RURAL MODULE - B

CHAPTER: 10 FINANCING AGRICULTURE AND ALLIED

ACTIVITIES
What we Will Study?
*All about definition Financing agriculture and Allied?
INTRODUCTION:
Agricultural financing has two components - crop loans
(production credit) and term loans (investment credit).
The provision of crop loans is governed by the norms laid
down under the Crop Loan System advocated by RBI.
With the introduction of Kisan Credit Card Scheme in the year
1998, the banks are issuing crop credit through the KCC
scheme, which provides flexibility in operations, benefiting
both farmers and banks.
The banks are expected to provide relief measures to the
farmers whose crops are affected by natural calamities, by
way of converting their crop loans into medium term loans,
besides issuing them fresh production loans, adhering to all
the prescribed norms.
This would enable the farmers to pursue their farming
operations, without any interruption and generate cash flow,
in order to repay their debts to the financial institutions.
As regards term loans, the banks need to examine various
technical issues concerning the proposed farm development
activities and appraise the proposals, taking into account the
cash flow that would be generated, so as to come to a
conclusion that the proposals are financially viable and
bankable.
The bankers need to understand the strengths, weaknesses,
opportunities and threats faced by each of the sub-sector,
so as to guide the farmers intending to take up these
investments.
The Governments have launched several programs for
infrastructure development, besides taking policy measures
for addressing the constraints faced by the sectors.
The banks should take advantage of the opportunities to build
their portfolio and contribute to the overall development of
rural economy.
CROP LOANS - PRODUCTION CREDIT:
The crop loan or the term Seasonal Agricultural Operations
(SAO), generally indicates such activities, as are undertaken in
the process of raising various crops and are seasonally
recurring in nature.
The activities include among others, ploughing and preparing
land for sowing, transplantation where necessary, weeding,
acquiring and applying inputs such as seeds, fertilizers,
insecticides, etc.
and labour for all operations in the fields for raising and
harvesting the crops.
Thus, the credit required to meet the current expenditure for
raising the crops on land, till the crops are harvested, is
construed as production credit, for seasonal agricultural
operations.
Procedures for dispensation of Crop Production Credit - Crop
Loan System:
The Crop Loan System has been in vogue for nearly five
decades.
Since its introduction, major developments have taken place
in agricultural production and productivity.
The irrigation potential has been considerably tapped and
large areas have been brought under double, in some cases,
even multiple cropping.
The technological developments have brought about the
increasing usage of hybrid or high yielding varieties of seeds
and the application of chemical fertilizers.
Over the years, special programs aimed at increasing the
production of food grains, oilseeds and pulses have been
introduced.
GOI has classified the country into various agro-climatic
zones, based on rainfall, soil, water resources, topography
and climatic conditions and has called for a systems approach,
suited to the farming pattern of individual zones and sub
zones, with a view to improving productivity.
In the context of the potential, dry land rain-fed farming holds
in augmenting agricultural production, particularly food
grains, as well in incomes, the policy thrust has been in favour
of adoption of the new technology, now available, for rain-fed
farming.
Cultivation on a watershed basis, is being encouraged.
The introduction of production of high value export-oriented
crops, calls for a different kind of credit support for the
growers.
As per the economic policies pursued by GOL, in the recent
period, the agriculture and rural sector have to be more
commercial oriented and evenly diversified.
Any credit package should therefore take care of the
emerging and complete needs of the agriculture sector.
Normal Credit Limit (NCL) statements and the Cooperative
Credit System:
When the Crop Loan System was evolved, the cooperatives
were exclusive and simple borrowers' groups and were the
sole agency for purveying agricultural credit.
Hence, the mass dispensation concept was found necessary,
at that time.
The Normal Credit Limit (NCL) statements prepared by the
cooperatives served as a credit planning tool for them.
However, considering the cumbersome exercise involved in its
preparation, it was found necessary later to switch over to its
preparation once in three years, with suitable provision to
update individual credit limits, wherever considered
necessary.
Further, with diversified agricultural practices at the ground
level and varying credit requirements among the members of
PACS, NABARD, based on the recommendations of the
Committee on Crop Loan System (1995-96), has permitted a
number of flexible measures.
These measures are indicated below:
*There is no compulsion to prepare the NCL, if the
cooperatives feel that such an arrangement is not sufficient in
the context of varying credit requirements of the members on
account of different practices adopted by them.
They can substitute NCL by a simple loan application form
from individual members as in the case of commercial banks
*DCCBs could permit the PACS to submit a simplified drawal
application for convenient groups of members as and when
they approach the PACS for drawal
*DCCBs could sanction credit limits to the PACS with
reference to village credit plans and PACS` own Business
Development Plans wherever available.
Such flexible measures would facilitate the PACS to appraise
the credit requirement of farmers in special category engaged
in rising special crops (e.g., hybrid seed growers, high value
crops, horticulture crops, etc.) and finance them adequately.
So, over the years, freedom has been allowed to cooperative
banks, to adopt any of the above methods or a combination
thereof.
NABARD has also suggested that good working PACS might be
delegated powers to disburse loans, as per the limit(s)
sanctioned to them, without referring each drawal application
to the DCCB, to which they are federated.
Fixation of Scales of finance and related issues:
The District Level Technical Group (TG) or the District Level
Technical Committee (DLTC) is enjoined with the
responsibility of fixing the scales of finance for various crops.
The District Central Cooperative Banks which have been
purveying traditionally crop loans in large scale have been
made responsible for convening the meeting of this
Committee.
The DLTC consists of representatives from the Lead Bank,
major commercial bank/s, Regional Rural Bank, Agriculture
Department, District Development Manager NABARD and
progressive farmers in the district concerned, with DCCB as
convener of the Committee.
The scales so fixed by the DLTCs are reviewed by the State
Level Technical Committee consisting of representative from
State Agriculture Department, Cooperation Department, SLBC
Convenor, major commercial banks having presence in the
state, NABARD and representatives of Agriculture Universities
in the state with State Cooperative Bank as the convenor of
the Committee.
The SLTC is required to provide necessary guidance to the
DLTCs so they adopt realistic cost, taking into account, the
cost of inputs, agriculture practices, etc.
Over the years, the systems obtained across the country were
reviewed and certain suggestions were made, so as to ensure
that flexible approach is adopted by the banks. Some of the
flexible measures suggested by NABARD in this regard are
furnished below:
*While the district can continue to be unit for prescription of
the scales of finance, different scales may be fixed, should the
agro-climatic characteristics, within a district, justify the
same.
*The Technical Group within the DLTC should build up data
base and prepare detailed worksheets, for undertaking the
exercise for fixation of realistic scales of finance, for
cultivation of various crops
*Scales should be fixed with reference to package of practices
adopted and the extraneous factors like resource constraints
of the banks, should not come into the picture
*There is a need for fixing separate/higher scale of finance for
commercial production of seeds by the seed growers, for
export-oriented horticulture/floriculture, tissue culture-based
seedlings, etc.
*Scales should be laid down by DLTCs for all the crops
cultivated in the district, including horticulture crops
*The State Level Technical Committee (SLTC) should function
more as a review/ratification body, rather than one for
determining the scale
Assessment of repaying capacity in relation to crop loan:
Assessment of repaying capacity is one of the most important
aspects of sound loaning policy.
Unlike in the case of investment credit, where the
incremental income attributable to the investment with
certain qualifications can be taken to indicate the repaying
capacity in respect of the loans, in the case of crop loan,
which meant for meeting expenses on current inputs, the
assessment of repaying capacity poses certain problems as it
does not contribute to generation of any incremental income.
The important question is what proportion of the farm output
should be reckoned as repaying capacity.
The Crop Loan Manual of RBI had indicated that taking into
account the cultivator's other liabilities, the credit agency
would be justified in proceeding on the basis that liabilities on
account of crop loan, which a cultivator might bear without
much difficulty, should not exceed half of his annual farm
output (i.e., 50 per cent of Gross Value of Produce) under the
mass dispensation program.
This was formulated in the context of traditional plane of
cultivation.
With improved plane of cultivation obtained in several parts
of the country and other developments in the farm segment
over the years, banks have been working out the repaying
capacity with reference to average holding of small and other
farmers under three different assumptions in regard to the
output/income side as under:
*Gross value of crop produces minus family consumption
other sources minus family consumption
*Gross value of produce plus income from other sources plus
income from allied agricultural activities minus family
consumption
*Gross value of crop produces plus income from other sources
plus income from allied agricultural activities minus family
consumption
The studies and analysis carried out by RBI/NABARD have
revealed that in respect of small farmers, the repayment of
crop loan had to be necessarily supported at least partly by
income from other sources and net income from allied
activities, whereas in the case of other farmers, repaying
capacity based on crop income alone was sufficient to meet
the repayment obligations of crop loaning.
Since banks dealing with a larger number of farmers with
preponderance of small farmers may find it operationally
difficult to make an assessment of repaying capacity of
individual crop loan borrowers, the Committee on Crop Loan
System constituted by NABARD suggested that the repaying
capacity of small as well as other farmers could be assumed
on a crop basis with reference to certain norms.
Under a mass dispensation program, the repaying capacity of
small as well as other farmers could be fixed at 45% to 65% of
Gross Value of Produces - the lower end of the range being
applicable for rainfed areas and food crops and the upper end
of the range being applicable for irrigated areas and cash
crops.
Where the banks are in a position to adopt an individual
approach, they could in respect of small farmers allow for
consumption expenditure at a level not below the poverty
line expenditure (adjusted for family size) and also take into
account estimated net income from allied activities (after
allowing for term loan repayment obligations, if any) and
income from other sources (wages, etc.)
As regards other farmers, the procedure as recommended
above may be followed except that it may not be necessary to
consider the income from other sources (wages, etc.) or that
from allied activities since repaying capacity from crop
production itself may be adequate for the crop loan.
The adoption of an individual approach in respect of other
farmers raising high value crops using advanced technology,
etc.
may be justified since repaying capacity will be affected by
input output ratios relevant to those situations, and no
general norms need be prescribed.
It has also been suggested that in respect of certain crops like
potato, chilly, tobacco, which are subject to large price
fluctuations, it is necessary to ensure that the GVP estimates
are based on near normal prices, which could be obtained by
taking a 3 - year average of model harvest prices; in the case
of food grains and other cash crops, the support or the
procurement prices fixed by the Government could be
adopted for valuation.
Thus, the input-output values and the relevant ratios would
have to be studied by the bankers in order to satisfy
themselves with regard to the financial viability and
bankability of the crop production loans.
Innovation in crop finance:
As the cash credit system, in one form or another, is found to
be better suited in certain situations than the system of
provision of loans running for a fixed period, banks were
encouraged in early 90s for considering such facilities where
multiple cropping pattern was practiced or in a cropping
situation where cash crops were grown.
Some of the commercial banks had introduced Agriculture
Credit Cards to enable the farmers to buy their input
requirements from retail outlets located at different points
using these cards for their farming operations.
Some of the financial institutions including cooperatives were
providing credit package which included the requirements of
seasonal agricultural operations, processing and marketing of
crops.
Based on the feedback from the operations of these schemes
and the developments which had taken place in the farm
sector, the planners felt the need for introduction and
implementation of a Kisan Credit Card Scheme in the year
1998-99.
Accordingly, NABARD has formulated a model KCC scheme
and issued detailed guidelines to banks for its adoption.
The scheme envisages issue of credit cards to farmers on the
