 3, 4 and 5

Ans: (b)

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