Decline of Non-Performing Assets in Kisan Credit Cards

In recent years, non-performing assets (NPAs) in Kisan Credit Card (KCC) accounts have shown a consistent decline across banking sectors in India. This trend indicates a strengthening of credit culture and improved credit discipline within the agricultural sector. According to data from the Reserve Bank of India (RBI) and NABARD, NPAs in KCC accounts for commercial banks decreased from 15.1% in FY22 to 14.16% by December 2024. Similarly, NPAs in regional rural banks and cooperative banks also saw a drop.

About Kisan Credit Cards

Kisan Credit Cards are financial instruments designed to provide farmers with timely and affordable credit. These cards facilitate the purchase of agricultural inputs such as seeds, fertilisers, and pesticides. They also help meet cash requirements for crop production and related activities. The scheme aims to reduce reliance on non-institutional credit sources.

Trends in Agricultural Credit

The total credit extended to KCC accounts rose from ₹9.38 lakh crore at the end of FY22 to ₹10.05 lakh crore by the end of 2024. This increase reflects a broader trend of credit deepening in agriculture. Currently, there are approximately 77.1 million operational KCC holders, including those involved in fisheries and animal husbandry.

Government Initiatives and Funding

The Government of India has earmarked ₹16 lakh crore for short-term crop loans and ₹11.5 lakh crore for term loans in FY25. A portion of these loans, over 75%, will be provided by commercial banks. The average annual growth rate of agricultural credit over the last decade has been around 13%.

Modified Interest Subvention Scheme

Under the Modified Interest Subvention Scheme (MISS), farmers with KCCs can access short-term agri-loans of up to ₹3 lakh at a 7% interest rate. An additional interest subvention of 3% is provided for prompt repayment, effectively reducing the interest rate to 4%. For allied activities, the loan limit is ₹2 lakh.

Future Projections

For the fiscal year 2025-26, the government plans to enhance the agri-credit limit to ₹5 lakh annually. The MISS also includes provisions for post-harvest loans against negotiable warehouse receipts for smallholder farmers. The agriculture budget for FY26 has allocated ₹22,600 crore for this scheme, maintaining the same level as FY25.

Impact of Interest Subsidies

Over the past decade, ₹1.44 lakh crore worth of interest subsidies have been released for KCC loans. This financial support has played important role in improving credit access for farmers and promoting agricultural productivity.

Questions for UPSC:

1. Critically discuss the role of Kisan Credit Cards in transforming the agricultural credit landscape in India.
2. Examine the impact of the Modified Interest Subvention Scheme on smallholder farmers’ access to credit.
3. Analyse the trends in non-performing assets in the banking sector and their implications for financial stability.
4. Estimate the significance of government funding in enhancing agricultural productivity and credit access for farmers.

Answer Hints:

1. Critically discuss the role of Kisan Credit Cards in transforming the agricultural credit landscape in India.

1. KCCs provide timely access to credit, reducing reliance on informal lenders.
2. They facilitate the purchase of essential agricultural inputs, enhancing productivity.
3. Increased credit availability has led to a rise in overall agricultural credit extended.
4. KCCs have improved financial inclusion among farmers, with millions of operational accounts.
5. Government initiatives, like MISS, further support KCCs by offering interest subsidies.

2. Examine the impact of the Modified Interest Subvention Scheme on smallholder farmers’ access to credit.

1. MISS provides loans at a reduced interest rate, making credit more affordable.
2. Additional subvention for prompt repayment incentivizes timely loan repayment.
3. Increased loan limits under MISS enhance borrowing capacity for smallholders.
4. The scheme promotes financial stability and encourages investment in agriculture.
5. Post-harvest loan provisions support smallholders in managing cash flow effectively.

3. Analyse the trends in non-performing assets in the banking sector and their implications for financial stability.

1. NPAs in KCC accounts have shown a consistent decline, indicating improved credit discipline.
2. Lower NPAs suggest healthier financial conditions among borrowers in the agriculture sector.
3. Decreased NPAs enhance banks’ financial stability and reduce risk exposure.
4. Improved credit culture supports sustainable growth in the agricultural economy.
5. Ongoing monitoring of NPAs is essential for maintaining overall banking sector health.

4. Estimate the significance of government funding in enhancing agricultural productivity and credit access for farmers.

1. Government funding has increased agricultural credit flow to farmers.
2. Allocation of large sums for short-term and term loans supports farming activities.
3. Financial assistance through schemes like MISS directly impacts farmers’ productivity.
4. Increased credit access encourages investment in modern farming techniques and inputs.
5. Government support stabilizes the agricultural sector, contributing to food security.