15 Chapter 8

CHAPTER 8
DATA ANALYSIS AND INTERPRETATION-STUDY FINDINGS
8.0 Introduction
The field study was undertaken in the m onth of June 200 9 in Ahm adnagar
and February 20 1 0 in Sangli district. The discussions w ith th e bank officials
and others w ere undertaken in the period June 200 9 to April 2010. In this
chapter, it is atte m p ted to discuss the findings based on th e field survey. The
observations are as under.
8.1 C redit Flow in M ah arash tra
M aharashtra is one of the leading States in th e country in the m atter of
disbursem ent o f agriculture credit. This is because o f th e active role played by
th e cooperatives in extending agricultural credit. The State accounts for the
largest share o f co-operatives in the country in term s of th e num ber of PACS
and credit extended by cooperatives. The District Central Cooperative Banks
(DCCBs) accounted for 24.10% of th e total agricultural credit extended by all
the DCCBs in India.
The purpose -wise credit disbursem ent for the last th re e years in the State is
as follows:
Table: 8.1. Agricultural Credit Flow in the State of Maharashtra. (Rs. Lakh)
SN Type of Loan 2006-07 2007-08 2008-09
1 Crop Loan 797070 845986 644547
2 Term Loan (Agriculture and Allied) 411344 365313 317998
3 Non Farm Sector 171319 202667 286675
4 Other Priority Sector 531729 518253 544034
Total 1911452 2006843 1793254
Source: NABARD Regional Office PUNE. SLBC. Bank of Maharashtra. PUNE
The total credit extended in the State in the year 2 0 0 7 -0 8 was Rs. 20068
Crore. O ut o f this, m ore than 40% was issued for crop loans. This shows the
predom inance o f agriculture in M aharashtra. Sugarcane cultivation is the m ajor
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activity and, th e re are a large num ber of sugar factories in th e state both in
the cooperative and private sector. These aspects contributed to a higher level
of credit flo w from th e banks.
As regards crop loan, It is seen that cooperative banks had sanctioned the largest
num ber of KCC among the agencies and had disbursed a larger share of crop
loans. Cooperatives had a m ajor share of disbursement to sugar cane farmers.
Table: 8.2. Agency wise credit flow for crop loans in Maharashtra.
Rs Crore
Agency/Year 2006-07 2007-08 2008-09
Commercial Bank 230608 317169 247668
Coop Banks 535973 498899 368267
RRBs 30489 29918 28612
797070 845986 644547
Source: SLBC. Bank of Maharashtra Pune
It Is seen th a t the am ount of crop loan Issued and th e share of coops in the
crop loan has declined in the years 2 0 0 7 -0 8 and 2 0 0 8 -0 9 . The crop loan
disbursem ent by th e com m ercial banks has, on th e contrary gone up In the