basis of their holdings for uniform adoption by the banks so
that the farmers may use them to readily purchase
agricultural inputs such as seeds, fertilizers, pesticides, etc.
either from the cooperative credit societies which are
engaged in distribution of inputs or from the private dealers
of their choice and draw cash for their crop production needs.
The KCC scheme enabled the farmers to draw the money as
and when they require funds and make payments as and
when they are placed with funds, thus helping them to reduce
the cost of the borrowing.
The system removed the cumbersome procedure of review
and renewal of the loan account, on yearly basis.
The system, as it permitted operations in the account on an
ongoing basis, enable frequent contact with the borrower and
the bank and thus, promoted recovery.
Since the introduction of the scheme, GOI has been topping
up the benefits of various scheme to the KCC holders.
During the year 2001-02, the KCC holders were covered by the
Personal Accident Insurance Scheme (PAIS) formulated by
GOI.
The KCC scheme was extended to cover term loans for
agriculture and allied activities in the year 2004-05.
During 2006-07, the 2% interest subvention scheme was
introduced for short term crop loans up to 3.00 lakh, capping
the interest rate to be charged from the farmers at 7% per
annum.
This has benefitted most of the KCC holders.
With a view to promoting the credit culture and effective
recycling of the funds of the banking system, GOI, during the
year 2009-10, have introduced a scheme envisaging provision
of incentive to borrowers of short-term agriculture credit
through institutions at 1% for prompt repayment.
In the subsequent year (i.e., 2010-11), the incentive for
prompt repayment at 1% was increased to 3% in respect of all
the crop loans up to 3.00 lakh.
The KCC guidelines have been revisited by the Bhasin Working
Group appointed by RBI in the year 2012.
Based on the recommendations of the Group, detailed
guidelines have been issued by RBI/NABARD to the banks.
The revised scheme, envisage reckoning the post-harvest
needs of the farmers, produce marketing loan, consumption
requirements of the farmer household, working capital
requirements for maintenance of farm assets and activities
allied to agriculture and investment credit requirements for
agriculture and allied activities, over and above crop
production requirement assessed, based on acreage under
cultivation and crops cultivated, taking into account the scales
of finance fixed for the crops.
Individual/joint borrowers who are the owner cultivators,
tenant farmers, oral lessees and share croppers and members
of SHGs/JLGs are eligible for issue of KC Cards.
Detailed guidelines have also been laid down for fixation of
maximum permissible limit arrived for the 5th year plus the
estimated long term loan requirement and fixation of sub
limits and drawing limits.
The modified KCC scheme suggests disbursements adopting
any of the following procedures viz.
disbursement through branch, operations through Business
Correspondents and banking outlet, operation through PoS
available with input dealers and mobile based transactions, in
order to make the KC cards more vibrant and popular among
the farming community.
The flex KCC concept introduced around the same period for
marginal farmers envisages provision of flexible limit of
10,000 to 50,000, based on the land holding and crops grown,
which will include post-harvest warehouse storage related
credit needs and other farm expenses, consumption needs,
etc.
plus, term loan for purchase of farm equipment, establishing
mini diary/backyard poultry, as per the assessment of the
branch manager without relating it to the value of land.
During the year 2012-13, issue of KC Cards in the form of inter
operable RuPay cards was advocated and in the recent period
2018-19, the KCC scheme was extended to include the
working capital requirement of farmers undertaking animal
husbandry and fisheries activities.
Government has now extended the benefits of PM Kisan and
pension schemes for small and marginal farmers and the
holders of Kisan Credit Cards are expected to derive the
benefits out of these schemes.
FEATURES OF KISAN CREDIT CARD SCHEME:
The Kisan Credit Card has emerged as an innovative credit
delivery mechanism to meet the production credit
requirements of the farmers in a timely and hassle-free
manner.
The scheme is under implementation in the entire country by
the vast institutional credit framework, involving Commercial
Banks, Regional Rural Banks and Cooperatives and has
received wide acceptability amongst bankers and farmers.
However, during the initial years of implementation, many
impediments were encountered by policy makers,
implementing banks and the farmers in the implementation
of the scheme.
Recommendations of various committees appointed by GOI
and studies conducted by NABARD also corroborate this fact.
It was, therefore, felt necessary to revisit the scheme
originally formed to make it truly simple and hassle free both
for the farmers and the bankers.
Accordingly, GOI, Ministry of Finance, constituted a Working
Group to review the KCC scheme.
Based on the recommendations of the Working Group which
were accepted by the GOI, the following guidelines are issued.
Applicability of the Scheme:
The revised KCC scheme detailed in the ensuing paragraphs is
to be implemented by commercial banks, RRBs and
cooperatives.
The scheme provides guidelines to the banks for
operationalizing the KCC scheme.
Implementing banks will have the discretion to adopt the
same to suit the institution/location specific requirements.
Objective/Purpose:
Kisan Credit Card Scheme aims at providing adequate and
timely credit support from the banking system under a single
window to the farmers for their cultivation and other needs
as indicated below:
(a) short-term credit requirements for cultivation of crops
(b) Post-harvest expenses
(c) Produce marketing loan
(d) Consumption requirements of farmer households
(e) Working capital for maintenance of farm assets and
activities allied to agriculture like dairy animal, inland
fisheries, etc.
(f) Investment credit requirements for agriculture and allied
activities like pump sets, sprayers, dairy animals, etc.
[the aggregate of components (a) to (e) above will form the
short-term credit limit portion and the aggregate of the
components at (f) will form the long-term credit limit portion]
Eligibility:
All farmers - individuals/joint borrowers, who are owner
cultivators, tenant farmers, oral lessees and share croppers,
SHGs or Joint Liability Groups of farmers, including tenant
farmers, share croppers, etc.
are eligible for issue of the Kisan Credit Cards.
Fixation of credit limit/loan amount:
The credit limit under the KCC may be fixed as under
(a) All farmers other than marginal farmers:
The short-term limit to be arrived for the first year:
For farmers raising single crop in a year:
Scale of finance for the crop [(as decided by the District Level
Technical Committee) × extent of area cultivated) + 10% of
the limit towards post-harvest /household /consumption
requirement + 20% of the limit towards repairs and
maintenance expenses of farm assets + crop insurance, PAIS
and asset insurance}.
The limit for the second and subsequent year:
First year limit for crop cultivation purpose arrived at as above
plus 10% per cent of the limit towards cost
escalation/increase in scale of finance for every successive
year (2nd, 3rd, 4th and 5th year) and estimated term loan
component for the tenure of the Kisan Credit Card i.e., 5 years
(Illustration I in Appendix II)
For farmers raising more than one crop in a year, the limit is
to be fixed as above, depending upon the crop cultivated as
per proposed cropping pattern for the first year and an
additional 10% of the limit towards cost escalation /increase
in scale of finance for every successive year (2nd, 3rd, 4th and
5th year).
It is assumed that the farmer adopts the same cropping
pattern for the remaining four years also.
In case, the cropping pattern adopted by the farmer is
changed in the subsequent years, the limit may be reworked
(Illustration I Appendix II)
Term loans for investments towards land development, minor
irrigation, purchase of farm equipment and allied agriculture
activities.
The bank may fix the quantum of credit for the term and
working capital limit for agricultural and allied activities, etc.
based on the unit costs of the assets proposed to be acquired
by the farmers, the allied activities already being undertaken
on the farm, on the bank's judgment on repayment capacity
vis a vis loan burden devolving on the farmer, including
existing loan obligations.
The long-term loan limit is based on the proposed investment
during the five years period and the bank's perception on the
repaying capacity of the farmer.
The maximum permissible limit:
The short-term loan limit arrived for the fifth year plus the
estimated long-term loan requirement will be the maximum
permissible limit (MPL) and treated as the Kisan Credit Card
limit
Fixation of sub limits for other than marginal farmers:
(i) short term loans and term loans are governed by different
interest rates.
Besides, at present, the short-term crop loans are covered
under the Interest Subvention Scheme / Prompt repayment
incentive scheme.
Further, repayments schedules and norms are different for
short term and term loans.
Hence, in order to have operational and accounting
convenience, the card limit is to be bifurcated into separate
sub limits for short term cash credit limit cum savings
accounts and term loans
(ii) drawing limits for short term cash credit should be fixed
based on the cropping pattern and the amounts for the crop
production, repairs and maintenance of farm assets and
consumption may be allowed to be drawn as per the
convenience of the farmer.
In case the revision of scales of finance for any year by the
district level committee exceeds the notional hike of 10%
contemplated while fixing the 5-year limit, a revised drawable
limit may be fixed and the farmer be advised about the same.
In case such revisions require the card limit itself to be
enhanced (4th or 5th year), the same may be done and the
farmer be so advised.
For term loans, instalments may be allowed to be withdrawn
based on the nature of investment and repayment schedule
drawn as per the economic life of the proposed investment.
It is to be ensured that any point of time, the total liability
should be within the drawing limit of the concerned year.
(iii) wherever the card limit /liability so arrived warrants
additional security, the banks may take suitable collateral as
per their policy.
(b) For Marginal Farmers:
A flexible limit of 10,000 to 50,000 to be provided (as flexi
KCC), based on the land holding and the crops grown including
post-harvest, warehouse storage related credit needs and
other farm expenses, consumption needs, etc.
plus, small term loan investments like purchase of farm
equipment, establishing mini dairy /back yard poultry, as per
assessment of branch manager without relating it to the value
of the land.
The composite KCC limit is to be fixed for a period of five
years on this basis.
Wherever higher limit is required due to change in cropping
pattern and /or scale of finance, the limit may be arrived at as
per the estimation indicated at para 5.1.
(Illustration II - Appendix II)
Disbursements:
The short-term component of the KCC limit is in the nature of
revolving cash credit facility.
There should be no restriction in the number of debits and
credits.
Each instalment of the drawable limit drawn in a particular
year will have to be repaid within 12 months (However, this
instruction has been revised in terms of circular
NB.PCD.KCC/802/KCC-1/2012-13 dated 13 September 2012
and banks have been advised to fix repayment as per the
anticipated harvesting and marketing period for the crops for
which a loan has been granted.
The drawing limit for the current season/year could be
allowed to be drawn using any of the following delivery
channel
(a) Operations through branch
(b) Operations using cheque facility
(c) Withdrawal through ATMs/debit cards
(d) Operations through Business Correspondents and Ultra
Small Branches
(e) Operations through Point of Sale (POS) available in sugar
mills/contract farming companies, etc.
especially farmer for tie up advances
(f) Operations through POS available with input dealers
(g) Mobile based transfer transactions at agricultural input
dealers and mandis
Note:
(e) to (g) to be introduced as early as possible so as to reduce
the transaction cost of both the banks and the farmers
The long-term loans for investment purposes may be drawn
as per instalments fixed.
The types of cards which could be issued and the delivery
channels which should be put in place, as suggested in the
revised KCC scheme, are detailed in Annexure to the scheme.
As the Cash Credit limit and the term loan limit are two
distinct components of the aggregate card limit, bearing
different rates of interest and repayment period, until a
composite card could be issued with appropriate software to
separately account transactions in either sub limits, two
separate electronic cards may be issued.
Validity/Renewal:
(i) The Kisan Credit Card should be valid for five years subject
to an annual review
(ii) The review may result in continuation of the facility,
enhancement of the limit or cancellation of the
limit/withdrawal of the facility, depending upon increase in
cropping area/pattern and performance of the borrower
(iii) When the bank has granted extension and/or reschedule
Ent of the period of repayment on account of natural
calamities affecting the farmers, the period for reckoning the
status of operation as satisfactory or otherwise would get
extended together with the extended amount of limit.
When the proposed extension is beyond one crop season, the
aggregate of the debits for which extension is granted is to be
transferred to a separate term loan account with stipulation
for repayment in instalment
Rate of Interest:
The rate of interest will be linked to base rate and is left to
the discretion of the bank.
However, if Government supported interest subvention is
provided for any component of the limit, the rate of interest
may be fixed accordingly.
Repayment Period:
Each withdrawal under the short-term sub limit as estimated
under (a) to (e) of para 3 above, be allowed to be liquidated in
