Kisan Credit Card

The government of India established the Kisan Credit Card (KCC) program in 1998 to issue Kisan credit cards to agriculturalists based on the size of their current holdings to ensure uniform acceptance by banks. Farmers can make use of the money to easily purchase farm inputs such as fertilizers, seeds, pesticides, and more and use cash to pay for their production requirements. 

The KCC scheme was extended to meet the requirement for investment credit for farmers, non-farm and allied activities in 2004. The scheme was revisited in 2012 by a working committee headed by the Shri T. M. Bhasin, CMD, Indian Bank, to streamline the scheme and simplify the Electronic Kisan Credit Cards issue. 

The scheme gives general guidelines for banks to follow while implementing the KCC scheme. Banks that implement the scheme are accessible as per the requirements of specific locations or institutions.

Objectives of Kisan Credit Card Scheme

The Kisan Credit Card program is aimed to provide prompt and adequate financial assistance to the farmers from the banking system. It is an easy and flexible process to help with their agricultural needs and other requirements. The major objectives are outlined below:

1. To satisfy the short-term credit requirements of farmers for crop cultivation.
2. To meet the post-harvest expenses.
3. Marketing loans for the production industry.
4. To meet the requirements for consumption of a farmer’s household members.
5. Provide working capital for the maintenance of agricultural assets and other activities related to agriculture.
6. Offer credit for investment in agricultural and other related activities.

The sum of the components 1 to 5 above constitute the short-term credit limit portion, and the sum of the components that fall under 6 make up the long-term credit limit part.

Eligibility for KCC Scheme

1. Farmers – Individual farmers or joint borrower farmers who are cultivators for their own.
2. Tenant farmers, oral lessees & sharecroppers.
3. Self-Help Groups (SHGs) (also known as Joint Liability Groups (JLGs) of farmers, including tenants and sharecroppers, etc.

Applicability of the Kisan Credit Card Scheme

The Kisan Credit Card (KCC) Scheme is being carried out through Commercial Banks, RRBs, Small Finance Banks, and Cooperatives.

Fixation of the Loan amount

The loan amount to the credit limit of Kisan Credit Card may be fixed as follows:

All farmers except marginal farmers.

The limit for short-term use to be set in the initial year (for cultivating one crop in one year)

Scale of crop finance (decided by Technical Committee of District) x Extent of area cultivated + 10% of limit towards post-harvest/household/ consumption requirements + 20% of limit towards repairs and maintenance expenses of farm assets + crop insurance and/or accident insurance including PAIS, health insurance & asset insurance.

Limit for the second and the following year

The first year’s limit to cultivate crops was determined as per above, plus 10 percent of the limit to cost escalation/increase in the amount of financing for each successive year (2nd, 3rd, 4th and fifth year) and the estimated term loan component for the duration of the Kisan Credit Card, i.e., five years. 

If you cultivate several crops in one year

The limit will be determined based on the cultivated crop according to the suggested cropping patterns in the initial year. This is followed by an additional 10 percent of the limit to cost escalation or an increase in financing for each successive year (2nd, 3rd, 4th, and 5th year). It is presumed that the farmer follows the same pattern of cultivation for the following four years. If the cropping pattern used by the farmer altered in the following year, the limits could be revised.

Term loan to Invest

The term loan to invest is intended for developing land and minor irrigation and purchasing farm equipment and other related agricultural activities. The banks can set the amount of credit to be granted for working capital as well as the term limits for farming and other activities.

Based on the cost per unit of the asset/s that are proposed to be purchased from the farm, the related operations already carried out at the property, and the bank’s assessment of the repayment capacity with respect to the total loan burden that is entrusted to the farmer, including loan obligations already in place.

The maximum loan amount for the long term must be determined by the planned investment(s) within the five years, as well as the bank’s view of the capacity to repay the farmer.

Maximum Permissible Limit

The limit for short-term loans is set to expire in the 5th year, and the estimated long-term requirement for the loan shall be considered the Maximum Permissible Limit (MPL) and will be considered the Kisan Credit Card (KCC) limit.

Fixation of Sub-limits

• The short-term and the term loans are subject to different interest rates. At present, short-term crop loans up to 3 lakh are covered by the interest subvention scheme/prompt repayment incentive by the Government of India. Additionally, the repayment terms and conditions differ for short-term as well as term loans. In order to ensure accounting and operational efficiency, the limit on the card is divided into separate limits for cash credit limits for short-term, the savings account cum as well as term loan.

• Limit of drawing for short-term cash credit must be set in accordance with the pattern of cropping. The amount(s) to be used for the production of crops, repairs, and upkeep of assets from the farm, as well as consumption, can be drawn according to the preferences of the farm owner. If the district technical committee approves the revision of the scale of finance for any particular year exceeds the theoretical increment of 10% envisaged in determining the five-year limit, the draw limit can be determined in collaboration with the farm owner. If such changes require the card limit to be increased (4th or 5th year), this could be implemented, and the farmer is advised accordingly.