year 2 0 0 7 -0 8 but gone dow n in the year 200 8 -0 9 . H ow ever the share of
com m ercial banks in the crop loan issue has been going up consistently. RRBs,
In the State had contributed to less than 6% share o f crop loan credit. M any
RRBs In the state, as in the case elsew here, have been m erged in the recent
past. In th e case of RRBs, th ere is a decline in th e volum e credit disbursed.
Overall, th ere is a decline in credit flow for agriculture and th e Issue of KCC for
the year 2 0 0 8 -0 9 . A perusal of reporting on SLBC proceedings^ and discussions
w ith bank officials and KCC holders revealed that:
1) The G overnm ent of India had announced Agricultural Debt W aiver and
Debt Relief Scheme, 2008 subject to certain criteria. The farmers who
had availed of ST /M T agricultural loans during 2 0 0 7 -0 8 had not repaid
th e ir dues in tim e in anticipation of the announcem ent of a similar loan
w aiver scheme by State G overnm ent and thus rendered themselves,
albeit tem porarily, ineligible for availing crop loans during 2008-09.
Eventually th e w aiver did come.
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2) Instead of repaying the dues, the farm ers utilized the am ount generated
from th e farm produce during 2 0 0 7 -0 8 for raising the crops in 2008-09,
resulting in poor dem and for institutional credit.
3) Even as the farm ers w ho had benefited under the ADW DR Scheme,
2008, did not come forw ard for availing of fresh credit from institutional
sources, the banks seem to have adopted very cautious approach while
providing fresh credit to such borrowers in view of th eir discouraging
past perform ance w ith regard to repaym ent of bank dues. It seems
th at m ajor w aiver schemes are invariably follow ed by a poor credit off
take^ It was post ARDR (1990) observed th at the credit flow growth
had slackened. (Bird 2000)
4) The distribution of monsoon during Kharif 200 8 was uneven. The
rainfall was 15% less than norm al in some areas. This had affected the
agricultural operations in certain parts of th e state resulting in poor
dem and for crop loan disbursem ent at the ground level.
In the crop loan segment, the cooperative banks have been playing a leading
role. It is seen th at though there is a continuous decline in the share of
cooperatives in the crop loans in the country, the co-ops in M aharashtra had a
higher share in crop loan. It is how ever noticed th at they are losing th eir share
to com m ercial banks (Table 8.2).
Chart: 8.1 Crop Loan: Agency-wise share in M aharashtra
S h a r e o f A g e n c i e s in C r o p L o a n in M a h a r a s h t r a
I C O I1 1 B , . i H k
I C o o p B cTM kb
I R R B s
Source: Regional Office NABARD
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8.2 D istrict-w ise issue of KCCs
The details of issue and expansion of KCC in M aharashtra State in the years
2 0 0 4-05 to 2 0 0 6 -0 7 are as under:
Table 8.3 Issue of KCC by banks : Last three years performance: Amount Rs. Lakh
Bank 2004-05 2005-06 2006-07
Number Amount Number Amount Number Amount
Com N.A N.A N.A N.A 536284 197344
Coop 1656035 138899 1282412 151859 996184 396024
RRB 39770 8556 28458 6861 45212 12844
Source: Regional Office NABARD
The district-wise position of KC cards issued by the financial agencies is
presented in Table 2.2 (Chapter 2). It is seen th a t th e perform ance is uneven
am ong the districts. The following table analyses the district wise position of
the KCC issued.
Table: 8.4 Kisan Credit Card - Analysis of cumulative KCC issued in various districts
Range of cumulative number of Names of the Districts
KC C issued by Banks / Credit
agencies up to 31.03.2009
More than 2.0 lakh Ahmadnagar, Aurangabad, Jalgaon, Kolhapur,
Nashik, Parbhani, Pune, Satara, Solapur and
Yavatmal. ( in all ten districts)
Between 1.0 - 2.0 lakh Akola, Amravati, Beed, Bhandara, Buldhana,
Chandrapur, Dhule, Hingoli, Jalna, Latur, Nanded,
Osmanabad, Sangli and Washim ( Fourteen
Districts)
Between 0.5 - 1.0 lakh Nagpur, Nandurbar, Raigarh, Ratnagiri,
Sindhudurga, Thane and Wardha ( Seven
Districts).
Less than 0.5 lakh Gadhchiroli, Gondia ( Two Districts)
Source: Derived from table 7.13
It may be observed (Table 8.4) th at in ten districts, th e financing banks have
issued m ore than tw o lakh KCCs per district. M a jo rity o f these districts are
situated in W estern M aharashtra (five) and N o rthern (tw o ) M aharashtra. These
districts are relatively well developed in agricultural practices and farmers
198
in these areas have taken up cultivating high value crops such as sugarcane,
grapes etc. Generally, th e disbursem ent under crop loans and issue of KCC are
relatively higher in these districts in comparison to o th e r districts'*. The crops
grown in these districts, being sugarcane and o th er cash crops have a higher
scale o f finance and th e crop loan activity is viable. In contrast in the case of
Gadhchiroli and Gondia districts the cum ulative num ber of KCC issued was less
than 50 ,0 0 0 . This is because, these districts are relatively less developed and
farm ers here grow food grain crops.
It is observed th a t Cooperative banks have issued m ore crop loans and KCCs.
It is a fact th a t most of these coops have also financed th e sugar mills for their
working capital needs. It is in th eir business interest to finance sugarcane crop
(being borrow er dom inated boards). Thus it is seen th a t a higher percentage
of KCCs are seen in sugarcane dom inated area.
As on 3 1 .0 3 .2 0 0 9 , Pune district had ranked first in issuing KCCs (444524)
follow ed by Aurangabad (3 9 0 9 9 7 cards) and Kolhapur (3 719 95 cards).
Gadhchiroli district ranked last in KCC issuance as only 180 21 KCCs have been
issued by th e banks in th at district. In term s of latest Agriculture Census,
the n um ber o f operational holdings in the State stood at 1 0 9 8834 1. It may
fu rth e r be observed th a t the num ber of KCCs issued (5 9 2 6 3 3 6 ) is about 54%
of the num ber of operational land holdings. It has been observed (NABARD
2007) th a t in th e case of districts w here the farm ers are involved m ore in the
cultivation o f food grains and cereal the issue of KCC has been lower. This could
be because in th e case of food grains the Scale of Finance will be low er than
th a t o f cash crops and borrow ing of small am ounts may not be viable.
8.3 Progress in coverage o f small farm ers
Another yardstick to com pare th e perform ance in issuing KCCs is by measuring
th e perform ance o f banks/credit agencies in issuance o f KCC to small farmers.
But in th e absence of actual data on coverage of small farm ers it is difficult to
com m ent on th e issue. But given the fact th a t th e num ber of small farmers
is about 72% of th e farm households in the State, the com parison of num ber
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o f KCC issued to operational land holdings should point out the small farm er
coverage. The m ore the num ber o f KCC issued, th e larger is th e probability
th a t small farm ers have been financed. The data in Table 7.13 can be used to
analyze this aspect. This analysis is atte m p ted by com paring the num ber of
KCC issued w ith the num ber of landholdings. The n um ber o f farm ers covered
has been calculated by assuming the operational holdings as representing
borrow ing farm ers. The relationship betw een KCC issued and coverage of
farm ers can be classified into three categories as per th e details given below:
Table 8.5 Number of KCC issued, operational holdings and