12 months, without the need to bring the debit balance in the
account to zero at any point of time.
No withdrawal in the account will remain outstanding for
more than 12 months.
The term loan component will be normally repayable within a
period of five years, depending upon the type of
activity/investment, as per the existing guidelines applicable
for investment credit.
Financing banks at their discretion may provide longer
repayment period for term loan, depending upon the type of
investment.
Margin:
For crop loans, no separate margin need be insisted as the
margin is inbuilt while fixing the scales of finance.
For term loan component, it will be in conformity with the
guidelines issued by RBI from time to time.
Security:
Security will be applicable as per RBI guidelines prescribed
from time to time.
Security requirement may be as under:
(a) Hypothecation of crops up to card limit of 1 lakh as per the
extant guidelines of RBI
Tie up for recovery:
banks may consider sanctioning the loans on hypothecation of
crops up to card limit of 3 lakh without insisting on collateral
security
(c) Collateral security may be obtained at the discretion of the
banks for loan limit above 1 lakh in case of non-tie up and
above 3 lakhs in case of tie up advances
(d) States where the banks have the facility of on- line
creation of charge on the land records, the same shall be
ensured
Other features:
The banks shall adopt uniformity in respect of the following:
(a) Interest subvention /incentive for prompt repayment as
advised by GOI and/or State Government:
The bankers will make the farmers aware of this facility.
(b) Besides the mandatory crop insurance, the KCC holders
should have the option to take benefit of Assets Insurance,
Personal Accident Insurance Scheme (PAIS) and Health
Insurance (wherever product is available) and pay the
premium through their KCC account.
Premium has to be borne by the farmers/bank according to
the terms of the relevant scheme.
Farmer beneficiaries should be made aware of these benefits
and their consent (except in case of crop insurance, it being
compulsory) need to be obtained, at the application stage
itself.
(c) One-time documentation at the time of availing the loan
initially and thereafter (from the second year onwards) simple
declaration (about crop raised/ proposed) need to be
obtained.
(d) Processing fee may be decided by respective banks.
(e) Farmers to be provided with KCC short term sub limit cum
SB account so as to allow credit balance in KCC cum SB
account to fetch interest at SB rate.
A separate folio needs to be maintained for the long-term sub
limit, until both the sub limits are integrated through an
electronic card with suitable software.
Procedures relating to classification of accounts as per IRAC
norms:
(a) With a view to simplifying the asset classification, the
Committee has recommended that an account could be
treated as NPA as Standard Assets when the balance
outstanding is less than or equal to the drawing limit [short
term (crop) loan] at any point of time, during the preceding
one year.
In other words, it is suggested that the short-term loan (with
major component of crop loan) sanctioned on the KCC can be
given the same treatment as a "cash credit" account for the
purpose of applying prudential norms and should not be
treated as "out of order" if the balance period outstanding is
less than or equal to the drawing limit and each drawal is
repaid within a of 12 months.
Term loans under KCC has fixed repayment schedule and is to
be governed by extant prudential norms.
(b) Charging of interest is to be done uniformly as is applicable
to agricultural advance.
(c) The classification of accounts under NPA category will be
done by banks as per the IRAC norms advised by RBI from
time to time.
The format of model Kisan Credit Card is furnished in
Appendix I and the illustrations for assessment of credit
requirement of farmers under the Kisan Credit Cards are
furnished in Appendix II.
Financing Marketing of crops:
Post-harvest loans against Negotiable Warehouse Receipts:
With a view to discouraging distress sale of produce by
farmers and to encourage them to store their produce in
warehouses for a reasonable period to get better price for
their produce, GOI had introduced a scheme, during the year
2011-12, for extending concessional post-harvest loans to
small and marginal farmers (SF/MF) having Kisan Credit Cards,
against Negotiable Warehouse Receipts (NWR), for a period
up to six months, on the same rate of interest, as available for
crop loans.
Keeping in view the priorities of GOI, banks have been issued
guidelines by RBI/NABARD.
Only those small and marginal farmers having Kisan Credit
Cards and availed crop loans from public sector banks,
cooperative banks and Regional Rural Banks and keep their
produce in warehouse against negotiable warehouse receipts,
are eligible to be covered under the scheme.
A farmer who has not taken crop loan from the banking
system and willing to take loan only for keeping the produce
in the warehouse against the NWR, is not eligible under the
scheme.
For the purpose of the scheme, the farmer who holds land up
to one hectare would be classified as MF, and the farmer who
holds land between one and two hectares, as SF.
The quantum of loan shall not exceed 75% of actual value of
produce pledged.
However, the benefit of interest subvention is available only
up to ₹ 3.00 lakh.
The actual value of produce may be determined on the basis
of the prevailing market rate or the Minimum Support Price
(MSP) announced by the Government, whichever is less.
In case, MSP has not been announced in respect of a
particular crop, the banks may ascertain market price from
the nearest Agricultural Produce Marketing Committee
(APMC).
Loans to farmers under the scheme would be available at
interest rate of 7% per annum and the banks are eligible for
interest subvention on the same rate, as available for crop
loans.
Loans under the scheme would be available for a period up to
six months.
The credit facility would be extended only against NWR,
which are issued by the warehouses, accredited by
Warehousing Development Regulatory Authority (WDRA) in
this regard.
Loans against NWRs should be treated as fresh/ additional
loans.
Ideally, loans against NWR should be sanctioned after
harvest, during the marketing season and these loans should
be liquidated during the marketing season of crops for which
they have been sanctioned.
The banks are expected to recover the outstanding crop loan,
if any, along with interest, from the loan sanctioned under
this scheme.
Further, in case a farmer takes a loan against NWR from a
bank other than the one which has provided crop loan, the
dues recoverable under crop loan, with interest, should be
deducted by the bank providing loan against NWR and pass
on the same to the bank which has provided crop loan.
BASIC FEATURES OF NABARD REFINANCE SUPPORT TO
COOPERATIVE BANKS AND RRBS FOR CROP PRODUCTION:
Cash credit limits are sanctioned by NABARD to StCBs in the
Short-Term Cooperative Credit Structure (STCCS) for
refinancing DCCBs or for direct lending to PACS in areas where
the StCBs are functioning as a Central Financing Agency (CFA),
at concessional rate of interest.
In areas where the StCBs are operating as an Apex
Cooperative Credit Institution in the three- tier structure and
where the DCCBs are not in a position to purvey SAO credit to
the PACS affiliated to them, the StCB concerned can provide
refinance to PACS through their branches.
The eligible banks for refinance are determined based on their
compliance to various regulatory requirements and also the
stipulated level of CRAR for availing the refinance facility.
The quantum of refinance limits is determined, based on the
credit absorption capacity of the banks, on whose behalf of
the limits are sanctioned, as revealed by their levels of NPAs,
and their lending programs.
Relaxation in eligibility norms for banks is considered by
NABARD for banks operating in the north eastern states,
difficult /hilly region, in order to augment the credit flow in
these regions.
In a similar way, the Regional Rural Banks are also considered
cash credit limits at concessional rate of interest.
They too are required to comply with the regulatory norms,
minimum capital requirements as stipulated for them as also
the specified CRAR for availing the refinance.
The banks availing refinance from NABARD are required to
comply with the requirement of various disciplines laid down
under the Crop Loan System as also the norms for KCC loans.
The refinance is regulated taking into account the non-
overdue portion of the ground level outstanding and the
banks are required to furnish monthly statements to NABARD
for the purpose.
The banks availing refinance are also required to ensure that
they maintain adequate credit flow to small and marginal
farmers as provided for in the guidelines issued by NABARD in
this regard.
NABARD is maintaining dedicated Short Term Rural Credit
(STRC) Refinance Funds for provision of refinance to the
cooperative banks and the RRBs.
It is also resorting to market borrowings to augment the funds
for meeting the refinance requirements of banks to enable
them to meet the genuine credit demands.
BANK'S ROLE IN PROVISION OF RELIEF IN AREAS AFFECTED BY
NATURAL CALAMITIES:
In the event of occurrence of natural calamities like drought,
flood, etc.
The repayment capacity of farmers who had availed credit
facilities for crop production activities may be affected owing
to reduction in yield or total loss of crops.
In such a situation, the banks are expected to provide relief to
the farmers by converting the outstanding loans in the
production credit segment into medium term loan repayable
over a period of 2 to 5 years, depending upon the severity of
the calamity, with a moratorium period of at least one year.
RBI has issued detailed guidelines on the procedures to be
followed for grant of such relief measures and these are dealt
with in Unit 17.
The banks are required to convert the short-term loans which
had not fallen due for repayment into medium term loan to
enable the farmers affected by the calamity to repay the loan
comfortably.
The annewari certificate issued by the State Government
upon occurrence of calamity, in relation to the crop loss based
on the crop cutting experiments undertaken by them would
form the basis for grant of relief measures.
(The format of the annewari certificate as outlined in the
GOI's Drought Manual is furnished as Annexure to this
Chapter).
Banks are required to provide fresh production credit to the
farmers to whom conversion facilities are granted to enable
them to pursue their agriculture activities without any
interruption.
NABARD provides refinance to the cooperative banks and
regional rural banks in respect of the MT (Conversion) loans
sanctioned to the farmers under Section 24 of the National
Bank for Agriculture and Rural Development Act, 1982, from
out of the National Rural Credit (Stabilization) Fund
maintained by it, subject to eligibility of the banks to avail
such refinance facilities.
The banks are required to ensure that the farmers availing
credit facilities for crop production (through the cash credit
/Kisan Credit card) cover their crop with crop insurance under
the Pradhan Mantri Fasal Bima Yojana (PMFBY).
The premia for insurance of the crops under the scheme are
concessional and the coverage would help them to indemnify
the crop losses, in the event of calamity.
The guidelines and the operational details of PMFBY are dealt
with in detail, elsewhere in this book.
The banks may also need to consider reschedule Ent of the
repayment of term loan instalments of the borrowers' loan
instalments where the borrower's assets are partially/totally
damaged.
The restructured portion of the short term as well as long
term loans are to be treated as current dues and need not be
classified as NPA as outlined in the RBI master circular on the
subject.
TERM-LOANS FOR AGRICULTURE AND ALLIED ACTIVITIES:
Loans provided for more than 18 months are called Term
Loans, which are further classified into medium term loans,
given for purposes like purchasing agricultural machinery,
tractors and livestock and repayable within a period of 2 to 5
years or at the most up to 7 years, and the long-term loan
granted for over 7 years period and up to 15 years for minor
irrigation and for growing plantation and horticulture crops.
The activities, for which agricultural terms loans are granted,
are capital intensive; for acquiring these assets credit is
needed for a longer period.
So, these investments are risk prone and required to be
followed up and monitored on a regular basis.
Types of Agricultural Schemes:
The schemes under which term loans for agriculture are
provided are classified into three types, based on who takes
the lead in formulating the project /scheme and how they are
intended to be financed.
They are briefly discussed below:
Area Development Schemes:
Area development schemes aim at development of an area,
with regard to a particular investment or activity.
For example, if a bank formulates a scheme for dairy
development of one or a few districts, it will be an area
development scheme.
Under these schemes, the investment items and the outlay
(unit cost) are normally uniform for all the units proposed to
be financed and larger number of such units are planned e.g.,
each of the borrower covered under the scheme shall be
financed 50,000 for procuring two buffaloes and the scheme
would cover 100 such units.
Banking Plan:
These are also area development schemes which are prepared
by some development agencies like State Development
Departments or development bank like NABARD for being
implemented/operationalized by various banks, in larger
areas (multiple states/ state /multiple districts/ districts).
In these schemes, the banks specific programs/units shall be
assigned, depending upon their presence in the operating
area.
Examples of these plans are Minor irrigation banking plan
prepared for a district /agro climatic zone as a whole,
Fisheries Project prepared for the whole state,
implementation of multi state projects in which the cost of
development shall be similar (e.g., multistate cashew project,
etc.)
Individual-Borrower Oriented Investment:
This is the third type of financing adopting project approach,
wherein the individual borrowers prepare a project /scheme