• For the term loans, installments could be deducted in accordance with the nature of the investments and the repayment schedule that is drawn in line with the life span of the investments proposed. It is imperative to ensure that the entire liability should be within the limit of drawing of the year in question at any given time.

• If the limit of the card or obligation so reached warrants extra security, banks can accept collateral in accordance with their policies.

For Marginal Farmers

An adjustable limit range of Rs.10,000 to Rs.50,000 could be granted as Flexi KCC, based on the area of the land and the crops that are grown. It includes the post-harvest warehouse storage requirements and other farm expenditures such as consumption requirements. 

Additionally, small-term loan investment(s) such as the purchase for farm equipment(s) or establishing a backyard poultry and mini dairy according to the evaluation of the bank branch manager and not relating it to the worth of land. The total KCC limit will remain fixed over a duration of five years, based on this evaluation.

If a higher limit is needed due to changes in cultivation pattern and/or size of the financing, this limit can be determined based on the estimate given.

Issuing Electronic Kisan Credit Cards

New Kisan Credit Cards are required to be issued as the credit card with a smart chip. In addition, when it comes time for the renewal of an existing KCC, farmers need to be issued a smart cum debit card.

The short-term credit limit as well as the loan term limit form two separate parts of the total KCC limit, each with various rates of interest as well as duration of repayment. If a composite card cannot be issued using the appropriate software that can separately account for the sublimits’ transactions, two separate electronic cards could be issued for all newly issued or renewed cards.

Validity/Renewal of Kisan Credit Cards

• Banks can determine the validity of KCC and its regular review.
• The review could lead to prolonging the facility as well as an increase in the limit, or removal of the facility’s limit or withdrawal, based on the growth in the area of cropping/pattern and the performance of the lender.
• If the bank grants extension or rescheduled the time of repayment in the event of natural disasters that impact an agriculturalist, then the time for calculating the state of the operation as satisfactory or otherwise will be extended along with the increased amount of limits. If the extension requested exceeds one season of harvest, the total of the debits to which the extension has been granted must be transferred to an additional term loan account with a condition for installment repayment.

Disbursement of the Credit under Kisan Credit Card Scheme

The short-term component part of the KCC limit is the revolving cash credit facility. There should not be any limitations or checks on the number of debits or credits. The current agriculture season/year limit may be drawn by any of the following channels for delivery.

• Branch operation;
• Operation using cheque facility;
• Withdrawals through ATMs or debit cards
• Operation via business Correspondents and a banking outlet or a part-time bank outlet.
• Operation via PoS available to Sugar Mills/Contract farming firms operations through PoS available in Sugar Mills/Contract farming companies, etc., specifically for tie-up advances.
• Operations through PoS accessible to dealers who supply the inputs.
• Transfers made via mobile at the agricultural input dealers and mandies.

The long-term loan for investment purposes can be drawn in accordance with the installment fixed.

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Rate of Interest (ROI) for Kisan Credit Cards

The interest rate will be as stated in DBR Master Instructions on Interest Rates on Advances.

Repayment Period 

1. The repayment time frame can be determined by banks in accordance with the estimated harvesting and selling time for the crop for which the loan was granted.
2. This term-loan component is generally repayable in a timeframe of five years, based on the type of investment in accordance with the guidelines that govern credit to invest.
3. Financing banks could, at their discretion, extend the repayment period of term loans based on the kind of investment.

Margin

The banks will decide it.

Security

1. Security is applicable according to RBI guidelines that are prescribed from time to time.
2. Security requirements could be based on :

• Hypothecation of crops: KCC limit of up to Rs. 1.00 lakh, banks will remove the margin/security requirements.
• With tie-ups for recovery: Banks might consider approving loans on hypothecation for crops in excess of Rs. 3.00 lakh without requiring collateral security.
• Collateral security: Collateral security can be requested at the bank’s discretion for loans with limits of more than the amount of Rs 1.00 lakh in the case of tie-ups that are not tied up, and above 3.00 lakh tie-up advances.
• In states where banks offer the online creation of charge on land records, this shall be ensured.

Other Attributes

Uniformity to be used in the case of:

• The interest subvention that is in effect or incentive for quick payment according to the Government of India and/or State Governments. Bankers must provide adequate information about the facility to ensure that farmers can benefit from the incentive.
• In addition to the compulsory crop insurance, the KCC owner should be given the choice of availing the benefits of any form of risk insurance, such as accident insurance (including PAIS), health insurance (wherever the product is in existence), and also have the premium paid via his/her KCC account. The bank or farmer must bear the premium according to the rules in the plan. Farmers who are beneficiaries must be informed about the insurance coverage available, and their approval (except for crop insurance which is required) is required during the application process at the time of application.
• One-time document – During the initial moment of availing KCC loan, and then a simple declaration (about the crops that are grown or proposed to be grown) by the farmer, beginning in the second year.