Small farm er coverage: Parameters
S. The ratio of number of KCC to land SF Coverage can be taken as
N. holdings is
1 60% and above Satisfactory
2 25% to 60% Moderate
3 Below 25% Poor
Source: NABARD.
Based on the data given in the table above on th e KCC issued in various
districts, th e follow ing conclusions can be arriv e d /a tte m p te d .
Table 8.6: Kisan Credit Card issued and Coverage of Farmers
KCC issued as % of Performance® Districts

number of Landholdings
60% and above Satisfactory Akola, Aurangabad, Chandrapur, Dhule,
Jalgaon, Kolhapur, Nashik, Osmanabad,
Parbhani, Pune, Solapur, Wardha,
Washim & Yavatmal (13).
35% to 60% Moderate Ahmadnagar, Amravati, Beed, Bhandara,
Buldhana, Dhule, Gondia, Hingoli,
Nagpur, Ratnagiri, Sangli, Satara,
Sindhudurg (10).
Below 35% Poor Beed, Ghondia, Gadhchiroli, Latur,
Nagpur, Nanded, Nandurbar, Raigarh
Sindhudurg and Thane (10).
Data in respect of Commercial Banks s (10 districts) and RRBs (5 districts) not
available
Source: Study ( unpublished) NABARD Pune and Table 2.2
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It may be seen th at, the banks have, in 13 districts issued KCCs the num ber
of which is m ore than 60 per cent o f the landholdings. It can, therefore, be
presumed th a t small farm ers in the area have been covered at least to the
extent o f 40% o f th e small farmer. As against this, th e perform ance of small
farm e r coverage seems to be m oderate in 10 districts.
The above m ay not be th e accurate estim ate of small fa rm e r coverage but is
a pointer to the perform ance. Given the fact th a t banks show a preference to
finance big farm ers and bigger loan am ounts a higher ratio of num ber of KCCs
to the operational holdings point out to the fact th a t small farm ers are, indeed
being financed. As against this, it must be pointed out th a t the data used is
cum ulative num ber of KCCs and not th e operational KCCs. It is suggested that
the lead bank m ust collect th e data on small farm e r coverage separately.
M aharashtra has recorded a much higher percentage o f institutional coverage
of fa rm e r households. This is higher than all India perform ance o f banks in
financing farm ing households which is around 47% . This is an o th er indicative
factor th a t shows small farm ers are covered by bank finance. The sugarcane
crop and cash crops attract a higher Scale of Finance and loan limits. The
viability o f borrow ing is a function of the am ount borrow ed and not the size
of th e holding. If th e small farm ers have assured irrigation and can grow
sugarcane and cash crops they will be able to get th e loans sanctioned.
8 .4 Field Study
8 .4 .1 A b o u t th e District: The m ajo r field study In th e fo rm o f sam ple survey
w as ta k e n up in th e district o f Sangli
Sangli district has a total geographical area of 85 7 2 sq km. It is m ade up of
th ree subdivisions and ten blocks. It has 724 villages. The num ber of cultivators
is 5.6 lakh of which 4.0 3 are small and marginal farm ers. The total population
is 25.84 lakh. The total area is 8 6 1 0 0 0 hectares. The net sown area is 662000
hectares. The details of land holding in the district are given in th e following
table.
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Table 8.7: Operational Holdings in th e District
Classification of Holdings Area Average size
holding Number % to Total Ha % to total of holding. Ha
Less than 1 Ha 196851 49 87542 12 0.44
Above 1 to 2 Ha 95163 23 136771 19 1.43
More than 2 Ha 112716 28 496299 69 4.40
Total 404730 100 720612 100 1.78