for development of his farm/ activity and approach the
financing bank with the report for getting finance.
There could be two categories of borrowers under this
category - first with small financial requirement, say, for
construction of a well or purchase of two cows and second
involving financial assistance for taking up production on a
large scale (setting up commercial unit) e.g., a dairy unit of 50
cross bred cows with sheds for animals, installation of feed
mill for manufacturing feed and procurement of machinery
for cooling and chilling of milk.
General Terms and Conditions for Term Loans:
The general terms and conditions which would apply for the
agriculture term loans are discussed in the following
paragraphs:
Investment Outlay:
Investment outlay or the cost of capital investment depends
on type of activity, scale of operation and technology
adopted.
The investment outlay generally includes:
* Preoperative expenses like preparation of feasibility report
and security deposit for electricity connection,
* Land development including fencing, levelling, construction
of water source like tube well,
* Civil construction needed for the activity,
* Equipment and machinery needed for the activity, and
* Working capital requirement to be capitalized for the first
cycle/gestation period.
* The investment items and costs differ from one borrower to
the other, especially in the cases of individual oriented
investment.
In the case of area development schemes and program of
financing through banking plans, the investment cost will be
more or less uniform and hence the banks can prescribe
standard cost for the purpose (e.g., proposal to finance 100
borrowers for acquisition of 5 HP electric motor by each of the
borrower covered under the scheme)
Margin Money:
Margin money or down payment means the share of the
borrowers in the total project cost.
Thus, if the capital outlay of the 10-animals unit under the
Goat Rearing is 63,000 and the bank decides to provide a loan
of 56,700 the balance of 6,300 is considered as margin money
or down payment.
The concept of margin money is important in a loan as it is
deemed as the stake of the borrower in the proposed
investment.
Bank Loan:
The bank loan depends on total cost of investment minus
margin money of the borrower.
The important considerations in bank credit are adequacy,
timeliness and cost of credit.
Adequacy means the loan should meet the requirement of the
farmer or entrepreneurs fully; timeliness indicates the need
for providing credit at a time when it is required and cost of
credit is the interest payment and other charges which are
required to be paid to the financial institutions by the
borrower.
Repayment period and Schedule of repayment:
Repayment schedule represents the number of installments,
amount of installment, the frequency and the period of
repayment.
Repayment schedule of a loan is related to the repayment
capacity of the borrower, which, in turn, depends upon the
surplus that would be generated from the activity, sustenance
requirement and the life of the asset proposed to be acquired.
For this purpose, the ideal situation is that the banker should
estimate the cash flow of the farmer after he starts the
activity and then the repayable surplus is estimated
Incremental income refers to the additional income
generated/to be generated after starting the project or
activity.
The above guidelines suggest that sufficient surplus after
repayment should be left for the borrower for consumption,
so that income is not diverted for consumption and no surplus
left for repayment.
Life of the asset should also be reckoned by the banks, while
fixing the repayment period.
In other words, the recovery has to be affected within the life
period of the asset.
For example, in case of milch animals, the repayment period
shall be 5 years and in case of tractors it shall be 7-9 years.
Grace period:
Some investments do not yield immediate returns and have
long gestation periods.
This necessitates provision of 'grace period' when no recovery
is expected.
Examples of such investments are horticulture or forestry,
plantation and poultry.
The grace period suggested by NABARD for certain important
agricultural term loans are:
* 23 months for dug wells with or without pump-set,
* 11 months for sprinkler/drip irrigation,
* 12 months for poultry,
* Six to seven years for horticultural crops like mango,
cashew, and
* Four to five years for lime/citrus, guava and ber plantation.
Further, two kinds of repayment holidays/grace periods are
considered.
* The cases in which even interest is not recovered during the
gestation period and hence it is capitalized (added to the
principal).
* This is applicable when there is absolutely no income is
generated during the gestation period, e.g., in case of forestry
on waste lands.
* In certain other activities, even though the grace period is
considered, there would be some generation of income and
therefore, the interest due on the term loan is recovered
during the grace period.
For example, in the case of certain horticulture crops,
vegetables are some other short duration crops are grown as
inter crops.
Income earned from these crops could be utilized to effect
payment of interest during the grace period.
Repayment Schedules:
Types: Based on the income generation from the project and
corporate loan policy, different banks adopt different types of
loan repayment schedules.
Equal Installment:
Equal installment is worked out by dividing the principal
amount, by the number of installments fixed by the bank and
the interest dues are recovered separately.
This is the most popular method of fixing of repayment
installment, because of simplicity.
However, due to declining balance outstanding, the borrower
has to repay more (including principal and interest) in the
earlier period, because of higher interest burden.
Thus, Equal Installment can be computed as under:
𝐀𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐚𝐥
Instalment = 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 + Interest accrued
𝐈𝐧𝐬𝐭𝐚𝐥𝐦𝐞𝐧𝐭
Equated Installment:
Under equated installment, the same amount is repaid
throughout the repayment schedule, as this includes principal
and interest.
This system is popular among bankers for recovery from
people who have regular sources of income like salaried class
and recoveries from relatively assured sources.
This is computed by the following formula.
Equated Installment = Loan Amount × CRF
CRF = Capital Recovery Factor
CRF = r {(1 + r)"} / {(1 + r)" − 1} (f)
For example, if the loan amount is 1.00 lakh and the CRF at 5
years being at 0.298315% for, the annual instalment for the
repayment of the loan under the equated instalment shall be
100,000* 0.2983 i.e., 29830 per annum for 5 years.
Graded Installment:
In the case of certain investments, surplus rises with time like
in the case of horticultural crops or surplus generated may
declines/e with time, like in tractor, due to increased
maintenance expenditure in the later part of life of tractor.
For taking care of such surplus generation pattern, the graded
installment is considered.
Graded installment means that the installment is either rising
or declining, depending on the surplus generated under the
activity.
Thus, when the surplus is gradually rising the installment can
also be fixed in a gradually increasing order or vice-a-versa.
Although, it appears a scientific way of fixing installment,
bankers do not find it convenient and therefore, this system is
generally not adopted.
Security Requirement:
To ensure repayment of loans, the banking practice requires
borrowers to provide some kind of tangible security which
may be sold in case the borrowers do not repay.
This means that credit can be accessed by only those who can
offer such security.
However, many of the farmers (especially small, marginal and
tenant farmers) who need credit for adopting improved
technology do not have conventional security to offer.
Therefore, RBI has devised certain security norms for priority
sector lending (which included agricultural term loans) so that
such borrowers are not deprived of credit from banks.
Credit Worthiness of the Borrower:
The bank loan is also determined by 'credit worthiness' of the
farmer which basically means the credit absorption capacity.
The integrity of the borrower is an important factor which is
reflected in the repayment behaviour of the borrower in past.
The three R's of credit viz.
risk bearing ability, returns on the capital and repayment
capacity are essential to determine the credit worthiness of a
borrower.
The risk bearing ability measures whether the farmer will be
able to absorb and withstand the financial loss, without being
forced into liquidation and insolvency.
The financial condition of the borrower basically reflects the
risk bearing capability.
Returns indicates as to whether the incremental capital made
available through credit will generate incremental net
income, sufficient to repay the loan (principal plus interest)
and also leave the borrower better off.
Repayment capacity of the borrowers refers to the amount
available with the farmer to repay the loan after meeting his
farm and family needs and obligation.
If the repayment capacity is more than the amount of
installment the loan proposal is sound and greater the
difference, better.
This is a crucial area for bankers and financial institutions in as
much as the funds lent by the banks are not repaid, it would
incapacitate them to recycle the funds.
FEATURES OF MAJOR SECTORS FOR WHICH OPPORTUNITIES
ARE AVAILABLE FOR PROVISION OF TERM CREDIT BY BANKS:
The essential features of various sectors/ sub-sectors and
their status are discussed in the following paragraphs.
The technical norms to be adopted, the aspects to be kept in
mind while financing these investments and the model
bankable schemes, keeping in view the norms laid down by
NABARD are discussed in Unit 13 of this book.
Agriculture Schemes:
Minor Irrigation:
Minor irrigation structure is generally defined as structure,
with capacities to irrigate up to 2000 ha.
In the context of bank finance, minor irrigation term includes
basically financing of structures which are meant for irrigation
of individual farmer's land.
These structures include dug well with or without pump-set,
bore well, tube well, deepening the existing wells, pipelines
for carrying water, sprinkler and drip irrigation systems.
In view of the low level of irrigation in our country and
limitations of canal irrigation in many areas, these structures
have become important sources of irrigation and forming
essential item for provision of bank credit, under priority
sector.
Different types of structure are constructed for obtaining
ground water by drilling, narrow structure like tube wells or
by digging wide structures like dug wells.
The choice of the structure depends on factors like depth of
water table and the kind of soil/stone structure.
Within the narrow types of wells there are two types, bore
well and tube well.
The tube well is a bore well with a tube.
The tube is inserted to prevent the soil sinking in and blocking
the well.
Banks formulating and implementing the MI schemes have to
reckon the ground water availability areas viz.
* Safe,
* semi-critical,
* Critical,
* Unsafe and ensure providing finance in safe blocks (as
determined by the Groundwater department) adhering to the
norms for spacing between the structures.
Further, the MI structure to be financed should conform to
the technical parameters and the availability of the backward
and forward linkages.
The cost aspects need to be arrived at logically, so as to
ensure that the farmers are adequately financed and realize
incremental income in the farm not only to effect repayment
of the loan but also a realize additional surplus so as to make
advancement in their occupation.
Since MI structures are capital intensive and the farmers
require the loan for longer duration, the banks need to have
close monitoring during the post-disbursement stage
Lift Irrigation:
Lift irrigation is a method of irrigation in which, water is not
transported by natural flow, (as in gravity-fed canal), but is
lifted with pumps or surge pools, etc.
Lift irrigation schemes must accomplish the tasks of carrying
water by means of pumps or other way, from the water
source to the main delivery chamber, which is situated, at the
top most point in the command area and distributing the
water to the field of the beneficiary farmers, by means of a
suitable and proper distribution systems.
So, in Lift Irrigation system, the gravity flow of water by canals
or river is not available or used.
Of these two issues, distribution is the most complex, for
several reasons.
First, whereas the system for collecting water at the main
delivery chamber makes use of pumps, the distribution
system is typically completely gravity-based, and have to be
designed, solely, on the basis of the available hydraulic head.
In addition, the area to be irrigated is scattered and has
varying topography, and each farm is of a different size, so it
can be a challenge to design a gravity-based system that
allows each farmer to have a fair amount of water.
Several mechanisms have been developed to meet these
challenges.
Most of the lift irrigation schemes are implemented as
cooperative lift irrigation schemes in our country.
Micro Irrigation:
The drip and sprinkler systems are widely used for efficient
use of water.
The features of these systems are as under:
Drip irrigation is sometimes called trickle irrigation and
involves dripping water onto the soil, at very low rates (2-20
litres/hour), from a system of small diameter plastic pipes,
fitted with outlets, called emitters or drippers.
Water is applied close to plants, so that, only part of the soil
in which the roots grow is wetted, unlike surface and sprinkler
irrigation, which involves wetting the whole soil profile.
With drip irrigation, water applications are more frequent
(usually every 1-3 days) than with other methods and this
provides, a very favourable high moisture level in the soil, in
which the plants can flourish.
Drip irrigation is most suitable for row crops (vegetables, soft
fruit), tree and vine crops, where, one or more emitters can
be provided for each plant.
Generally, only high value crops are considered because of
the high capital costs of installing a drip system.
Drip irrigation is adaptable to any farmable slope.
Normally, the crop would be planted along contour lines and
