2932013 121843 f001 Financing Agriculture

7/28/2019 2932013 121843 f001 Financing Agriculture

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FINANCING AGRICULTURE

The financial needs of a farmer may be classified into threecategories:

i. Short-term finance, which is required for purchase ofseeds, fertilizers, manures, repairs of farm machinery

and implements, hiring labour etc. This is repayablewithin 6 to 12 months.

ii. Medium-term finance for construction of wells, purchaseof carts, bullocks and small machinery, development of

land. This is repayable within 3 to 5 years

iii. Long-term finance for effecting permanent improvementson land or purchase of land or heavy machinery. This isrepayable in instalments in 5 to 10 years or more.


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The financial assistance given to meet the short-termrequirements is termed as a Crop Loan while the financegiven to meet the medium-term or long-term financial

requirements is termed as a form Loan.

Direct Finance to farmers for Agricultural Purposes

1. Short-term loans for raising crops i.e. for crop loans. In

addition, advances upto Rs. 6 lakhs to farmers againstpledge/hypothecation of agricultural produce (includingwarehouse receipts) for a period not exceeding 12months, where the farmers were given crop loans forraising the produce, provided the borrowers draw credit

from one bank.

2. Medium and long-term loans (provided directly tofarmers for financing production and development needs)


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a) Purchase of agricultural implements and machinery

b) Development of irrigation potential through

c) Reclamation and Land Development Schemes

d) Construction of farm buildings and structures, etc.

e) Construction and running of storage facilities

f) Payment of irrigation charges, etc.

g) Production and processing of hybrid seeds forcrops

h) Other types of direct finance to farmers


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Indirect Finance to Agriculture

1. Credit for financing the distribution of fertilizers,pesticides, seeds, etc.

2. Loans up to Rs.40 lakh granted for financing distributionof inputs for the allied activities such as, cattle feed,poultry feed, etc.

3. Loans to Electricity Boards for reimbursing theexpenditure already incurred by them for providing lowtension connection from step-down point to individualfarmers for energizing their wells.

4. Loans to farmers through PACS, FSS and LAMPS

5. Deposits held by the banks in Rural InfrastructureDevelopment Fund maintained with NABARD

6. Subscription to bonds issued by Rural ElectrificationCorporation exclusively for financing pump setenergisation programme in rural and semi-urban areas

and also for financing system improvement programme


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7. Loans to co-operative banks of producers (e.g.Aarey Milk Colony Co-operative Bank,consisting of licensed cattle owners).

i. Financing the farmers indirectly through the co-operative system, provided a certificate from theState Co. operative bank in favour of such loansis produced

ii. Advances to State sponsored Corporations foronward lending to weaker sections

iii. Loans to farmers for purchase of shares in Co-operative Sugar Mills and Sugar Mills set up asJoint Stock Companies and other agro-based

processing units.

iv. Lending to Non Banking Financial Companies foron lending to agriculture.

v. Investment by banks in securitized assets, whichrepresent indirect advances to agriculture.


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The functions of NABARD can be summarized as follows:

1. It serves as an apex refinancing agency for theinstitutions providing investment and production credit for

promoting the various development activities, in the ruralareas;

2. It takes measures towards institution building forimproving absorptive capacity of the credit delivery

system, including monitoring, formulation of rehabilitationschemes, restructuring of credit institutions, training ofpersonnel etc.

3. It co-ordinate the rural financing activities of all the

institutions engaged in the development work at the fieldlevel and maintain liaison with Government of India, StateGovernments, RBI and other national level institutionsconcerned with policy formulation; and

4. It undertakes monitoring and evaluation of projectsrefinanced by it.


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Crop Loans

i. There are mainly two crop seasons:

(a) Rabi (extends roughly from October to April)

(b) Kharif (extends roughly from May to September)

ii. The bank should make these advances only to

agriculturists preferably owning land after satisfying itselfregarding their character, capacity and capital.

iii. The loans should be granted in the form of a fixedamount rather than sanctioning cash credit or overdraft

limits

iv.In order to avoid misutilisation of funds by the borrower,the total amount sanctioned to farmers should bedisbursed in accordance with their needs for various

agricultural operations.


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v. The credit should be disbursed by the banks by makingdirect payments to the suppliers or inputs. The bank mayintroduce the scheme ofagri cards which entitles the

farmers to buy seeds.vi. The bank should get standing crops hypothecated in its

favour. If possible it may also obtain equitable mortgageof land .

vii. The borrower should be asked to get the produce soldthrough approved marketing societies from where directpayment may be received by the bank.

viii. The bank may give the borrower a notice preferably

one week before harvesting reminding him of therepayment of the loan.

ix. The banks should obtain appropriate insurance cover forthe crop loan as provided by the General Insurance

Corporation of India.