Source: Potential Linked Plan for Sangli District: DDM office NABARD.
The average size o f holding in the district is 1.78 ha which is higher than the
national average o f 1.6. It is seen th a t 28 % of th e land ow ners had access to
69% of th e area and held an average size of 4.4 0 hectare.

1 '■
8 .4 .2 Banking
One hundred and eighty th ree branches of connnnercial banks (22 banks), one
branch of a regional rural bank and tw o hundred and nineteen branches of
District Central Co-operative Bank functioned in th e district. The spread of
banking net w ork in the district is considered good. Banks had sanctioned
Rs 683 Crore credit for agriculture and allied activities in the year 2007-08.
In line w ith th e tren d o f credit in the state the disbursem ents in the district
for the year 2 0 0 8 -0 9 have gone down to Rs 606 Crore. It was reported that
sonrie pockets o f th e district had suffered deficiency in the rain fall in the Kharif
2008-09.
Table 8.8: Credit flow for agriculture and allied sector in Sangli District ( Rs. Lakh)
Purpose Agency 2005-06 2006-07 2007-08 2008-09
Crop Commercial Banks 13471 16058 24108 13762
Loan Cooperative Banks 14060 20060 20301 18128
Term Commercial Banks 19865 21578 22849 26553
Loans Cooperative Banks 1734 1884 1057 2209
SCARDB 434 502 338 00
Total 49195 59590 68324 60652

Source: Lead District Office : Bank of India and District Development office of
NABARD
202
In the district, the crop loans disbursed during 2 0 0 7 -0 8 am oun ted to Rs 4 43 09
lakh and accounted for about 2 /3 rd of the agricultural credit deployed. The
crop loan annount has, reportedly, declined to Rs 3 1 8 9 0 Lakh in the year 2008-
09. In th e case o f connnnercial banks, it is seen th a t th e term loans have been