the water supply pipes (laterals) would be laid along the
contour also.
This is done to minimize changes in emitter discharge, as a
result of land elevation changes.
Drip irrigation is suitable for most soils.
On clay soils, water must be applied slowly to avoid surface
water ponding and runoff.
On sandy soils, higher emitter discharge rates will be needed
to ensure adequate lateral wetting of the soil.
One of the main problems with drip irrigation is blockage of
the emitters.
All emitters have very small waterways, ranging from 0.2-2.0
mm in diameter and these can become blocked, if the water is
not clean.
Thus, it is essential for irrigation water to be free of
sediments.
If this is not so, then filtration of the irrigation water will be
needed.
Blockage may also occur, if the water contains algae, fertilizer
deposits and dissolved chemicals which precipitate such as
calcium and iron.
Filtration may remove some of the materials, but the problem
may be complex to solve and requires an experienced
engineer or consultation with the equipment dealer.
Dripping water to individual plants also means that the
method can be very efficient in water use.
For this reason, it is most suitable when water is scarce.
A typical drip irrigation system consists of the following
components viz pump unit, control head, main and submain
lines, laterals, and emitters or drippers.
The pump unit takes water from the source and provides the
right pressure for delivery into the pipe system.
The control head consists of valves to control the discharge
and pressure in the entire system.
It may also have filters to clear the water.
Common types of filters include screen filters and graded sand
filters which remove fine material suspended in the water.
Some control head units contain a fertilizer or nutrient tank.
These units slowly add a measured dose of fertilizer into the
water during irrigation.
This is one of the major advantages of drip irrigation, over
other methods.
Mainlines, submains and laterals supply water from the
control head into the fields.
They are usually made from PVC or polyethylene hose and
should be buried below ground because they easily degrade
when exposed to direct solar radiation.
Lateral pipes are usually 13-32 mm diameter.
Emitters or drippers are devices used to control the discharge
of water from the lateral to the plants.
They are usually spaced more than one metre apart with one
or more emitters used for a single plant such as a tree. For
row crops more-closely spaced emitters may be used to wet a
strip of soil.
Many different emitter designs have been produced in recent
years.
The basis of design is to produce an emitter which will provide
a specified constant discharge which does not vary much with
pressure changes, and does not block easily.
A drip system is usually a permanently-laid system.
When remaining in place during more than one season, a
system is considered permanent.
Thus, it can easily be automated.
This is very useful when labour is scarce or expensive to hire.
However, automation requires specialist skills and so.
this approach is unsuitable, if such skills are not available.
Water can be applied frequently (every day if required) with
drip irrigation and this provides very favourable conditions for
crop growth.
However, if crops are used to being watered each-day, they
may only develop shallow roots and.
If the system breaks down, the crop may begin to suffer very
quickly.
Unlike surface and sprinkler irrigation, drip irrigation only
wets part of the soil root zone.
This may be as, low as 30% of the volume of soil wetted by
the other methods.
The wetting patterns which develop from dripping water onto
the soil depend on discharge and soil type.
Although only part of the root zone is wetted, it is still
important to meet the full water needs of the crop.
It is sometimes thought that drip irrigation saves water by
reducing the amount used by the crop.
This is not true.
Crop water use is not changed by the method of applying
water.
Crops just require the right amount for good growth.
The water savings that can be made using drip irrigation are
the reductions in deep percolation, in surface runoff and in
evaporation from the soil.
These savings, it must be remembered, depend as much on
the user of the equipment as on the equipment itself.
Drip irrigation is not a substitute for other proven methods of
irrigation.
It is just another way of applying water.
It is best suited to areas where water quality is marginal, land
is steeply sloping or undulating and of poor quality, where
water or labour are expensive, or where high value crops
require frequent water applications.
Drip system is suitable for orchard crops, vegetable crops,
cash crops, flowers, plantation crops, spices, oilseeds and
forest crops.
A sprinkler system spreads water in more widespread,
controlled ranges.
While a drip irrigation system is above ground, when it comes
to sprinklers, the pipes are underground with only the
sprinkler heads visible above ground.
When activated, sprinkler systems spray out, significant
amounts of water, to cover a large amount of ground.
Low /medium/large volume sprinklers are used depending
upon the technical requirement and the precipitation rate
shall vary depending upon the type of the sprinklers used.
Sprinklers are useful in fields where chilies, cotton, gram,
jowar, maize, onion, sunflower, wheat, etc., crops are grown.
(d) Land Development:
Soil and water are two important natural resources and the
basic needs for agricultural production.
The pressure of increasing population has led to degradation
of these natural resources.
Increase in agricultural production to feed the increasing
population is possible only if there are sufficient fertile land
and water are available for farming.
In India, out of 328 million hectares of soil geographical area
68 million hectares are severely critically degraded while 107
million hectares are severely eroded.
That is why soil and water should be given first priority from
the conservation point of view and appropriate methods
should be used to ensure their sustainability and future
availability.
Soil and Water Conservation measures like land levelling,
shaping and grading, provision of drainage network,
stabilization of bunds and outlets with grass plantation, soil
reclamation, on-farm development (OFD), farm ponds, etc.,
are some of the activities that can be financed by the banks.
A brief overview on the features of these components is
discussed below.
Land Levelling:
There are two land levelling philosophies –
(i) to provide a slope which fits a water supply; and
(ii) to level the field to its best condition with minimal earth
movement and then vary the water supply for the field
condition.
Because land levelling is expensive and large earth
movements may leave significant areas of the field, without
fertile top soil, this second philosophy is
considered as the most economic approach.
Land levelling always improves the efficiency of water, labour
and energy resources utilization.
The levelling operation, however can be most intensively
disruptive cultural practice applied to the field and several
factors should be considered before implementing a land
levelling project.
Major topographical changes will nearly always reduce crop
production in the cut areas.
Similarly, equipment traffic can also compact or pulverize the
soil that water penetration may be a major problem for some
time.
The farmer has many activities which contribute to his
productivity and therefore require his skill and labour.
The irrigation system should be designed keeping this aspect
in view.
A field levelled to high standards is generally more easily
irrigated than the one where undulations require special
attention.
New equipment is continually being introduced which
provides the capability for more precise land levelling
operations.
One of the most significant advances has been the adaptation
of laser control, in land levelling equipment.
The equipment has made level basin irrigation particularly
attractive since the final field grade can be very precise.
Comparisons with less precise techniques have clearly shown
that laser-levelled fields achieve better irrigation and
production performance.
Nevertheless, for most irrigated agriculture, laser-controlled
precision is unfeasible because of the high cost of such
equipment unless a large number of farmers form a
cooperative or a government program started with subsidized
land levelling as one component in an effort to improve farm
production.
Bunding activities - Contour Bunds:
When the bunds are constructed following the same contour,
they are called contour bunds.
Contour bunds are recommended for areas with low annual
rainfall (< 600 mm), agricultural field with permeable soil and
having a land slope < 6 per cent.
The major requirements in such areas are prevention of soil
erosion and conservation of rain water in the soil for crop use.
Contour bund absorbs the runoff water stored at the
upstream side of the bund.
Proper height of the bund is necessary to avoid overtopping
during floods.
During monsoon, even in a low rainfall region, the entire
runoff water cannot be stored and the excess is liable to flow
over the bund.
To avoid damage, water or surplus weir is provided on the
bunds to dispose of excess water into the next bund.
This prevents water- logging.
Contour bunding can be adopted on all types of permeable
soil except for the clayey or deep black cotton soils as these
soils have the problem of crack development causing bund
failure.
Clayey soil also has the problem of water logging near the
bund section, which makes the bund construction infeasible.
Bunding activities - Graded Bunds:
When a grade is provided along the bund for safe disposal of
runoff water over the area between two consecutive bunds,
they are called graded bunds.
Graded bunds are adopted in case of high or medium annual
rainfall (>600 mm) and relatively less permeable soil areas.
Farm Ponds:
Farm Ponds are small tank or reservoir like constructions,
which are constructed for the purpose of storing the surface
runoff, generated from the catchment area.
The farm ponds are the water harvesting structures, solve
several purposes of farm needs viz.
(i) Helps farmers by storing rain water to provide adequate,
reliable, long term water supply, and hence ending
vulnerability and uncertainty of rain- fed farms
(ii) It is a one-time investment which provides localized water
and food security for many years, by enhancing the crop
productivity and climate resilience
(iii) Water harvesting allows timely sowing and irrigation of
multiple crops, helping farmers to maximize their yield
(iv) Generate employment opportunities for on-farm labour
during all seasons, preventing migration and making the
owner of the farm- pond a rural job creator
(v) Helps in conserving the natural resources like soil and
nutrients apart from water and
(vi) Helps in preserving soil erosion.
The type of fam pond to be taken up for construction are
declined depending upon the soil (i.e., light soil, medium solf
and heavy soil) and field slop and the farmers are required to
take the technical guidance from the Department.
Field Drainage activities:
In order to protect and enhance crop-rooting environment
(benefiting soil and crops), good field drainage is essential.
It is also critical to facilitate minimizing surface-water run-off,
reduce flooding, poaching, compaction and soil erosion, and
improve soil structure.
The technical person needs to undertake survey and assess
soil and soil structure obtained in the farm, identify and asses
the drainage layouts, drainage plans, risk management,
impact on pollution risk and assessing the costs and benefits,
etc.
Bench Terracing:
Bench Terracing activities are considered for finance, as a soil
and water conservation measure on sloping land, with
relatively deep soils to retain water and control erosion.
They are normally constructed by cutting and filling to
produce a series of level steps of benches.
This allows water to infiltrate slowly into the soil.
Bench terraces are reinforced by retaining the banks of soil or
stone on the forward edges.
This practice is typical for rice-based cropping systems.
Contour trenches with stone walls:
Financing construction of contour stone wall is considered,
where the slope is >15 to <30% under the guidance of
agriculture engineers.
In case of highly hilly areas, contour trenches are constructed
along with the stone wall.
The contour trenches and stone walls are suitable for shallow
and gravel soil.
These structures help in land preparation and check soil
erosion.
Reclamation of Alkali, Saline and Saline-Alkali Soils:
The excessive accumulation of alkali salts in the soils will
impair the growth of plants and production.
It is therefore necessary to reduce the percentage of salts to
optimum or normal level so that, plants may grow luxuriantly
in such soils.
There are several methods of reclamation which can be
grouped as follows:
(i) Chemical method in which, some chemicals are added to
the soil, in order to brine the alkalinity to desired level.
(ii) Mechanical practices such as improving drainage and
leaching, mechanical shattering of clay pans, and scrapping.
Cultural method (growing salt tolerant plants).
Since fundamental causes in various groups of salty soils are
different, their reclaiming techniques are different and hence
the farmers/entrepreneurs need to consult technical persons
before taking up this land development activity and submit
suitable proposals to the banks for their consideration.
Fencing:
Fencing is an age-old practice and has been carried out in
different modes and methods, in order to demark a possessed
property, keep out stray animals and intruders, in order to
protect land and crops, separate the fields in case of mixed
farming, etc.
Fencing is a one-time investment and affords a long-term
protection for agricultural fields and properties and helps
curtail crop losses from diverse disruptive causes.
Banks can finance this activity as part of the land
development scheme and the cost to be decided based on the
type of fencing to be undertaken, cost involved in material
used, etc.
The bankers need to recognize the notional increase in the
production in the farm (which otherwise would have been
less on account of lack of protection of the crops) for the
purpose of working out the economics and determining the