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Term Loans

i. The usual study of three Cs, character , capacity andcapital of the borrower, should be undertaken.

ii. Economic feasibility of the project should be enquiredinto. The project should generate necessary cash to payinterest and repay the banks loan over a reasonableperiod.

iii. The borrower should not have obtained credit for thesame purpose from some other institution. A declarationto that effect should be obtained from the borrower.

iv.The bank should ask for the invoice or other documentcertifying the value of the asset to be purchased by theborrower.

v. The bank should not generally advance more than 75%of the value of the asset. The balance should be arrangedby the borrower himself.


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vi. The bank should make direct payment to the seller or

supplier of the asset. It should obtain the authority of the

buyer for that purpose and keep with it the receipt given

by the seller or supplier.

vii. In case of machinery, it should be checked that it is a

new one and the machine and its supplier are reliable. In

case of land etc. , it should be checked that it is a newone and the machine and its supplier are reliable.

viii. The bank should get the asset hypothecated or

mortgaged in its favour

ix. The repayment should be so arranged that money is

recovered over the life-span of the asset.


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x. The bank should obtain the following documents fromthe borrower:

a) A demand promissory note for the amountlent

b) A hypothecation or a mortgage deedregarding the asset purchased

c) The documents of title regarding land etc. ofthe borrower as security for the loan taken byhim

d) A declaration from the borrower that he hasnot borrowed from any other institution andwill not borrow till he repays the banks loan


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COMPREHENSIVE CROP INSURANCE SCHEME

Crop insurance (CCIS) covers major crops viz. rice, wheat,millets, oilseeds and pulses.

ADVISORY COMMITTEE ON FLOW OF CREDIT TOAGRICULTURE AND RELATED ACTIVITIES (2004)

Banks may waive margin/security, requirements foragricultural loans up to Rs.50,000 and in the case ofagri-business and agri-clinics for loans up to Rs.5 lakh.


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2. Investment by banks in securitized assetsrepresenting direct (indirect) lending to agriculturemay be treated as their direct (indirect) lending toagriculture under the priority sector

3. Loans to storage units, including cold storage units,which are designed to store agricultural produce/products, irrespective of their location, would betreated as indirect agricultural finance under the

priority sector.

4. Non-performing asset (NPA) norms for all directagricultural advances, including direct agriculturalterm loans, may be modified with a view to aligning

the repayment dates with the harvesting crops.

5. Micro-finance institutions (MFIs) would not bepermitted to accept public deposits unless theycomply with the extant regulatory framework of the

Reserve Bank.


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6. The controlling authorities of banks may review thelapses, if any, in implementing therecommendations of the R.V Gupta Committeerelating to simplification of documentation,

delegation of more powers to the branchmanagers, etc., and take steps to rectify thesituation.

7. Banks may provide a separate flexible revolving

credit limit to small borrowers of production andinvestment loans for meeting temporary shortfallsin family cash flows and also to evolve suitablecredit products/packages.

8. Banks may consider using low cost ATMs runningon diesel generator sets for cash dispensation inrural areas.

9. The restrictive provisions of Service Area Approach

may be dispensed with for lendings outsideGovernment sponsored schemes.


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Financial Small Scale IndustriesSmall Scale and Ancillary Units

Small scale industrial units are those engaged in themanufacture, processing or preservation of goods andwhose investment in plant and machinery does not exceedRs.5 crore.

Tiny Enterprises

The status of Tiny Enterprises may be given to all smallscale units whose investment in plant and machinery is upto Rs.25 lakh, irrespective of the location of the unit.


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Small scale Service and Business Enterprises

Industry related service and business enterprises with

investment up to Rs.10 lakh in fixed assets, excludingland and building will be given benefits of small scalesector.

