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7
Kisan Credit Card – An Innovation in Agricultural
Lending and an Instrument of Financial Inclusion
A distinct fall-out of the banking reforms of the 1990s was the contraction
in bank lendings for informal sectors, farmers in particular. The banks’
enthusiasm for agricultural lendings also waned after the first major debt
waiver, the Agricultural Rural Debt Relief Scheme of 1990. By the end of the
there were serious concerns about the niggardly flow of credit for agriculture.
Therefore, the Reserve Bank of India appointed a one-man committee of Shri
R.V. Gupta in December 1997 with a mandate to suggest measures for the
removal of the constraints faced by commercial banks in increasing flow
credit to agriculture. The committee found that apart from the negative mind
set, there were a number of procedural hassles and conceptual issues which
constrained the flow of agricultural credit.
Around the time the RBI was implementing the recommendations of
the R.V. Gupta committee, particularly the preparation of special agricultural
credit plans (SACPs) by banks, the then Union Finance Minister in his Budget
Speech of 1998-99 said thus:
“NABARD is being asked to formulate a model scheme for issue of
Kisan 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, fertilisers, pesticides etc.
and draw cash for their production needs” (Speech of Shri Yashwant
Sinha, Minister of Finance, June 1, 1999, p.5).
NABARD formulated the KCC scheme in consultation with RBI and the
same was circulated to the banks in August 1998 (see Box).
The scheme aimed at adequate and timely flow of production credit in a
hassle-free and cost effective manner to the farmers for their cultivation needs
including purchase of inputs. Both the borrows and lending banks are expected
to derive benefits from the scheme compared with the prevailing demand
loan system. KCC has enabled drawing of loans within sanctioned limits, as
and when required for the whole year. Even consumption requirements are
dovetailed into the loan limits. As frequent debits and credits are allowed in an
account, and interest is measured on outstanding balances, there is scope for
economising on interest cost on crop loans unlike in a demand loan.