surplus.
As mentioned earlier, this is a one-time investment and go a
long-way in stabilizing the income in the hands of the farmers.
farm mechanization:
The focus on farm mechanization is driven by the need for
enhancing agriculture productivity and availability of food
grains; increasing agriculture exports; mitigating labour
shortage; and facilitating judicious use of scarce natural
resources and farm inputs.
Keeping this in view, an ambitious target of increasing the
availability of farm power from 2.02 kW per ha (2016-17) to
4.0 kW per ha by the end of 2030 has been set by GOI.
The growth of farm mechanization sector is impeded by some
of the characteristics of Indian agriculture such as
fragmentation of land holdings, a large presence of small and
marginal farmers, unaffordability of farm technology and the
practicing of subsistence agriculture.
Agriculture Mechanization is crucial for modernization and
commercialization of agriculture, as it improves productivity
and timeliness of agriculture operations, aids in value
addition, brings down the cost of cultivation and enables
climate change adaptation.
By 2022, the size of the farm equipment market is expected to
reach 9 Lakh Crore.
This affords us an opportunity to establish business models
that can drive technological advances and catalyze
entrepreneurial innovation in the farm machinery sector in
India.
There is a need for greater focus on developing need-based
and regionally differentiated machinery; and for responding
to the specific requirements of Indian agriculture.
The benefits of farm mechanization are as under, as revealed
by several studies undertaken by NABARD and other
organizations.
Farm mechanization is providing a number of input savings
(seeds and fertilizers by 15/20 per cent) and it contributes to
increase in cropping intensity by 5 to 20 per cent.
Farm machinery helps in increasing the efficiency of farm
labour and reducing drudgery and workloads.
It is estimated that farm mechanization can help reduce time,
by approximately 15-20 percent.
Additionally, it helps in improving the harvest and reducing
the post-harvest losses and improving the quality of
cultivation.
Mechanization of farms helps in conversion of uncultivable
land to agricultural land, through advanced tilling techniques
and also in shifting land used for feed and fodder cultivation
by draught animals towards food production.
Farm mechanization helps to decrease in workload on women
as a direct consequence of the improved efficiency of labour,
improvement in the safety of farm practices, helps in
encouraging the youth to join farming and attract more
people to work and live, in rural areas.
Cost of deploying labour for agriculture operation is
increasing substantially.
Farm mechanization is the only way to reduce labour cost,
and thus cost of cultivation.
Tractor and other farm equipment are generally financed to
farmers other than small farmers or a group of small farmers
who have the financial capability to repay the loans.
Even small farmers who cannot own tractors by themselves
started hiring the tractors rather than having their own
bullocks because of the problem in maintenance of the
bullocks.
The bank loan for financing tractors depends on the capacity
of the tractor and the equipment like trolley supplied with the
tractor.
Since the tractors financed are registered with the Regional
Transport Authority and the hypothecation is also entered in
registration book, it is considered as good security for bank
finance.
The technical aspects to be considered while financing farm
machinery are dealt with in Chapter 13 with model bankable
schemes.
Plantation and Horticulture:
Plantation and Horticulture sectors covers a rainbow of crops
like fruits, vegetables, spices, flowers, medicinal and aromatic
crops, mushrooms, bee keeping and plantation crops like tea,
coffee, rubber, coconut, oil palm, etc.
Importance of this sector in rural economy is increasing for its
diversity, higher productivity, export orientation and
intensification of production system, even amongst small and
fragmented farmers.
Between 2012 to 2014-15, there has been an increase of 10
per cent in horticulture production compared to an increase
of 6 per cent in the production of food grains.
Since 2012-13, the production of horticulture has outpaced
the production of food grains.
Horticulture sector is not only important from economic
perspective to farmers but also assumes significance from the
nutritional perspective of our population.
Horticulture is poised to play as a key sector for achieving the
GOU's efforts for doubling of farmers income by 2022, owing
to willingness of growers in adapting technology, for
increased crop productivity and in effective natural resources
management, rapid growth in consumption demand, value
chain approach in linking farmers to markets, peri-
urbanization of horticulture production systems, amenability
for organizing growers of horticultural crops into effective
aggregation models like Village Producers Organizations
(VPOS), Producer Companies (PCs), etc.
Cultivation of horticulture crops in clusters brings advantages
of scales of operations and can spur establishment of entire
chain from production to marketing, besides giving
recognition to the districts for specific crops.
Thus, reorientation of their cultivation through cluster-based
development is the focus area of the Government.
Several development programs are under implementation
which aims at integrated development of horticulture crops.
These include Mission for Integrated Development of
Horticulture, National Horticulture Board programs focusing
on hi-tech horticulture and post-harvest management
infrastructure, including cold storages and reefer vans,
National Medicinal Plants Board's programs for growth of
cultivation, conservation, trade and export of medicinal
plants, Programs of National Mission on Oilseeds and Oil Palm
for promotion of oil palm cultivation, National Bee Board
program for promoting bee keeping as a means to improve
crop productivity, setting up of dedicated Centres of
Excellence for identified crops across different regions to
promote hi-tech horticulture enterprises through
demonstration, training and capacity building, technology
transfer and handholding support, Programs/promotional
schemes of commodity boards like Tea Board, Coffee Board,
Rubber Board, Spices Board for the respective crops.
The canvas of horticulture and plantation in India is broad-
based and multifaced with fruits, vegetables including onion
and potato, ornamentals, medicinal and aromatic pants,
spices and condiments, plantation crops and mushroom.
Temperate fruits, vegetables, flowers and spices are grown in
the north Himalayan region while subtropical and tropical
fruits, vegetables, ornamentals, mushroom, spices are
cultivated in the rest of India.
Spices and plantation crops are found in the peninsular
region.
Arid zone crops are concentrated in western India.
India is ranked second both in fruits and vegetables with
regard to the area and production, after China and stands first
in the production of peas and okra, second in onion, brinjal,
cabbage, cauliflower, potato and tomato.
It ranks first, in the areas and production of mango and
banana and holds the world record, for highest productivity in
grapes and over 17% of the world's coconut production.
The country has significant stake, in global cashew nut output,
processing and kernel trade.
Thus, the horticulture and plantation sectors are widely
heralded as sunrise sectors that provides the dynamic tool for
improving economic conditions of the farmers and
entrepreneurs, creating diversification opportunities with
high value crops, increasing the productivity of land, providing
nutritional security, generating employment, ensuring
ecological sustainability and enhancing the export earnings.
Analysts are of the view that the emergence of agribusiness
ventures in India is directly correlated to the progress in the
plantation and horticulture sector in the country.
As regards plantation crops, the plantations raised in the
country can be divided into two segments.
They are unorganized plantation crops (coconut, areca nut,
coco and cashew).
Tea, coffee, and rubber are the three major organized
plantation crops covered under the Plantation Labour Act and
are not covered under the Land Ceiling Act.
India, being one of the world's leading producers of tea,
boasts of about 23% share of volume in the total world
production of tea and nearly 12% share of world tea exports
was from India.
As regards coffee, India is the seventh largest producer of
coffee after Brazil, Vietnam, Columbia, Indonesia, Ethiopia
and Honduras.
India accounts for around 2% of the area and 3.7% of global
coffee production.
Rubber cultivation in India has been traditionally confined to
the hinterlands of the southwest coast mainly in Kanyakumari
district of Tamil Nadu and Kerala.
Rubber is also now being grown in non-traditional areas in the
hinterland of coastal Karnataka, Goa, Konkan region of
Maharashtra, hinter lands of coastal Andhra Pradesh and
Odisha, the north eastern states, Andaman and Nicobar
Islands, etc.
Notwithstanding the potential, the horticulture sector is faced
with the following challenges
(i) low productivity of fruits, vegetables, flowers and
medicinal crops
(ii) depleting land resources and degraded production
environment
(iii) post-harvest losses and absence of quality monitoring
mechanism
(iv) climate change issues (high temperature situation causing
water stress conditions due to increased evapotranspiration,
etc.)
(v) inadequate market linkage and price fluctuations
(inadequate market infrastructure, absence of supply chain
mechanism, etc.).
As regards plantation, the sector is faced with the
impediments like
(i) limited potential for expansion of area under cultivation
under tea and coffee
(ii) large number of tea/coffee plantations are old and senile
with low productivity
(iii) slow progress in replanting and rejuvenation programs in
plantation estates
(iv) white stemborer infestation in Arabica coffee plants
(v) low prices of the produce in the case of rubber plants
coupled with high cost of rubber, etc.
The challenges faced by the horticulture and plantation
sectors are being addressed by the Governments through
various programs and schemes.
Considering the emerging opportunities, growth potential due
to widening market opportunities and relatively higher
profitability, protected cultivation, organic farming, precision
farming, integrated value chain financing and integrated cold
chain infrastructure for perishables and fruits and vegetables
processing are considered as thrust areas by the planners.
Since investments in the thrust areas are highly capital
intensive, with long gestation period, facilitating institutional
credit, therefore assumes significance.
Several of the interventions and incentives under the
government programs facilitate enabling environment for
investments in critical and productive infrastructure and offer
scope for convergence with credit plans of financial
institutions.
GOI program of doubling the farmers' income by 2022 also
underscores the need for converging the efforts of the
governments and credit agencies for ensuring sustained
growth in agriculture in general and plantation and
horticulture in particular.
Floriculture:
As per National Horticulture Database of 2015-16, published
by the National Horticulture Board, the area under floriculture
production in India was 249 thousand hectares, with a
production of 1659 thousand tons loose flowers and 484
thousand tons cut flowers.
Floriculture is now commercially cultivated in several states
with Tamil Nadu (20%), Karnataka (13.5%) and West Bengal
(12.2%), forging ahead of other producing states like Madhya
Pradesh, Mizoram, Gujarat, Andhra Pradesh, Orissa,
Jharkhand, Haryana, Assam and Chhattisgarh, Indian
floriculture industry comprises of flowers such as Rose,
Tuberose, gladiolus, Anthurium, Carnations, Marigold, etc.
Cultivation is undertaken in both open farm conditions as well
as state-of-the-art poly and greenhouses.
India's total export of floriculture was at 541.61 Crores/75.89
USD Millions in 2019-20.
The major importing countries were USA, Netherland,
Germany, UK, and UAE.
There are more than 300 export-oriented units in India.
More than 50% of the floriculture units are based in
Karnataka, Andhra Pradesh and Tamil Nadu.
With the technical collaborations from foreign companies, the
Indian floriculture industry is poised to increase its share, in
world trade.
Several schemes have been initiated by the Government for
promotion and development of the floriculture sector
including "Integrated Development of Commercial
Floriculture" which aims at improvement in production and
productivity of traditional as well as cut flowers through
availability of quality planting material, production of off
season and quality flowers through protected cultivation,
improvement in post-harvest handling of flowers and training
persons for a scientific floriculture.
Many state governments have set up separate departments
for promotion of floriculture in their respective states.
GOI has identified floriculture as a sunrise industry and
accorded it, cent percent export-oriented status.
Owing to steady increase in demand of flowers, floriculture
has become one of the important Commercial trades in
Agriculture.
Hence, commercial floriculture has emerged as an hi-tech
activity, taking place under controlled climatic conditions,
inside greenhouse.
Commercial floriculture is becoming important from the
export angle and Agricultural and Processed Food Products
Export Development Authority (APEDA) has been designated
as a nodal agency, for export development of floriculture in
India.
Keeping the initiatives of governments in view, the banks and
credit agencies can consider viable proposals received from
entrepreneurs engaged in floriculture activities, as their
business proposition.
They may have to ensure that the schemes in this regard are
formulated, taking into account various technical parameters
laid down by the State Agriculture/ Horticulture Department
and the Agriculture University.
The technical assistance and guidance of National Horticulture
Board, NABARD and APEDA may also be relied upon for
formulating schemes involving larger outlays, which have
potential for generation of higher yield and offer scope for
export.