increasing year after year.
8 .4 .3 KCC in th e District
As of M arch 2009, the branches in the district had issued 167 218 KCCs involving
loan limits (cum ulative) of Rs.2.83 Crore. The com m ercial banks had issued
19,650 KCC and Coop banks had issued 147568 KCC. The total operational land
holdings in the district w ere (Table 8.7) 4 0 4 7 3 0 . The num ber o f KCC issued
(cum ulative) works out to 41.32% of the operational land holding. As indicated
earlier, th e num ber KCC currently in operation is not readily available.
8 .4 .4 Progress o f crop loans disbursem ent u nd er KCC by sam ple branches
The particulars of crop loans disbursed by the sam ple branches during last
th ree years are given in Table 8.9
Table 8.9: Details of agricultural credit and KCC in the sample branches. Rs. Crore
BOM BOB DCCB BOI SBI
Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
08 09 08 09 08 09 08 09 08 09
Deposits 18.48 24.91 13.57 17.54 13.88 20.88 55.4 78.75
Advances 9.5 10 6.70 7.42 7.49 5.36 33.11 27,07
Agricultural 5.79 6.3 19.96 51.72 7.16 4.99 13.87 9.98 28.15 22.19
Loans
KCC Amount 1.21 1.55 2.08 4.17 1.32 1.99 1.63 1.29 8.45 7.34
KCC number 102 110 188 189 70 49 165 177 298 312
of accounts
Source: Collated from the questionnaires of the field survey
Overall, the identified (sam ple) branches of com m ercial banks and DCCB
branches had 837 operational KCC accounts. O f these, 196 KCC w ere taken up
for the study. It can be seen (Table 8.9) th at during th e year 2008-09, with
the exception o f Sangli branch of Bank of India, all o th e r sam ple branches had
recorded an increase in the KCC portfolio. In th e case o f com m ercial banks.
203
all th e crop loan accounts w ere in the form o f KCC. However, in the case of
DCCB, the crop loans outstanding w ere higher at Rs 4.9 9 Crore as against Rs
1.99 Crore under KCC. The DCCB officials indicated th at, o f late, the societies
are issuing crop loans of less than one year in the old pattern, whereas the
KCC is a th ree year lim it. This is because of some organizational issues faced
by th e sector in the wake of the im plem entation of the recom m endations of
the Task Force on Revival of Rural Cooperatives. (The Vaidyanathan Com m ittee
1). It was ascertained during th e field visit th a t the DCCB has many branches
in the district and PACS are apprehensive th a t they will go out of business if
the report is im p lem en ted in full and, hence, are insisting on continuing w ith
the one season crop loan. Thus, the coops are adopting the old type crop
loans also w hereas com m ercial banks are issuing crop loan only under KCC.
It has been indicated earlier th a t KCC limits are generally higher in the case of
cash crops. The PACS point out this fact and argue th a t small loans are m ore
feasible under the old pattern o f crop loan. They continue to insist on the
kind com ponent and insist on sharing the crop loan portfolio w ith th e DCCB.
M oreover, PACS point out th at as deposit taking by th em will be curtailed in
fu tu re due to th e Vaidyanathan com m ittee recom m endations th eir share of
crop loan will, fu rth e r decline.
It is seen th a t the overall agricultural credit outstanding in the sample branches
was Rs 9 5 .1 8 Crore o f which the KCC (crop loan) was o f the order of Rs 16.34
Crore i.e .17% o f th e agricultural loans. The com m ercial banks have issued
m ore term loans. Also commercial banks are able to handle loans for tractor
etc m ore easily than th e cooperatives. That the ARDBs are alm ost nonexistent
in the State makes th e role of com m ercial banks in agricultural credit m ore
im portant.
In all, 239 KCC accounts w ere taken up for study. This includes 43 KCC farmers
of A hm adnager DCCB which was studied a year earlier fo r adm inistering the
questionnaire. Am ong these, as many farm ers as w ere available at the tim e of
visit to the villages w ere m et for canvassing th eir opinion. About 100 farmers
w ere available fo r discussions and responding to th e questionnaires. Further,
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about 20 farm ers w ho have not taken KCC or crop loan from any agency w ere
also interview ed. The banks shared full details o f th e farm ers and th eir record
of transactions for the last tw o years. In each branch a m inim um of 20 KCC
w ere covered. In all, 25 villages w ere covered. Care was taken to ensure that
all th ree categories of the farm ers, i.e. marginal farm ers, small farm ers and
O ther fa rm e r w ere covered in th e study.
The agency-wise detailed sample-size are given in Table:
TabletS.lO. Agency wise Number of KCCs / Farmers covered during the study
S.N. Agency Villages No. of KCC Farmers
1 Bank of Maharashtra 7 29 8
2 Bank of India 2 27 9
3. Sangli DCCB 2 32 22
4 State Bank of India 8 75 25

5 Bank of Baroda 3 32 14
6 Ahmednagar DCCB 3 43 22
Total 25 239 100
Source: Field Survey
8 .4 .5 Classification o f Farmers
The sam ple consisting of farm ers can be classified into different categories
based on land ow ned and am ount of loan availed. The loan am oun t sanctioned
under KCC varied from Rs.100 00 per KCC in th e case o f Bank of Baroda to
Rs 5 7 0 0 0 0 in th e case of SBI. The average lim it per KCC for the sample was
Rs.108 356 and th e per hectare average lim it was Rs. 6 3 6 76. The highest loan
per KCC was Rs 5 7 0 0 0 0 by SBI for a grape farm er. The highest average limit
was seen in th e case of Bank of Baroda. All the KCC holders in the sample
of Bank of Baroda had taken limits for cultivation of Grape fruits. The details
of average, m inim um , m axim um and per hectare lim it sanctioned by various
banks are given below.
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Table: 8.11. Analysis of amount sanctioned under KCC in the sample
Amount Rs.
Limit sanctioned ADCCB SDCCB BOI BOB BOM SBI
Average per KCC 51233 93350 60222 174345 116552 154433
Highest 150000 231000 412000 550000 275000 570000
Lowest 19000 24750 15000 10000 30000 12000
Per Hectare 18919 49654 43639 101956 91056 76833
Source: Field Survey.
The banks had adopted the scale of finance (SOF)as approved by the District
Level Technical Committee (DLTC) for the crop as the primary basis for
arriving at the limit under KCC. The commercial banks added certain limit for
consumption, non-farm activities, other working capital needs etc based on
issues such as the track record ofthe farmer, types of crops grown/proposed to
be grown (cash crops attracted a higher amount) based on which the amount
varied from account to account. The following table provided the classification
of the sample KCC on the basis of amount sanctioned.
Table; 8.12. Classification of sample farmers based on KCC amount sanctioned

