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ACA-TM-37 (v2.2-20-Nov-10)
Agricultural lending concepts
ST & LT Loans for Agriculture
Sushrut V. SardesaiDGM / MoFCAB, RBI, Pune
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ACA-TM-37 (v2.2-20-Nov-10)
Classification of Loans
• Based on purpose– Production credit– Marketing loans– Consumption loans– Investment credit
• Based on tenure– Short term– Medium term– Long term
ACA-TM-37 (v2.2-20-Nov-10)
Classification of Loans
• Based on security– Secured loans
• Primary security• Collateral security
– Mortgage– Hypothecation– Third party guarantee
– Unsecured loans
ACA-TM-37 (v2.2-20-Nov-10)
Classification of Loans
• Based on approach–Individual approach–Area approach–DIR loans
ACA-TM-37 (v2.2-20-Nov-10)
Agricultural Costs
• Recurring
• Investment specific
ACA-TM-37 (v2.2-20-Nov-10)
Crop Loan System• Cost of cultivation• Eligibility not to depend on ownership but on
tilling of land• Loan to be secured by hypothecation of crop• Disbursement & recovery of loan based on crop
production schedule• Quantum of loan based on crop variety, season
and irrigation status• Recovery linked with marketing
ACA-TM-37 (v2.2-20-Nov-10)
Crop Loan System contd ….
• Cost of cultivation
• Scale of Finance
• DLTC
• DCC/BLBC
ACA-TM-37 (v2.2-20-Nov-10)
Tools of ST Financing
• KCC• SCC• GCC• SB-cum-OD • SHG• JLG• Farmers’ Club
ACA-TM-37 (v2.2-20-Nov-10)
Causes of poor repaying capacity
• Small land holdings• Low productivity• Low / fluctuating prices• High family expenditure / diversion of funds
for unproductive purposes• Lack of adoption of improved technology and
modern package of practices• Poor management of farm resources
ACA-TM-37 (v2.2-20-Nov-10)
Risk factors in Agriculture
• Production risk
• Technological risk
• Ignorance / illiteracy related risk
• Weather uncertainty risk
• Price uncertainty risk
• Farmer’s health related risk
ACA-TM-37 (v2.2-20-Nov-10)
Risk mitigation measure
• Crop insurance• Asset insurance• Health / Life insurance• Tie-ups for recovery• Marketing loans / Warehouse receipt finance• Formation of Farmers’ Clubs• JLGs / SHGs
ACA-TM-37 (v2.2-20-Nov-10)
Classification based on PSL
• Direct AgricultureLoans to individual farmers, groups of individual farmers
[including SHGs / JLGs provided banks maintain disaggregated data on such loans] engaged in Agri. and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage)
• Indirect AgricultureLoans to corporates, partnership firms and institutions engaged
in Agriculture and Allied Activities [dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage)
ACA-TM-37 (v2.2-20-Nov-10)
Direct Agriculture• Short-term loans to farmers for raising crops• MT & LT loans for agri. and allied activities Purchase of agri. Impl. and machinery Irrigation and other dev. activities Allied activities
• Pre-harvest and post-harvest activities, (viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce)
• Loans up to 25 lakh against pledge / hypothecation of agri. produce (including warehouse receipts) for a period not exceeding 12 months.
ACA-TM-37 (v2.2-20-Nov-10)
Direct Agriculture contd….
• Loans to SF/MF for purchase of land for agricultural purposes
• Loans to distressed farmers indebted to non-institutional lenders
• Loans to PACS, FSS and LAMPS for on lending to farmers for agri. &allied activities.
• Loans to farmers under KCC Scheme. • Export credit to farmers for exporting their own farm
produce
ACA-TM-37 (v2.2-20-Nov-10)
Indirect Agriculture• Short-term loans for raising crops• MT & LT loans for agri. and allied activities Purchase of agri. Impl. and machinery Irrigation and other dev. activities Allied activities
• Pre-harvest and post-harvest activities, (viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce)
• Loans up to 25 lakh against pledge / hypothecation of agri. produce (including warehouse receipts) for a period not exceeding 12 months
ACA-TM-37 (v2.2-20-Nov-10)
Indirect Agriculture contd….
• Export credit to corporates, partnership firms and institutions for exporting their own farm produce
• Loans upto Rs. 5 crore to Producer Companies set up exclusively by only SF/MF under Part IXA of Companies Act, 1956 for agri. and allied activities.
• Bank loans to PACS, FSS and LAMPS other than those covered under direct Agriculture
ACA-TM-37 (v2.2-20-Nov-10)
Other indirect agriculture loans• Loans up to 5 crore to coop. societies of farmers for
disposing of the produce of members.
• Loans to Custom Service Units managed by individuals, institutions or organisations and undertake farm work for farmers on contract basis
• Loans for construction and running of storage facilities (warehouse, market yards, godowns and silos), including cold storage units designed to store agriculture produce/products
ACA-TM-37 (v2.2-20-Nov-10)
Other indirect agriculture loans contd….
• Loans to MFIs for on-lending to farmers for agricultural and allied activities subject to conditions
• Loans sanctioned to NGOs, which are SHG Promoting Institutions, for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural and allied activities. ROI =/< Base Rate + 8%
• Loans sanctioned to RRBs for on-lending to agriculture and allied activities
ACA-TM-37 (v2.2-20-Nov-10)
Potential Activities• Fruits and Vegetables• Floriculture• Medicinal and Aromatic Plants• Minor Irrigation Schemes - development & management• Livestock based Schemes - Dairy, Poultry, Fisheries, etc.• Land development activities - soil & water conservation• Mechanisation of Agriculture• Organic Farming• Bio-fuel and TBO seeds• Agro-processing • Seed and Planting material production• Agri-clinic and Agri-Business Centres• Post harvest and Marketing Infrastructure Development, etc.
20 College of Agricultural Banking, RBI, PUNE