Financing Medicinal Plants:

India has 15 agroclimatic zones that comprise 18,000 types of
plants, of which 6,000-7,000 have therapeutic properties.
These medicinal plants are used in numerous applications in
the Indian society and many of them are used as raw
materials for making medicines, in traditional medical
practices, such as Ayurveda, Unani, Siddha, Sowa-Rigpa and
homeopathy; besides they are also used in plant-based
pharmaceutical companies.
960 types of medicinal plants are traded, of which, 178
species have yearly consumption levels of more than 100
metric tons.
80% medicinal plants are extracted from the wild, while 69%
plants are collected, using destructive farming practices.
There is a huge gap between the supply and demand of
medicinal plants to manufacture Ayurvedic medicines in India.
According to the ‘All India Trade Survey of Prioritized
Medicinal Plants, 2019', demand for high-value medicinal
plants increased by 50%, while the availability declined by
26%.
This has led to increased habitat degradation and levels of
over-exploitation by the pharma industries.
This has also resulted in 65 species (i.e., 10% of the total
species), falling into the critically endangered, endangered,
vulnerable, and nearly threatened categories.
For ayurvedic medicines, raw materials such as herbs and
shrubs can be grown and harvested in a period of one year,
while medicinal trees take over 10 years, to get ready for
harvesting.
Therefore, it is important to engage in conservation,
cultivation, and research and development of medicinal
plants.
Cultivation of medicinal plants in a commercial mode is one of
the most profitable agri-businesses for farmers in India.
If anyone has sufficient land and knowledge of herb
marketing, then they can earn a high income with moderate
investments.
Cultivation of medicinal herbs such as shankhapushpi, atis,
kuth, kutki, kapikachhu and karanja are changing the Indian
agrarian ayurvedic scenes and providing extraordinary
opportunities for farmers to increase their incomes.
According to the traditional treatment health centre, there
are 25 significant medicinal plants that are always in full
demand.
GOI has taken several measures to promote cultivation and
export of medicinal plants.
The National Medicinal Plants Board (NMPB) offers up to 75%
subsidy to farmers; formulates schemes and guidelines for
financial assistance in various zones of medicinal plant
divisions, secured under promotional and commercial plans,
which are relevant for government and non-government
associations.
The Department of Commerce has set up export promotion
councils (EPCs), to promote exports of various product groups.
Against this backdrop, the institutional credit for cultivation
of medicinal plants is considered essential for attaining
desired success.
NABARD has been circulating details to banks in relation to
the cost and economics relating to these crops for the
guidance of the banks.
The State Agriculture Departments have been providing
technical guidance to the farmers who intend to take up
cultivation of the medicinal plants besides facilitating
preparation of bankable schemes.
Rural Godowns:
It is a well-known fact that the small farmers do not have the
economic strength to retain the produce with them, till the
market prices become favourable for their disposal/sale.
There has been a felt need in the country, to provide the
farming community, with the facilities for scientific storage so
that, wastage and produce deterioration are avoided and also
to enable them to meet their credit requirement, without
being compelled to sell the produce, at a time when the prices
are low.
A network of rural godowns will enable small farmers to
enhance their holding capacity.
Accordingly, Grameen Bhandaran Yojana a Capital Investment
Subsidy Scheme for Construction/Renovation of Rural
Godowns was introduced in 2001-2002 and subsidy is being
provided for construction and renovation of godowns in rural
areas.
The scheme presently in force, envisages creation of scientific
storage capacity with allied facilities in rural areas, to meet
the requirements of farmers for storing farm produce,
processed farm produce and agricultural inputs; promotion of
grading, standardization and quality control of agricultural
produce to improve their marketability, etc., apart from
preventing the distress sale immediately after harvest.
The scheme is expected to strengthen agricultural marketing
infrastructure in the country by paving the way for the
introduction of a national system of warehouse receipts in
respect of agricultural commodities stored in such godowns
and to reverse the declining trend of investment in agriculture
sector by encouraging private and cooperative sectors to
invest in the creation of storage infrastructure in the country.
The project for construction of rural godowns can be taken
up by individuals, farmers, Group of farmers/growers,
Partnership/ Proprietary firms, Non-Government
Organizations (NGO's), Self Help Groups (SHGs), Companies,
Corporations, Co. Operatives, Local Bodies other than
Municipal Corporations, Federations, Agricultural Produce
Marketing Committees, Marketing Boards and Agro
Processing Corporations in the entire country.
Assistance for renovation of rural godowns will, however, be
restricted to godowns constructed by cooperatives only.
Capacity of a godown shall be decided by an entrepreneur.
However, subsidy under the scheme shall be restricted to a
minimum capacity of 100 tons and maximum capacity of
30,000 tons.
Subsidy shall be provided at 33.33% of the capital cost of the
project in case of projects located in North-Eastern States,
hilly areas and those belonging to Women Farmers/ their self-
help groups/ co-operatives and SC/ST entrepreneurs & their
self-help groups/ Co-operatives.
Subsidy shall be provided at 25% of the capital cost of the
project to other categories of farmers.
For renovation of storage projects by cooperatives financed
by the National Cooperative Development Corporation
(NCDC) and Cooperative banks, subsidy shall be at 25% of the
project cost as appraised by Financial Institution or actual cost
whichever is lower, subject to subsidy ceiling of 187.50 per
MT of storage capacity.
Activities allied to Agriculture:
Animal Husbandry Sector:
In India, livestock production and agriculture are intrinsically
linked, each being dependent on the other and both crucial
for overall food security.
Indian Livestock sector, with its number one position in milk
production, contributes to the country's economy, in a
significant manner, by way of providing employment
opportunities to the seasonally employed farming
community.
Its contribution to income basket of farmer increases with
decrease in his land holding, which highlight the important
role played by various livestock activities in case of small and
marginal farmers.
In the recent past, dairy sector has transformed into a major
activity from its subsidiary status as the value of milk output
has surpassed that of output of cereals and pulses combined.
Meat remains the largest export earner among various
agriculture commodities.
As a result, it is important to understand the value chain of
various animal husbandry activities and identify financing
opportunities for the banking community in dairy as well as
sheep, goat and piggery farming.
It is also very important to have strategic action dovetailing
the macro level infrastructure and marketing plans with the
micro level production activities.
In the light of above, GOI has initiated number of measures
for strengthening the infrastructure for development of the
sector besides implementing programs offering incentives for
animal husbandry development.
The National Program for Bovine Breeding and Dairy
Development, National Dairy Plan, National Mission on
Bovine Productivity, Rashtriya Gokul Mission, etc.
are some of the programs launched and implemented by the
Government, with a view to improving the production and
productivity of bovine population, quality of milk and milk
products, etc.
As part of Atma Nirbhar Bharat Abhiyan stimulus package
(2020-21), the Central Government has launched Animal
Husbandry Infrastructure Development Fund involving outlay
of 15,000 crores for incentivization of investments in
establishment of infrastructure for dairy and meat processing
and value addition infrastructure and establishment of animal
feed plants by the Farmers' Producer Organizations, individual
entrepreneurs, MSME, etc.
The scheme envisages provision of interest subvention at 3%
by the government and extension of credit guarantee cover
up to 25% of the loan.
GOI has also launched e-GOPALA App to provide market place
for farmers to buy quality germplasm, quality cattle of high
productivity including making available AI services,
vaccination and guiding farmers for animal nutrition and
affordable quality treatment.
These initiatives should help the growth of the sector and
provide opportunity for the banks to augment the credit
facilities for various dairy development schemes.
As regards the sheep farming, the Ministry of Fisheries,
Animal Husbandry and Dairying has been implementing
programs to produce and disseminate acclimatized stud rams
to various state sheep breeding farms for cross breeding and
genetic stock up gradation for ensuring quality of animals.
These farms also require to run training programs in
mechanical sheep shearing, grading of wool and maintenance
of sheep shearing machine.
Likewise, measures are on for helping the farmers engage in
goat rearing, piggery, etc.
All the measures discussed in the foregoing paragraphs should
facilitate strengthening of the linkages for financing the AH
sector for provision of credit support.
Poultry Sector:
Poultry sector in India is valued at about 80,000 crore and it is
broadly divided into two sub-sectors - one with a highly
organized commercial sector with about 80% of the total
market share (say, 64,000 crore) and the other being
unorganized with about 20% of the total market share of
16,000 Crore.
The unorganized sector also referred to as backyard poultry
plays a key role in supplementary income generation and
family nutrition to the poorest of the poor.
It is estimated that with a poultry population of 729 million
[30% layers at around 215 million and 40% broilers at around
480 million] small and medium farmers are mostly engaged in
contract farming system under larger integrators and there
are around 30 million farmers engaged in backyard poultry as
per 19th Livestock Census.
The needs of organized and unorganized sectors are very
different.
Discussions with various stakeholders reveal that poultry
sector- especially commercial poultry sector- is flourishing in
certain pockets, where amenable environment exists, along
with backward and forward linkages, while the unorganized
sector is very dispersed and micro-fragmented.
Organized sub-sector needs conducive environment to grow
for which, policy support and intervention is required mainly
for disease surveillance, Drug residue and drug/ vaccine
quality control, standardization & quality control of poultry
feed, eggs & meat, Application of HACCP (Hazard Analysis and
Critical Control Point) and Good Manufacturing Practices for
compliance to WTO & CODEX norms and gradation, value
addition, brand promotion & export boosting.
The above issues are broadly dealt with by a number of
Ministries/ agencies like Export Inspection Council of India,
Agricultural and Processed Food Products Export
Development Authority (APEDA), Ministry of Food Processing
Industries, Food Safety and Standards Authority of India
(FSSAI), Bureau of Indian Standards (BIS), etc.
Besides, National Institute of Animal Health under Animal
Husbandry Department is dealing with quality control of
vaccines and the 'The Prevention and Control of Infectious
and Contagious Diseases in Animals Act, 2009' is the key
regulation to control important livestock and poultry diseases
in the country.
Compartmentalization for disease control as per OIE
Standards is an important issue being dealt with by DADF to
facilitate smooth trade.
Unorganized sub-sector generates additional income and
improvement of nutritional status among the poorest of the
poor.
However, until now.
there has been little support to this sector.
Now however through one of the components 'Rural
Backyard Poultry Development under Centrally Sponsored
Scheme Poultry Development' assistance is provided for to
cover beneficiaries from BPL families.
But this continues to be very little as compared to the
demand.
A part of the unorganized sector is the Transitional Small &
Marginal sub-sector: Due to Government initiatives for
entrepreneurship development, small/ marginal units are
now coming up.
However, these can sustain only if they operate in a clustered
manner.
The strengths, weaknesses, opportunities and threats of the
sector as revealed by various studies in relation to both eggs
and poultry segment are presented below:
Fisheries sector:
India is one of the larger fish producing countries in the world
and shares 7.58% of the global production.
The Gross Value Added (GVA) of fisheries sector in the
national economy during 2018-19 stood at 2.13 lakh crores
(current basic prices), which constituted 1.24% of the total
National GVA and 7.28% share of Agricultural GVA.
The sector has immense potential to double the fishers and
fish farmers' incomes, as envisioned by government and usher
in economic prosperity.
Fisheries sector in India has shown an impressive growth with
an average annual growth rate of 10.88% during the year from
2014-15 to 2018-19.
The fish production in India has registered an average annual
growth of 7.53% during last 5 years and stood at an all-time
high of 137.58 lakh metric tons during 2018-19.
The export of marine products stood at 13.93 lakh metric tons
and valued at 46,589 crores (USD 6.73 billion) during 2018-19.
Considering the immense potential for development of
fisheries and for providing focused attention to the sector, the
Government in Union Budget, 2019-20 has announced a new
scheme called the Pradhan Mantri Matsya Sampada Yojana
(PMMSY).
The scheme intends to address all the weaknesses and the
critical gaps in fish production and productivity, quality,
technology, post-harvest infrastructure and management,
modernization and strengthening of value chain, traceability,
establishing a robust fisheries management framework and
fishers' welfare.
would also address issues like low productivity in inland
Aquaculture, disease, sustainability of marine fisheries,
sanitary and Phyto-sanitary matters that impact the
competitiveness of India's exports along with global bench
marking, PMMSY will be implemented as an umbrella scheme
with two separate components namely
(a) Central Sector Scheme (CS) and
(b) Centrally Sponsored Scheme (CSS).
The scheme among other things, is expected to enhance fish
production from 137.58 lakh metric tons (2018-19) to about
220 lakh metric tons, by 2024-25 (annual growth of about 9
per cent in fish production) and contribute significantly to the
export earnings (to about ₹ 1.00 lakh crore).
The efficient implementation of the scheme with institutional
credit support intends to benefit fish farmers, fish workers,
fish vendors, etc., and their outfits (SHGS JLGs), organizations
(Fish Farmers Producer Organisations, Fisheries Development
corporations).
Against this back drop, the banks need to explore the credit
needs of small fishermen and aqua culturists who form the
base of the pyramid of the fisheries sector of the country for
which they may require term composite credit for carrying
out the fish farming activities in the following segments
(a) Inland fisheries aqua culture such as fish culture, fish seed
hatchery, reservoir fisheries, integrated fish farming, fresh
water prawn farming, fresh water prawn hatchery,
ornamental fish breeding and farming
(b) Brackish water aqua culture such as brackish water shrimp
farming, brackish water shrimp hatchery, brackish water fish
farming.
brackish water fish hatchery
(c) Marine fisheries aqua culture (mariculture) edible
oyster/pearl oyster culture.
mussel culture, sea weed culture, fin fish culture and
(d) Inland /marine capture fisheries.
Sericulture:
Sericulture is an agro-based cottage industry, having huge
employment and income generating potential, in rural and
semi-urban areas.
It is estimated that sericulture industry provides employment
to approximately 91.20 lakh persons in rural and semi-urban
areas in the country, as per the recent data indicated by the
Ministry of Textiles.
Of these, a sizeable number of workers belong to the
economically weaker sections of society, including women.
India is said to have produced more than 33,000 metric tons
of raw silk in the fiscal year 2021.
Some of the initiatives of the governments to uplift this sector
include race improvement through development of improved
host plant varieties and improved disease resistant silkworm
breeds through collaborative research with reputed National
Research organizations like IITs, CSIR, IISc and International
research institutes on Sericulture, strengthening of seed
production units to bring in quality standards in production
network, besides increasing the production capacity to cater
to the increased silk production target, encouraging, adopted
seed rearers to generate quality seed cocoons, promotion of
the operations of the private grainages to produce quality
seed and chawki rearing centres with incubation facilities to
provide chawki worms under the Integrated Scheme for
development of silk industry