Number of KCC
SDCCB BOB SBI BOI ADCCB BOM Total
Limit under KCC
Below 10 Thousand 0 0 0 0 11 0 11
11 to 25 Thousand 1 0 4 11 17 0 33
26 to 50 Thousand 6 4 12 13 10 9 54
51 to 100 Thousand 15 5 18 1 5 11 55
101 to 300 Thousand 10 19 31 1 0 13 74
above 300 Thousand 0 1 10 1 0 12
Total 32 29 75 27 43 33 239
Itisseen that the cooperatives had more number of KCC accounts inthe sample
wherein the limits were relatively lower. Over all in the sample the percentage
of KCC with less than RsBOOOO limit was 41%. BOI had the highest cases of KCC
with 88% and followed by the cooperatives with 58%. The number of cases
financed by the cooperatives is higher and this is in line with observations
206
in the Report on Trend and Progress of Banking in India, RBI, and (2008-09)
which states that the PACS and DCCBs had financed a higher percentage of
small farmers. It isfurther seen that SB) had sanctioned KCC of all ranges and
limits. BOB and SBI had issued a larger percentage of KCC in the sample with
limits about Rs One Lakh. 36% of the sample KCC enjoyed a limit of more than
Rs one lakh. 5% of the sample had limits in excess of Rs 3 lakh.
Chart: 8.2 Classification of KCCs on the am ount of lim it sanctioned
40
Amount sizewise KC
35
I below 50
30 K
R ri'
t : I51 K to
s 25 r;
1-, lOOK
T 1101Kto
300 K
0 IAbove
u 15 300 K
s
a
n 10
d
5
SDCCB BOB SBI BOI ADCCB BOM
The amount sanctioned under KCC/crop loan is a function of crops grown and
scale of finance. Sangli district isone among the districts which are well known
in Maharashtra for Sugarcane and Grape cultivation. Jowar, Bajra are the major
food grains grown in the district and among oil seeds Groundnut isthe major
crop.
The details of major crops for the district in the last three years are as under:
207
Table: 8.13 Crops and fruits grown in the District®
S.N Crop 2005-06 2006-07 2007-08
Area@ Production# Area Production Area Production
Sugar Cane 0.40 29.67 0.53 39.90 0.65 52.32
Jowar Kharif 1.14 1.27 1 .1 0 0.91 0.90 1.34
Jowar Rabi 1.13 0.91 1.53 1.15 1.35 1.08
Bajra 0.73 0.27 0.90 0.32 0.80 0.32
Groundnut 0.35 0.16 0.35 0.20 0.34 0.31
Soybean 0.69 0.95 0.60 0.84 0.53 1.06
Paddy 0.18 0.33 0.18 0.28 0.19 0.36
8 Grapes 0.24 6.21 0.23 6.39
@ Lakh Hectares # Lakh Metric tones
Source: Potential Linked Plan: NABARD DDM office. Sangli
Jowar, Bajra, Sugarcane and soybean accounted for more than 70% of the
cultivated area in the district. As against this the sample farmers showed a
cropping pattern dominated by Grapes and sugarcane. Discussions with the banks
showed that not many farmers with the Jowar and Bajra crop have been issued
KCC. Even inthe case offinancing by Sangli DCCB itwas seen that sugar cane crop
dominated. Further, itisseen (Table 8.14) that majority of the borrowers in the
sample had cultivated sugarcane and grapes. These two crops had the highest
scale of finance. The details of crops grown (as declared in the loan application
forms) by the sample KCC farmers are given inthe table 8.14 below.
Table 8.14: Details of crops grown by the borrowers in the sample KCC
ADCCB SDCCB BOI BOB BOM SB! Total
Jowar/ bajra
/ground nut 35 2 5 10 52
S Cane 7 32 21 3 3 66
Crape 3 25 17 65 110
Sugar cane and Grape 2 3 5
Thur 1 1
Vegetable 1 1
Rose 2 2
Onion 1 1
Banana 1 1
43 32 27 29 32 75 239
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Itcan be seen (Table 8.12) that the number offarmers who had been sanctioned
less than Rs.25000 was 44 out of the sample of 239. The reasons for the low
number of KCC with lower limit could be that the crop grown in the area is
predominantly grapes which calls for higher inputs and attracts a higher scale
of finance.
8.4.6 Small Farmer Coverage
The small and marginal farmers constitute more than 72 per cent of land
holdings but cultivate only 38 per cent of the total arable land inthe State .The
percentage of small farmers in Sangli District was 72 accounting for nearly one
-third of the cultivated area. Besides the smallness of land holdings (of 1.0 ha
irrigated or 2.0 ha un-irrigated), these groups are characterized by the inability
to take risk, demonstrate a need to borrow money more for consumption than
for production and their incapabilityto offer collateral. As against this, the large
farmers have the ability to use modern production technologies which have
a tremendous potential to increase their production and household income.
They have access to other productive assets in the form of milchanimals,
poultry birds etc. Itappears that small farmers and those who do not cultivate
cash crops do not take crop loans from banks. In this connection, it has been
observed that most of the small farmers resort to borrowing money from rich
farmers and moneylenders, at high rates of interest. KCC should be a useful
tool to link such farmers to the formal credit delivery system.
As regards classification in terms of landholding size, NABARD has defined that

