Double kisan credit card cap, banks told

The Economic Times 20/11/10

NEW DELHI: The finance ministry has nudged banks to double the limit on short-term crop loans under collateral-free loans under the kisan credit card scheme, as it looks to increase agricultural credit, but banks are wary of an increase in bad loans.

“We are not forcing banks,” said a senior finance ministry official, admitting that the ministry has suggested banks to explore the opportunity. “They should do their due diligence as required. However, if there is a case they may ease the norms as applicable,” he said, requesting anonymity.

State Bank of India , the country’s largest lender, has already raised the limit to . 2 lakh. “We’ve increased the limit for loans under kisan credit card scheme by . 1 lakh to provide further support to both small and medium scale farmers,” said a senior official with State Bank of India.

Under the new guidelines, the bank will lend collateral-free loans up to . 2 lakh to farmers with a clean track record for the three previous years.

Under the kisan credit card scheme, banks offer short-term credit to farmers for meeting expenses on seeds, cultivation and purchase of inputs such as read fertilisers.

In 2009-10 , banks disbursed . 34,982 crore under the scheme. The total credit offered by banks to agriculture sector was . 3,66,919 crore. By the end of March 2010, . 4,17,326 crore was extended to farmers through the kisan credit card scheme. Banks are upset about coercion by the government to increase lending limit under the scheme.

“The government should look whether they are pushing farmers into a debt trap by easing norms. Already there have been issues with recovery of loans under the debt relief scheme,” said the chairman of a south-based public sector bank.

RBI data shows that the total non-performing assets of public sector banks in agriculture stood at . 8,330 crore at the end of March 2010.

Domestic banks are required to set aside 40% of their credit towards priority sectors. Within this, the target for agriculture loans is 18%.

NABARD, the apex institution for the development of farm sector, had recently suggested deeper penetration for KCCs, citing evidence that crop yield per hectare was higher for farmers holding these cards as their crops received timely inputs.