Agricultural lending concepts ST & LT Loans for Agriculture

1. Agricultural lending concepts ST & LT Loans for Agriculture Sushrut V. Sardesai DGM / MoF CAB, RBI, Pune

3. Classification of Loans • Based on purpose • Production credit • Marketing loans • Consumption loans • Investment credit • Based on tenure • Short term • Medium term • Long term

4. Classification of Loans • Based on security • Secured loans • Primary security • Collateral security • Mortgage • Hypothecation • Third party guarantee • Unsecured loans

5. Classification of Loans • Based on approach • Individual approach • Area approach • DIR loans

6. Agricultural Costs Recurring Investment specific

7. Crop Loan System Cost of cultivation Eligibility not to depend on ownership but on tilling of land Loan to be secured by hypothecation of crop Disbursement & recovery of loan based on crop production schedule Quantum of loan based on crop variety, season and irrigation status Recovery linked with marketing

8. Crop Loan System contd …. Cost of cultivation Scale of Finance DLTC DCC/BLBC

9. Tools of ST Financing KCC SCC GCC SB-cum-OD SHG JLG Farmers’ Club

10. Causes of poor repaying capacity Small land holdings Low productivity Low / fluctuating prices High family expenditure / diversion of funds for unproductive purposes Lack of adoption of improved technology and modern package of practices Poor management of farm resources

11. Risk factors in Agriculture Production risk Technological risk Ignorance / illiteracy related risk Weather uncertainty risk Price uncertainty risk Farmer’s health related risk

12. Risk mitigation measure Crop insurance Asset insurance Health / Life insurance Tie-ups for recovery Marketing loans / Warehouse receipt finance Formation of Farmers’ Clubs JLGs / SHGs

13. Classification based on PSL • Direct Agriculture Loans to individual farmers, groups of individual farmers [including SHGs / JLGs provided banks maintain disaggregated data on such loans] engaged in Agri. and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage) • Indirect Agriculture Loans to corporates, partnership firms and institutions engaged in Agriculture and Allied Activities [dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage)

14. Direct Agriculture • Short-term loans to farmers for raising crops • MT & LT loans for agri. and allied activities • Purchase of agri. Impl. and machinery • Irrigation and other dev. activities • Allied activities • Pre-harvest and post-harvest activities, (viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce) • Loans up to 25 lakh against pledge / hypothecation of agri. produce (including warehouse receipts) for a period not exceeding 12 months.

15. Direct Agriculture contd…. Loans to SF/MF for purchase of land for agricultural purposes Loans to distressed farmers indebted to non-institutional lenders Loans to PACS, FSS and LAMPS for on lending to farmers for agri. &allied activities. Loans to farmers under KCC Scheme. Export credit to farmers for exporting their own farm produce

16. Indirect Agriculture • Short-term loans for raising crops • MT & LT loans for agri. and allied activities • Purchase of agri. Impl. and machinery • Irrigation and other dev. activities • Allied activities • Pre-harvest and post-harvest activities, (viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce) • Loans up to 25 lakh against pledge / hypothecation of agri. produce (including warehouse receipts) for a period not exceeding 12 months

17. Indirect Agriculture contd…. Export credit to corporates, partnership firms and institutions for exporting their own farm produce Loans upto Rs. 5 crore to Producer Companies set up exclusively by only SF/MF under Part IXA of Companies Act, 1956 for agri. and allied activities. Bank loans to PACS, FSS and LAMPS other than those covered under direct Agriculture

18. Other indirect agriculture loans Loans up to 5 crore to coop. societies of farmers for disposing of the produce of members. Loans to Custom Service Units managed by individuals, institutions or organisations and undertake farm work for farmers on contract basis Loans for construction and running of storage facilities (warehouse, market yards, godowns and silos), including cold storage units designed to store agriculture produce/products

19. Other indirect agriculture loans contd…. Loans to MFIs for on-lending to farmers for agricultural and allied activities subject to conditions Loans sanctioned to NGOs, which are SHG Promoting Institutions, for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural and allied activities. ROI =/< Base Rate + 8% Loans sanctioned to RRBs for on-lending to agriculture and allied activities

20. Potential Activities • Fruits and Vegetables • Floriculture • Medicinal and Aromatic Plants • Minor Irrigation Schemes - development & management • Livestock based Schemes - Dairy, Poultry, Fisheries, etc. • Land development activities - soil & water conservation • Mechanisation of Agriculture • Organic Farming • Bio-fuel and TBO seeds • Agro-processing • Seed and Planting material production • Agri-clinic and Agri-Business Centres • Post harvest and Marketing Infrastructure Development, etc. College of Agricultural Banking, RBI, PUNE

21. Thank You