Context: Recently, in an Right to Information (RTI) request reply, the Reserve Bank of India informed that the outstanding NPA amount in the Kisan Credit Card (KCC) segment surged to Rs 97,543 crore as at end of December 2024.
Relevance of the Topic: Prelims: Kisan Credit Card; Non-Performing Assets in KCC segment.
Major Highlights:
- Among all other agriculture loans offered by banks, such as tractor or food and agri-processing loans, the highest amount of delinquencies are seen in the Kisan Credit Card (KCC) segment.
- Scheduled commercial banks, excluding regional rural banks, have seen a sharp increase of 42% in bad loans in KCC accounts, during FY21-FY25.
- Outstanding NPA amount surged to Rs 97,543 crore at the end of December 2024, compared to Rs 68,547 crore at the end of March 2021.
- Amount outstanding in operative KCC accounts across all banks (SCBs, cooperative banks and RRBs), has risen from Rs 4.76 lakh crore in FY22 to Rs 5.91 lakh crore as of December 2024. This reflects stress in the agriculture sector.
NPA classification in the KCC segment
- In case of a retail loan, an account becomes an NPA if interest and instalment of principal remain overdue for more than 90 days.
- The repayment period for KCC loans is as per the crop season (short or long) and marketing period for the crop.
- The crop season for states is decided by the respective State Level Bankers Committee (SLBC).
- For short duration crops, the crop season is 12 months and for long duration crops it is 18 months in most states.
- If a KCC loan is not paid within three years of disbursal, it is classified as NPA.
Factors for rise in defaults in KCC segment:
- Inability of farmers to repay loans due to weather-related damages to crops.
- Lack of awareness among farmers about repayment timelines.
- Delay in payments due to exigencies related to personal household requirements.
- Weak loan recovery mechanism for banks.
- Expectations of farm loan waiver; Borrowers choose to default strategically in anticipation of future bailouts.
Kisan Credit Card (KCC) scheme
- Introduced in 1998, KCC scheme provides timely access to institutional credit to small and marginal farmers for agricultural and allied activities.
- KCC offers credit support for:
- Cultivation and post-harvest activities.
- Working capital for essential farming equipment.
- Investment credit for allied activities (animal husbandry, dairying, fisheries, and other agricultural extensions).
- Meet household consumption expenses.
- Key Features:
- Banks provide collateral-free loans up to Rs 2 lakhs under KCC scheme.
- KCC offers a revolving cash credit facility, allowing farmers to withdraw and deposit funds multiple times, without any restrictions.
- KCC loans come under the priority sector lending (PSL) for banks. Of the overall PSL target of 40%, banks are mandated by RBI to allocate 18% of their funds towards agriculture lending.
Modified Interest Subvention Scheme under KCC
- Modified Interest Subvention Scheme (MISS) offers concessional Short-term Agri-loans to farmers through KCC, up to Rs 3 lakh at a concessional interest rate of 7% per annum.
- An additional 3% subvention is provided for timely repayment, reducing the effective rate to 4%.
- MISS also includes post-harvest loans against Negotiable Warehouse Receipts (NWRs) for small farmers with KCCs.
- In the Budget 2025-26, the government announced to increase the loan limit under the MISS from Rs 3 lakh to Rs 5 lakh.
A 2019 report of an RBI working group to ‘Review Agriculture Credit’ cited that loan waivers impact the credit flow to agriculture due to moral hazard among both beneficiaries and non-beneficiaries. This essentially leads to banks reallocating lending to lower risk borrower segments, and thus reducing credit availability for the agriculture sector.