Indian Economy / Agriculture Sector

Agriculture Credit System in India

Agricultural credit can be classified into three categories, Short Term Credit, Medium Term Credit and Long Term Credit. National Bank for Agriculture and Rural Development ( NABARD ) is the apex institution at the national level for ensuring agriculture and rural credit with a view to promote production activities in rural areas.

Classification of Agricultural Credit

Short Term Credit
- These are generally given for a tenure of below 15 months.
- These are used for purchasing seeds, fertilizers, pesticides, feeds and fodder, etc.
- Commission agents, traders, moneylenders, Primary Agricultural Credit Societies ( PACS ) and Regional Rural Banks ( RRBs ) are the providers of such credits.
Medium Term Credit
- These are generally given for a tenure from 15 months to less than 5 years.
- These are used for purchasing cattle, small agricultural implements, repairing and construction of wells, etc.
- These loans are provided by Districts Cooperative Central Banks ( DCCBs ), RRBs and commercial banks.
Long Term Credit
- These are generally given for a tenure of more than 5 years.
- These are used for taking up permanent improvements on land, purchasing of large agricultural implements and machinery like harvesters, tractors,etc.
- These loans are provided by commercial banks and Land Development Banks.

National Bank for Agriculture and Rural Development ( NABARD )

NABARD was set up in the year of 1982.
It operates Rural Infrastructure Development Fund ( RIDF ). RIFD is used for providing the shortfalls faced by the institutional credit systems in extending 18% of the total credit to the development of agricultural and rural areas.
It provides refinance assistance to Cooperative Systems, RRBs, commercial banks, etc. for extending credit to agriculture and rural development.
NABARD will get money from RBI as part of monetary and credit policy.

Reserve Bank of India ( RBI )

RBI was set up in the year of 1935 and it was nationalized on the 1st of January, 1949.
RBI also plays crucial role in managing Inflation, Interest Rates, etc. It acts as the apex bank to all types of banks and Non Banking Financial Companies ( NBFCs ) in the country.
As part of monetary and credit policy, RBI plays an important role by providing overall direction to rural credit and by extending financial support to NABARD.
According to a study by NABARD on credit flow, the organized credit system is reaching only 23% of the farmers.

Kisan Credit Card ( KCC )

In August, 1998, Kisan Credit Card was introduced.
It is being used for making adequate and timely availability of credit to the farmers.
Farmers can avail credit facility whenever required on the basis of the credit cards which are linked to their land holding size.
There is a Life insurance cover to KCC holder.
All the commercial banks, RRBs, DCCBs extend the issue of Kisan Credit Cards. The reason for somewhat failure of KCC is because most farmers are leased farmers.