Agricultural credit is a strategic input for modernizing Indian agriculture, enabling farmers to transition from subsistence to commercial farming. It addresses the “capital-starved” nature of smallholdings and facilitates the purchase of high-quality seeds, fertilizers, and machinery. In India, the institutional credit framework is guided by the “Priority Sector Lending” (PSL) norms of the Reserve Bank of India (RBI), which mandate that domestic scheduled commercial banks earmark 18% of their Adjusted Net Bank Credit (ANBC) for agriculture.
Classification of Agricultural Credit
Agricultural credit is categorized based on the tenure of the loan and the purpose for which it is utilized.
Based on Tenure
- Short-term Credit: Granted for periods up to 15 months. Primarily used for seasonal agricultural operations (SAO) like buying seeds, fertilizers, and meeting labor costs.
- Medium-term Credit: Granted for 15 months to 5 years. Utilized for purchasing cattle, pumping sets, and minor improvements to land.
- Long-term Credit: Granted for periods exceeding 5 years. Aimed at permanent improvements like land leveling, digging wells, or purchasing heavy machinery like tractors and combine harvesters.
Based on Purpose
- Production Credit: Direct loans for crop cultivation.
- Investment Credit: For capital formation in agriculture (irrigation, mechanization, etc.).
- Marketing Credit: To prevent “distress sales” by allowing farmers to store produce and sell when prices are favorable.
Sources of Agricultural Credit
The Indian agricultural credit system is a “Multi-Agency Approach” consisting of institutional and non-institutional sources.
| Source Type | Major Components | Current Status / Role |
| Institutional | Commercial Banks (CBs), Regional Rural Banks (RRBs), Cooperatives | Provides ~75-80% of total credit; CBs lead with the highest share. |
| Non-Institutional | Moneylenders, Traders, Relatives, Landlords | Declining but still significant for marginal farmers due to ease of access. |
| Cooperatives | PACS, DCCBs, State Cooperative Banks | Crucial for “last-mile” delivery in rural pockets. |
Key Government Schemes and Interventions
The Government of India and NABARD implement several schemes to ensure credit flow at affordable rates.
Kisan Credit Card (KCC) Scheme
Launched in 1998 (based on the R.V. Gupta Committee), it is the most vital credit delivery mechanism.
- Scope: Covers post-harvest expenses, produce marketing loans, consumption requirements of households, and investment credit.
- Expansion: In 2018-19, the KCC facility was extended to Animal Husbandry and Fisheries farmers.
- Key Fact: Includes an ATM-enabled RuPay card for easy withdrawals.
Interest Subvention Scheme (ISS) / Modified Interest Subvention Scheme (MISS)
- Objective: To provide short-term crop loans at a subsidized interest rate.
- Mechanism: Farmers get short-term loans up to ₹3 lakh at a 7% interest rate.
- Prompt Repayment Incentive (PRI): An additional 3% subvention is provided for timely repayment, effectively bringing the interest rate down to 4%.
Agriculture Infrastructure Fund (AIF)
- Target: A medium-to-long term debt financing facility of ₹1 Lakh Crore.
- Purpose: Post-harvest management infrastructure (warehouses, cold chains) and community farming assets.
- Support: 3% interest subvention per annum and credit guarantee coverage under CGTMSE for loans up to ₹2 crore.
Institutional Framework: The Role of NABARD
The National Bank for Agriculture and Rural Development (NABARD), established in 1982 on the recommendations of the B. Sivaraman Committee, is the apex regulatory body for rural credit.
- Refinance: Provides refinance to RRBs, Cooperative Banks, and Scheduled Commercial Banks for agricultural lending.
- RIDF: Manages the Rural Infrastructure Development Fund, which utilizes the shortfall in Priority Sector Lending by commercial banks to fund rural infrastructure projects.
- Microfinance: Spearheads the Self-Help Group-Bank Linkage Programme (SHG-BLP), the world’s largest microfinance project.
Emerging Trends and Digitalization
- Digitalization of KCC: Pilot projects (initiated by RBI) for end-to-end digitalization of KCC loans to reduce “Turn Around Time” (TAT) and eliminate the need for physical visits.
- Joint Liability Groups (JLGs): Credit groups of 4-10 small/marginal farmers or tenant farmers who do not have proper title deeds, allowing them to access institutional credit through “peer pressure” as collateral.
- Computerization of PACS: A central project to bring 63,000 functional Primary Agricultural Credit Societies onto a common national software to improve transparency.
Challenges in Agricultural Credit Delivery
- Regional Imbalance: Significant credit flow to Southern states (Tamil Nadu, Andhra Pradesh) compared to the North-Eastern and Eastern regions.
- Inclusion Gap: Tenant farmers, sharecroppers, and oral lessees often lack land titles, excluding them from formal credit loops.
- NPAs and Waivers: Frequent announcements of farm loan waivers by state governments often lead to “moral hazard,” affecting the credit culture and increasing Non-Performing Assets (NPAs).
Fact-File for UPSC Prelims
- Internal Working Group on Agricultural Credit (2019): Chaired by M.K. Jain, recommended the digitalization of land records and strengthening of the JLG model.
- Lead Bank Scheme: Introduced by RBI in 1969 to coordinate the efforts of all banks in a district to increase credit flow.
- Ground Level Credit (GLC) Target: The Union Budget consistently increases the GLC target annually; for the recent fiscal cycles, it has crossed the ₹20 Lakh Crore mark.
- Priority Sector Lending (PSL) Certificates: A mechanism for banks to achieve their PSL targets by purchasing certificates from banks that have exceeded their targets.