Despite being a convenient and largest channel of providing credit support to farmers, Kisan Credit Card (KCC) loans are becoming a matter of concern as it adds to the NPA crisis in India.
Rising NPAs under Kisan Credit Card
The recent data confirms that the amount of outstanding KCC loans has risen by four times from March 2011 to March 2018. It accounts for 8.6% of total bank credit in March 2018 as against 4.28% in March 2011. Besides, it makes 65% of total agriculture loan as against 34.75% in March 2011. The report by SBI stated that while Agriculture NPAs amount to Rs 1.1 lakh, KCC loans sum up to Rs 6.68 lakh crore till March 2019.
Fraud under Kisan Credit Card Loans
Enforcement Directorate has attached assets worth Rs 51.43 crore of a businessman in Vishakhapatnam who illegally availed KCC loans in the name of 87 borrowers. He used the amount for investing in his fish and poultry business.
The Problem of Kisan Credit Card Loans
Kisan Credit Card Loan scheme was launched to provide collateral-free loans to meet the working capital requirements of agriculture. The current limit of loans availed under KCC is three lakh with a 7% interest. Out of the current loans 2% are sub-vented by the government. In case of timely repayment, the farmer is to pay a 4% interest rate only. Moreover, the loan limit keeps increasing every four to five years. Besides, the drawing of these loans in highly flexible as far as the amount is in the limit. Moreover, many farmers use this loan for non-agricultural purposes.
These loans becoming problematic as there is no collateral, no fixed period for repayment and the farmers repay very less amount that is just enough to keep the accounting standard. Apart from this, loan waivers promised by politicians to attract votes often add to the crisis. Recently, the Maharashtra government has promised a loan waiver of around Rs 51,000 crores to the farmers. To get such waivers, the banks need to first classify these loans as NPAs. The late repayment of loans by politicians further restricts the flow of credit in the economy.
In all, the rising NPAs due to KCC loans are turning into a shocker for the state-owned banks in India.