Credit needs of small-scale industrial units

i. Fixed capital needs. These include credit needs formeeting the expenses incurred on account of installationof plant and machinery, acquisition of land and buildings,proper maintenance of machinery against depreciation

and obsolescence and also renovation, modernizationand expansion of units concerned.

ii. Working capital needs. These include credit needs forpurchasing and stocking of raw materials, inventories of

goods, and goods in process


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District Industries Centres

In order to provide all sorts of services and facilities tosmall entrepreneurs at one place, the Government haveset up District Industries Centres at district levels.

i. Identification of suitable schemes

ii. Preparation of feasibility reports

iii.Arrangements for supply of machinery and equipments

iv.Provision of raw materials, credit facilities and inputs

v. Marketing of the products


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Each District Industries Centre is headed by a GeneralManager. He is assisted by a team of specialists in the

following areas:

i. Economic Investigation

ii. Machinery and Equipment

iii.Research Extension and Training

iv.Raw Materials

v. Credit Facilities

vi.Marketing

vii.Cottage Industries


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Working group on flow of credit to small

scaleindustries sector (2004)

A full-service approach to cater to the diverse needs of theSME sector may be achieved through extending banking

services to recognized SME clusters by adopting a 4-Capproach Viz., Customer focus, Cost control, Cross selland Contain risk. A cluster based approach to lending maybe more beneficial for (i) dealing with well-defined andrecognized groups (ii) availability of appropriate

information for risk assessment and (iii) monitoring by thelending institutions.


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2. Corporate-linked SME cluster models need to be activelypromoted by banks and FIs Bnks linked to large

corporate houses can play a catalytic role in promotingthis model. Financing of SMEs linked to large corporates,covering suppliers, ancillary units, dealers, etc. wouldalso enhance competitiveness of the corporates as wellas the SME participants.

3. Successful micro credit management models should bemade use of by SIDBI and Lead Banks with a view toencourage the adoption of their work practices in otherStates.

4. New instruments need to be explored for promoting ruralindustry and improve the flow of credit to rural artisans,industries and rural entrepreneurs.


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5. Higher working capital limits need to be taken into

account while extending credit to such units located inhilly terrain and frequent flood areas with poortransportation system.

6. SIDBI may promote a NBFC exclusively for undertaking

venture and other development financing activities forSMEs.

7. A uniform target in priority sector lending at 40 per centof net bank credit for all domestic and foreign banks has

been recommended with a view to providing a levelplaying field for all banks.


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Agricultural Finance Schemes.

Activity/Scheme EligibleBorrowers Quantum ofLoan Repayment

1.CompositeCrop CashCredit Scheme

Individualfarmers/registered tenants/share

croppers withrecordedright/firms/company/co-op.societies.

Scale of finance.Forconsumption-

25% of grossincome offarmer. Financeagainst storagereceipts -50%of price ofproduce Max.Rs.5 lakh.

Revolving limit.Seasoning sublimits to ebe

adjusted afterharvesting/marketing. If loanagainst storagereceipts-seasonal sub-limit to beadjusted.


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Activity/Scheme

EligibleBorrowers

Quantum of Loan Repayment

2.Kisan

CreditCard

Individual

farmers/registeredtenants/sharecroppers withrecordedright/firms/com

pany/co-op.societies.

Requirement for entire

production to be assessed onthe basis of scale of finance forcrops and working capitalrequired for allied activites lessmargin as per norms

The sale

proceedsshould beroutedthrough thecash creditaccount.

3.Land

Development

Farmers owning

land orcultivatingregisteredleased lands.

As per cost of the scheme

NABARDs unit cost may betaken as guiding factor.

Within 9-15

years in halfyearly/annualinstallments.Suitablemoratorium

to be


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Activity/Scheme

Eligible Borrowers Quantum ofLoan

Repayment

4.Minorirrigation

Individual farmers,group of farmers,

co-operativesocieties, StateirrigationCorporations/Bodiesoffering guarantee

of State Govt.

As per cost ofthe scheme

NABARDs unitcost may betaken asguiding factor.

Dug wells 11-15 years.Deepening of well 5

years. Pump sets 9years. Bore well 11-15years. Sprinkler/ DripIrrigation 10-15 years.

5.FarmMechanisation

Farmer with ownland or registeredleased land (a) 8acres of perennially

irrigated land forpurchase oftransaction/purchase of power tillersrespectively. ZM canreduce it to 5 & 3acres respectively,

As per cost ofthetractor/powertiller. Margin for

new 15-25%.Second handtractor unit-33.33%Repairs/renovation of tractorunit, transport

New tractor-9 yrs, newpower tiller-7 yrs,second hand tractor -4yrs, other machinery-3-

5 yrs, repairs-3.5 yrs.


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Activity/

Scheme

Eligible Borrowers Quantum ofLoan

Repayment

6. DairyDevelopment

Farmers/agriculturelabour/individuals/firms/companies dairyco-op. society/statecorporation etc.

UnitCost/ProjectCost

5-6 yrs in monthlyinstalments.

7.Poultry

Development

---Do--- ----Do---- ----Do---

8.Sheep/GoatRearing

Individualfarmers/labourers

---Do--- 5 years

9.Piggery Farmers/tribals/Ag.