a farmer cultivating/owning one hectare irrigated or 2 hectare un-irrigated
holding can be reckoned as small farmer. Previously it was seen that KCC is
popular in the case of farmers cultivating cash crop and sugarcane. Itwas also
seen that in 14 districts the KCC numbers is more than 60% of the number of
operational holding. Given that 72% of the holding is small, a 60% coverage
will have at least 45% small farmer coverage. In this background, in respect of
the sample covered in the field study the following could be seen.
209
The details of landholding wise KCC details of the sample are as under:
Table: 8.15 Number of KCC farmers in the landholding sizes:

Based on sample studied
ADCCB SDCCB BO! BOB BOM SB! Total %to
total
sample
up to 1 Ha 13 17 22 70 29
1to 2 Ha 13 17 14 23 83 35
2 to 5 ha 22 27 75 31
above 5 ha 11
43 32 27 29 33 75 239 100
This matches with the small percentage that was arrived on the basis of
operational holding earlier. It is seen that the number of farmers with less
than one hectare irrigated land in the sample was 70 which is about 29% of
the sample. Further, there were 9 people in the holding size between 1 ha to
2 ha who had reported partly un-irrigated holdings. Thus, the number of small
farmers will add up to 79 making it around 33% of the total. Possibly due to
the area chosen being predominantly grape and sugarcane dominated and as
the operational holdings were irrigated, the small farmer coverage was lower.
Itisworth stating that in the state as whole NABARD had in a State level study)
observed that the small farmer coverage in KCC was about 56%.
It should be added that almost the entire sample farmers had access to well
and or LIS for irrigation. The average land holding size of the sample was
1.83 ha. The average holding size varied from 1.28 ha in the case of Bank of
Maharashtra to 2.71 ha in the case of Ahmadnagar DCCB.
Table: 8.16 Average holding size in the case of KCC sample. Hectares
Bank ADCCB SDCCB BOI BOB BOM SBI Average
of the
sample
Average 2.71 1.88 1.38 1.71 1.28 2.01 1.83
Another way of estimating the small farmer coverage isto have a overview on
holding size wise KCC. In respect of the field survey the following could be seen.
210
Graph: 8.3. Holding size wise num ber of KCC accounts
30
Holding size wise number of KCCs
25 I Up to 1 Ha
N
BO
e
r
15
o
f
(1:0
ADCCB SDCCB BOI BOB BOM SBl