Finance is the main pre-requisite of productive operation of

the sector.
So, the success of this sector depends on adequate financial
aid.
In sericulture activity, fixed capitals are required for every
step such as mulberry leaves plantation, construction of
rearing houses, rearing and grainage equipment.
Hi-Tech Agriculture:
The connotation "hi-tech” refers to the use of sophisticated
technology for producing a product with high value addition.
This means stringent quality requirements, especially in
respect of those items, which are exported to other countries.
Such projects are both technology and capital intensive, with
attributes of superior yield, both in qualitative and
quantitative terms.
Since many of these products are for consumption purpose,
the hygienic and microbial standards are also very important.
These technologies used in hi-tech agriculture are not
necessarily new or highly advanced.
They have been in existence or used in some form or the
other in India, but it is the method of combining technologies
for production of the value-added items that makes the
difference and provides certain distinct features to such
activities.
Some of the hi-tech projects in the agriculture segment are
discussed below:
Tissue Culture:
Plant tissue culture allows the production and propagation of
genetically homogeneous, disease-free plant material.
According to international reports, the developing countries
have been widely practicing the plant tissue culture for oil
palm, plantain, pine, banana, date, eggplant, jojoba,
pineapple, rubber tree, cassava, yam, sweet potato, and
tomato.
In India too, tissue culture labs have been established for
banana, sugarcane, medicinal plants, oil palm, bamboo, citrus,
papaya and horticulture/medicinal plants in different states
and GOI has provided support for strengthening these labs.
As the plant tissue culture constitute an indispensable tool in
modern agriculture for significant advancement in the arena
of agricultural sciences, the institutional credit support to the
entrepreneurs/corporates who undertake such activity would
go a long way in realizing the objectives.
Commercial and Export oriented floriculture:
The liberalized economy has given an impetus to the Indian
entrepreneurs, for establishing export-oriented floriculture
units, under controlled climatic conditions.
The new seed policy had already made it feasible to import
planting material of international varieties.
As it has been found that commercial floriculture has
potential for higher productivity than most of the field crops,
it is considered as a lucrative business.
Agricultural and Processed Food Products Export
Development Authority (APEDA) has been facilitating export
promotion and development of floriculture in India.
The credit institutions can take advantage of the strengths of
the positive environment for development of this sector and
finance the corporate borrowers/entrepreneurs for financing
this activity.
Mushroom Cultivation:
Mushroom cultivation is the most productive and profitable
business in our country.
It is getting popular as it is an alternate source of money for
farmers.
As per government sources, 459,000 MT of mushrooms have
been produced in the country during 2017 and yet India
accounts for only about two per cent of world's production of
mushroom.
States like Uttar Pradesh have already emerged as the top
producers in India, but as consumption is still low - 30 gram
per person when compared to US or Europe (2 kg-3 kg per
person) - there is a huge opportunity, both domestically and
for exports, yet to be harnessed.
The entrepreneurs intending to establish mushroom units can
avail technical guidance and assistance from the Directorate
of Mushroom Research Unit (of ICAR) at Solan (Himachal
Pradesh).
Marine products like prawns and shrimps:
The marine products like frozen shrimp offer good scope for
export.
According to the data of the Marine Products Export
Development Authority (MPEDA), the export of frozen
shrimps contributed 4426 million USD out of the total export
of 5956 million USD during 2020-21.
Fresh-water prawn farming based on a new bio-technology
method has been developed in certain states like Kerala with
the support of MPEDA, which contributes higher quality and
productivity.
The institutional support to the entrepreneurs taking up
production of prawns/shrimps would help to boost this
segment of the fisheries sector which offer scope for export
earnings.
Commercial and Export oriented floriculture:
The liberalized economy has given an impetus to the Indian
entrepreneurs, for establishing export-oriented floriculture
units, under controlled climatic conditions.
The new Sood policy had already made it feasible to import
planting material of international varieties.
As it has been found that commercial floriculture has
potential for higher productivity than most of the field crops,
it is considered as a lucrative business, Agricultural and
Processed Food Products Export Development Authority
(APFDA) has been facilitating export promotion and
development of floriculture in India.
The credit institutions can take advantage of the strengths of
the positive environment for development of this sector and
finance the corporate borrowers’ entrepreneurs for financing
this activity.
Mushroom Cultivation:
Mushroom cultivation is the most productive and profitable
business in our country.
It is getting popular as it is an alternate source of money for
farmers.
As per government sources, 450,000 MT of mushrooms have
been produced in the country during 2017 and yet India
accounts for only about two per cent of world's production of
mushroom.
States like Uttar Pradesh have already emerged as the top
producers in India, but as consumption is still low-30 gram per
person when compared to US or Europe (kg kg per person)
there is a huge opportunity, both domestically and for
exports, yet to be harnessed.
The entrepreneurs intending to establish mushroom units can
avail technical guidance and assistance from the Directorate
of Mushroom Research Unit (of ICAR) at Solan (Himachal
Pradesh).

Marine products like prawns and shrimps:

The marine products like those shrimp offer good scope for
export.
According to the data of the Marine Products Export
Development Authority (MPEDA), the export of frozen
shrimps contributed -4420 million USD out of the total export
of 5956 million USD during 2020-21.
Fresh-water prawn farming based on a new bio technology
method has been developed in certain states like Kerala with
the support of MPEDA, which contributes higher quality and
productivity.
The institutional support to the entrepreneurs taking up
production of prawn’s shrimps would help to boost this
segment of the fisheries sector which offer scope for export
earnings.
Hi-tech abattoirs:
Setting up of hi-tech abattoirs is essential to supply hygienic
meat for domestic and export market and to reduce the
environment pollution.
Apart from Municipal bodies/livestock corporations,
corporates/entrepreneurs, who are intending to establish
abattoirs in rural areas, can be financed by credit institutions.
The Ministry of Food processing has launched a credit linked
scheme for the establishment/ modernization of
slaughterhouses in the rural areas.
The scheme focuses on the small and marginal
slaughterhouses in the rural areas and helps the animal
owners in improving their livelihood by providing direct
linkages to the market.
The scheme encourages entrepreneurs in rural areas to take
up the activities in the slaughterhouse and turn them into a
successful enterprise.
Projects for export of fresh fruits:
According to APEDA, the vast production base in our country
offers tremendous opportunities for export of vegetables and
fruits.
During 2020-21, India exported fruits and vegetables worth
9,940.95 crores/ 1,342.14 USD Millions which comprised of
fruits worth 4,971.22 crores/ 674.53 USD Millions and
vegetables worth 4,969.73 crores/ 667.61 USD Millions.
Grapes, pomegranates, mangoes, bananas, oranges account
for larger portion of fruits exported from the country, while
onions, mixed vegetables, potatoes, tomatoes, and green
chilly contribute largely to the vegetable export basket. Many
corporate borrowers are involved in production of fresh fruits
and vegetables as also in their processing for exports.
These projects are highly credit intensive and offer good
scope for earning profit.
The banks/ credit agencies can take this opportunity to build
their loan portfolio.

Major Issues in financing term loans:

Some of the major issues with regard to financing term loans
are:
Capacity to formulate area development schemes and
undertaking appraisal of large sized projects in relation to risk
analysis are limited, in case of certain category of banks, who
are purveying larger production credit for agriculture.
The transaction cost of providing term loans to small farmers
particularly under government sponsored programs is high.
Most of the term loan activities are exposed to risk relating to
natural calamities which can neither be predicted nor be fully
covered.
Similarly marketing risks also affect the viability of these
projects.
Interest rates are not decided scientifically to take care of the
transaction costs and risk costs for specific type of loans.
Therefore, the interest rates become unviable in case of
certain agricultural term loans.
The number of accounts is quite large in banks, which makes
monitoring difficult.
Longer repayment period makes it difficult to monitor the
accounts.
However, there is silver lining in the cloud inasmuch as
business opportunities exist for lending for term loans on
account of the following factors:
huge potential under various sectors remains unexploited.

favourable policies and programs formulated by the

Government are conducive for the development of various
sub sectors of agriculture
availability of guidance from RBI and support other higher
financing agencies for augmenting credit flow
various government agencies/boards have been established
by the Government for lending support to the various sub
sectors of agriculture and they have been coordinating and
supporting the efforts of the credit institutions.
ADVANCE AGAINST GOLD ORNAMENTS:
In India, the loans against gold ornaments and jewellery have
become popular over the years for the reason that it is one of
the easiest ways of availing credit facilities from the
banks/credit agencies.
This is because of the reason that the gold ornaments /jewels
are secured assets and that there is no requirement of any
collateral.
Further, under the gold loan scheme, the credit availed under
the scheme can be used for any purpose.
Borrowers can pledge the jewellery and gold bars coins that
they already own.
This means the customer enjoys the benefit of possessing the
jewellery and taking a loan on it whenever they want.
This jewellery is returned to the customer securely once the
loan repayment is complete, or it can be reused.
There is no limit on the number of times the same piece of
jewellery can be pledged.
This helps customers to avail loans repeatedly on the same
asset.
This feature is unique to gold loans, as compared to personal
loans, where the loans are disbursed based on the customer's
capacity to repay the loan.
Also, with personal loans, a repeat loan from the same
banking entity completely depends on the customer's ability
to repay at that point.
The biggest advantage of a gold loan is the flexibility to repay
the loan principal and interest as a lump sum amount instead
of the popular way to repay other forms of loans - equated
monthly installments, or EMIs.
In the case of a gold loan, banks and credit agencies can
provide credit up to 90% of the value of the gold/jewels
pledged.
The pre revised Loan to Value (LTV) norm has been revised
upward to 90% by the RBI in order to mitigate the economic
impact of the Covid-19 pandemic on households,
entrepreneurs and small businesses.
The loan can be availed upon production of basic identity
documents relating to the borrower and his/her address and
there is no impact of one's credit score on the interest rate on
the loan to be availed from the bank/credit agencies.
The pledged gold is also safe and secured with the lender.

The banks are required to take into account the following

aspects while considering the loans against gold
ornaments/jewels:
The lenders need to evaluate the ornaments/jewels offered
as security for loans in the form of pledge in relation to their
purity and weight.
As hall marking on the gold shows that the gold used for
making jewellery adheres to the international standards of
purity, the banks would find granting of advances against the
security of such hallmarked jewellery safer and easier.
Further, preferential treatment of hallmarked jewellery is
likely to encourage practice of hallmarking which will be in
the long-term interest of consumer, lenders and the industry.
Keeping these aspects in view, RBI has impressed upon the
banks to grant advances against hallmarked jewellery.
Employees engaged in appraisal of the gold ornaments/jewels
loans need to possess necessary skills and the usage of
various tests like nitric acid test, etc., so as to gauge the
quality of the ornaments pledged, caratage, etc.
The banks/credit agencies also need to verify the ownership
of the jewels offered as security and verify the documents
relating to ownership and identity documents /certificates
before offering the loan amount, based on the LTV in force.
Since the prices of gold fluctuate, the banks shall decide on
the per gram rate at which they would be offering the credit
against the pledge of gold ornaments taking into account the
past trend in prices and the fluctuations in prices and circulate
the relevant details amongst the branches.
The branches are required to adhere to these guidelines.
The banks need to follow various processes and procedures
for managing this portfolio efficiently.
The important among them are discussed below:
The branches shall ensure that the borrowers make their
applications for loans in the standard format prescribed by
the bank
The borrowers need to comply with the KYC procedures and
they should be subjected to verification as prescribed by the
bank in its manual of instructions
Even though the loans are secured with acceptable collateral,
correct and legally valid documentation need to be ensured to
comply with good practices and the legal requirements
Banks shall follow the margin and rates of interest as per the
guidelines prescribed by RBI from time to time.
At present, the banks are free to decide on the margin and
interest rates on gold ornaments/ jewel loans.
The important terms and conditions of the loan shall be
explained to the borrowers as a measure of customer service
and also to remove any doubts or misconceptions in the mind
of the customers.

Documentation requirements having non-financial

implications arising from customer transaction shall also be
standardized.
The documentation shall be in accordance with the Fair
Practice Code as may be applicable.
Borrowers shall be persuaded to service interest periodically
as it facilitates adequacy of collateral coverage during the
currency of the loan.
It also helps to establish creditworthiness and Bonafede
intentions of the borrowers to fulfil their repayment
obligations.
The banks shall adopt a well calibrated approach for recovery
of interest dues and the principal instalments in order to
protect the bank from any adverse market fluctuation in gold
prices in future, minimize forced realization of the collateral
through action and adhere to the IRAC norms laid down by
RBI.
Auction procedures, where inevitable, shall be undertaken
and completed by the bank on time duly following all the
norms laid down in the Auction Policy and Fair Practice Code
of the bank.
Deferment of auction, where resorted to, shall be based on
assessment of various risk factors at the relevant time and
also be compliant with the provisions of the Auction Policy.

Legal implications in relation to the release of the collateral

security (jewels) upon closure of the loans and the related
procedures shall be standardized after vetting by the legal
experts.
Some common examples of such activities would be delivery
of gold to legal heirs, loss of original receipt issued to the
borrower for the pledged gold, delivery of gold to third
persons authorized by the borrower, issue of recovery
notices, auction notices, etc.
Further, RBI has issued the following guidelines to banks for
administering the jewel loan portfolio in an effective manner:
In order to standardize the valuation and make it more
transparent to the borrower, gold ornaments and jewellery
accepted as security/collateral may be valued at the average
of the closing price of 22 carat gold for the preceding 30 days,
as quoted by the India Bullion and Jewellers' Association Ltd.
[Formerly known as the Bombay Bullion Association Ltd.
(BBA)] or the historical spot gold price data publicly
disseminated by a commodity exchange regulated by the
Forward Markets Commission on a consistent manner as per
their Board approved policy.
If the gold is of purity less than 22 carats, the bank should
translate the collateral into 22 carat and value the exact
grams of the collateral.
In other words, jewellery of lower purity of gold shall be
valued proportionately.
As already discussed in the earlier paragraph, the banks are
advised to grant advance against the security of hallmarked
jewellery.
For provision of loans against the pledge of gold ornaments
and jewellery for other than agricultural purposes, where
both interest and principal are due for payment at maturity of
the loan shall be subjected to the following conditions:
(a) Banks, as per their Board approved policy, may decide
upon the ceiling with regard to the quantum of loans that
may be granted against the pledge of gold jewellery and
ornaments for non-agricultural end uses;
(b) The tenor of the loans shall not exceed 12 months from
the date of sanction;
(c) Interest may be charged to the account at monthly rests
and may be recognized on accrual basis, provided the account
is classified as 'standard' account.
(d) Such loans shall be governed by extant norms pertaining
to income recognition, asset classification and provisioning
which shall be applicable once the principal and interest
become overdue.