Labourers/firms/Cos./Co-opsocieties.

NABARDs unit

cost/projectcost margin

4-5 years

10.Sericulture Farmers/Tribals/Landless labourers

Project costmargin

Term loan 5-7 yearswith 15-18 months

moratorium cash


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Activity/Scheme Eligible Borrowers Quantum ofLoan

Repayment

11.Fishery

(Pisiculture)

Individuals/firm/Co

-op.

Project cost

margin

3-5 years-max.

7years12. Draughtanimal & cart

Farmers Unit cost ofNABARD

4-5 years

13.Against

Storage Receipt

Farmers, Co-op.

society approvedby Bank

50% of price of

the produce MaxRs.5 lakh

6-12 months

14. ColdStorage

Individuals/firms

/Cos./ Co-op.societies

Project CostMargin

4-7 years

15. Cold LoanScheme

Individuals/farmers/artisans

Card limits-margin. Forconsumptionmax. Rs.1000/-

Within reasonabletime depending onpurpose.


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Farm Mechanisation:

i) The proponent should be a farmer having owned oprregistered leased land

ii) For a tractor loan, the farmer should have a minimum 8acres perennially irrigated land.

iii) For purchasing power tiller the farmer should have a

minimum of 5 acres of perennial irrigated land.

iv)For purchase of tractor with more than 25 hp, the landholding should be more at the rate of one acre perenniallyirrigated land for every 2.0 to 2.5 hp.

Selection of Optimum size of Tractor

Estimated yearly usage.

(1+I) C (1000 A (1+I)


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(1+I) C (1000-Ar(1+I)

AT = -------- ---- + ---------------A K a

A = Size of the farm (acres)

R = use of tractors per acre

I = extent of irrigation

-a = 1 for short duration crops

-1.5 for long duration crops

-c = 0.70

-1 + 0.005 d

-d = density of tractors (No. per 1000 acre.)


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Break-even hours:

O & M Costs

Variable Fixed

Fuel Salaries

Lubrication Taxes and Insurance

Repairs Depreciation

Replacement Interest Garage Rent


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BEH = O & M Costs/ Custom Rate

Quantum of Finance /Margin

For purchase of new tractor unit or transport vehicle

Up to Rs. 50,000/- Nil Margin

Above Rs. 50,000/- 15% to 25% Margin

Purchase of second hand tractor unit/ transport vehicles Margin33%

Finance for repair /renovation of tractor unit, transport vehicle

Margin 25% (short-term advance).


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Repayment:

New tractor Maximum 9 years

New power tiller Maximum 7 yearsSecond hand tractor Maximum 4 yearsOther machinery Maximum 3 to 5 yearsRepairs/renovation Maximum 3 to 5 years.

KISAN CREDIT CARD.

Purpose:Short-term credit for crop production, allied activities and other

non-farm activities to farmers.Issue of Cards:The farmers under the scheme will be issued a credit card-cumpassbook incorporating the name, address, particulars of land

holding, borrowing limit/sub-limits, validity period, etc. tofacilitate recording of the transactions on an on-going basis.

T f F ilit


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Type of Facility:

i) Revolving Cash Credit-Annual Review. The farmer should beallowed for any number of drawals and repayment within

the limit.ii) The aggregate of credits into the account during the 12

months period should atleast be equal to the maximumoutstanding in the account.

iii) No drawal in the account should remain outstanding formore than 12 months in case of normal crops and 18months in case of sugarcane and banana crops.

Margin and Security:Creation of mortgage of land has been waived in respect of

Kisan Credit Card Holders with satisfactory repayment foratleast one year and with aggregate short-term loan (for

crop production, allied activities and other non-farmactivities limit u to and inclusive of Rs. 50 000


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Disbursement:

a) At the time of withdrawal and deposit, the beneficiary shouldpresent the passbook for recording the transactions.

b) Though drawals in the account are expected as perseasonality of the crops/sub-limits, yet, some flexibility maybe allowed to enable the farmer to purchase inputs atconvenient time when availability/prices are favourable.

Insurance:

a) Crop insurance for the notified crops in the notified areas.

b) Personal accident insurance to cardholders. The riskcoverage /sum assured under the scheme is as under:

Death/ Permanent disability : Rs. 50,000/-

Partial disability : Rs.25,000/-


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Annual premium of Rs 15/-per KCC holder is to paid by the

bank to the designated insurance company.

Supervision and follow-up

a) Pre-sanction inspections should be carried out in all cases.

b) Similarly, post-disbursement inspection should also be carriedout to ascertain end use of funds.

Documents

2932013 121843 f001 Financing Agriculture