Classification of Farmer’s Account as NPA (Non Performing Asset)

• The existing prudential rules on asset classification, income recognition as well as provisioning will be applicable to loans made in the KCC Scheme.
• Interest charging is to be carried out in a uniform manner for the advancements in agriculture.

Processing fees, inspection fees, and other charges to be determined by banks. 

Other Conditions to be Considered When Implementing the New Guidelines of the Kisan Credit Card Scheme

• If the farmer requests loans in exchange for the receipt from his warehouse for his crop, banks will evaluate such requests according to the established procedures and guidelines. When loans are approved, they must be tied to the account of the loan for crops in the event that they exist, and the amount remaining in the account may be settled at the point of disbursement of the pledge loan should the farmer would like to do so.
• NPCI (National Payments Corporation of India) will develop the Kisan Credit Card that will be accepted by all banks and branded with its logo.

Delivery Channels: Technical Features

Issue of Kisan Credit Card

The beneficiaries in this scheme are provided with a Smart card/ debit card. The biometric smart card that can be used for use at ATMs or Hand-held Swipe Machines, and capable of storing sufficient information about the identity of farmers and assets, as well as land holdings and credit profile of the farmer, etc. All KCC holders will be issued with one of the following kinds of cards:

Type of Kisan Credit Card 

A magnetic stripe credit card with a PIN (Personal Identification Number) and the ISO IIN (International Standards Organization International Identification Number) allows access to all banks and micro ATMs.

In situations where Banks are looking to use the central biometric authentication system of UIDAI (Aadhaar authenticating) debit cards equipped with magnetic stripe and PINs with ISO IIN with biometric authentication, UIDAI can be issued.

Magnetic stripe debit cards and biometric authentication may be offered depending on the customers and the size of the banking institution. As long as UIDAI is widely used, banks can decide to do this when they are looking to start without interoperability by using their existing central biometric infrastructure.

Furthermore, smart cards and biometric authentication could be based on the open standards set by IDRBT and IBA. This will allow them to seamlessly transact with input dealers and get the revenue from sales transferred to their accounts whenever they sell their products at procurement centers, mandies, and other locations.

Banks can access the issue of EMV (Europay, MasterCard and VISA, which is a worldwide standard for interoperation between electronic circuits) and RUPAY compliant chip cards featuring a magnetic stripe and pin with ISO IIN.

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Delivery Channels 

The delivery channels listed below should be set up in order to ensure that farmers can use them. Farmers use Kisan Credit Cards to conduct their operations through the KCC account efficiently.

• Cash withdrawals through ATMs or Micro ATMs.
• Transfer of funds via BCs by using smart cards.
• PoS machine that is connected to input dealers.
• Mobile Banking that includes IMPS capabilities or IVR
• Aadhaar enabled Kisan Credit Card.

Mobile Banking / Other Channels 

Allowing mobile banking to KCC Cards/accounts as well as Interbank Mobile Payment Service (IMPS of NPCI) ability to permit customers to make use of this inter-operable IMPS to transfer funds between banks as well as to conduct merchant payments to facilitate purchases from agricultural equipment.

It is recommended that this mobile banking be provided on the Unstructured Supplementary Data (USSD) platform to ensure more significant and more secure acceptance. However, banks may offer it using other completely encrypted methods (application supported or SMS based) in order to benefit from the latest relaxation of credit limits on transactions. Banks may also provide mobile banking that is not encrypted, subject to RBI rules on limits for transactions.

A mobile platform for transactions that allow transactions within the KCC must utilize an easy-to-use SMS and authentication via MPIN. The solutions must also be incorporated into IVR with local languages to ensure security and transparency. All banks must embrace these mobile-based payment solutions by raising awareness and conducting the proper customer education.

With the current infrastructure in place through banks, must provide all Kisan Credit Card (KCC) holders with any combination of the following kinds of cards:

• Debit card, with magnetic stripe card that has a PIN, enable farmers to use the limit at all ATMs of banks / Micro ATMs
• Debit cards with biometric security and magnetic stripe.
• Smart cards to perform transactions using PoS machines used by input dealers, Business Correspondents traders, and Mandies.
• EMV compatible chip cards that have magnetic stripe and pin that have ISO IIN.

In addition, banks that have an inter-live Voice Response (IVR) can offer SMS mobile banking based on the ability to call back from the bank for the mobile pin (MPIN) verification using IVR. This makes an encrypted SMS mobile banking option accessible to cardholders.