Based on th e fie ld data co lle c te d in Sangli D is tric t
The number of farmers in the samie with holding size less than one ha and up
to two ha added up to 153, making it54% of the sample.
Another way of looking for small farmer coverage is the size of the loan. In
this conection, it would be appropriate to see if small loans are covered by
KCC. Itisseen that in respect of the sample KCC limits for less than Rs 25000,
which are generally considered small loans, were less than 20% of the total
cases studied. The sample indicates that the small farmer coverage under KCC
may not be satisfactory. The reasons for this must be analysed and remedial
steps must be taken. Further, it can be inferred that the banks are more
keen and comfortable in financing medium and large farmers or cash crops
for small farmer than small loans for small farmers who cultivate food grains
and cereals or operate in a mono crop area. Issues such as terms of credit,
repayment, seasonality, cost of credit etc could be the impediments in making
small farmer loans feasible. Insistence on mortgage or surety for loans above
Rs 50000 could also have impacted small farmer coverage. In the sample SBl
211
alone had somewhat equal number of farmers in all the holding size groups.
SB! did not insist on mortgage for loans up to Rs one Lakh.
Though, it is argued that 29% of the KCC in the sample based on the size of
holidng the small farmer ( less than one hectare) will be small farmers, It is
seen that many of these farmers had cultivated grape and sugarcane and as
such, the loan amount was more than Rs.25000. This will place them above
a large number of small farmers in terms of economical/ finanacial satus.
In respect of the sample, the minimum average loan amount sanctioned to
persons holding less than one hectare holding was Rs 27166 in the case of
Bank of India. For the similar size group, Sangli DCCB had santioned Rs 32490,
State Bank of India - Rs. 68540, Bank of Maharashtra - Rs 90937 and Bank of
Baroda- Rs 153384. Thus, itisseen that small farmers growing cash crops tend
to get a higher loan than what isnormally seen in the case of small farmers of
cultivating other crops. Itwas also observed during the field survey that some
of the borrowers,though their individual holding size was small belonged to
families whose total holding size was higher. Possibly due to sub-divsion the
size has become smaller but the families live together and share a common
source of irrigation.
Yet another way of seeing ifsmall loans are encouraged isto make an analysis
of the average size of KCC limit.
Chart: 8.4 Analysis of sample on the basis of am ount of lim it for KCC
A m o u n t s a n c t i o n e d p e r KCC a m o n g b a n k s
■Highest
i Lowest
I Per Hectare
RÔOOO -Average per kcc
SDCCB BOI BOB BOM

Based on Field data collected in Sangli District
212
The average limit in the case of the sample is seen at Rs 108356. The average
per hectare limit was found at a healthy, Rs 63676. This isbecause; majority of
the farmers had grown grapes and /or sugarcane which are the two important
cash crops of the district.
8.4.7 Procedures of sanction
Banks sanctioned KCC loan limits arrived on the basis of the scale of finance
(SOF). To this amount the commercial banks added certain percentage for
consumption and additional amounts for other activities. Branches have also
been empowered to sanction a higher limit for farmers who practice modern
agricultural practices. In practice, it is seen that the branches sanctioned a
higher amount to cash crops and big farmers.
The scale of finance forvarious crops as approved by the District Level Technical
Committee (DLTC) of the district isas under:
Table 8.17. Details of Scale of finance in Sangli District. Rs per hectare

2006/7/8 2008-9 2009-10 2010-11 Dates of Dates of
Crop Variety of Crop Loan Loan Loan Loan disburse repay
ment ment
Sugar Alternate year 45000 45000 50000 75000
Cane crop
Seasonal Ratoon 37500 37500 40000 60000 1 July to 30 June
30 Sept next year
Ratoon 32000 32000 32000 40000
24000 24000 30000 40000
Turmeric Regular crop 25000 25000 25000 25000 1 April to May next
30 Sept year
Cotton Dry land cotton 6500 9000 9000 15000
Local elegant/ 9000 10000 10000 15000
improvised 1 April to May next
Improved 12500 12500 12500 12500 30 Sept year
irrigation
Hybrid cotton 15000 25000
Chilli Irrigated land 4800 4800 4800 4800
1 April to May next
species
30 Sept year
Local species 2000 2000 2000 2000
Tobacco Tobacco 2000 2000 2000 2000 1 April to May next
30 Sept year
213
Grapes Seedless grapes
Variety A
clipping during 45000 45000 75000 90000
April
15 Aug to 30 Sept 40000 40000 1 Jan To April next
66500 80000
31 Dec year
1 Oct to 30 Nov 27500 27500 46000 55000
Total 112500 112500 187500 225000
Variety B
clipping during 40000 40000 76500 80000
April
15 Aug to 30 Sept 27200 27200 1 Jan to April next
52000 72000
31 Dec year
1 Oct to 30 Nov 17800 17800 34000 48000
85000 85000 162500 200000
Banana Ratoon 7000 7000 7000 7000
Improvised class 35000 40000 40000 50000
1 Jan to April next
of banana
31 Dec year
Tissue Culture 15000 15000 15000 15000
work
Soybean Soybean 8000 8000 7000 7000
Wheat raw wheat 5000 5000 5000 5000 May next
1 Jan To year
Mexican 8000 10000 15000 20000 31 Dec May next
year
monsoon crop 5000 6000 6000 15000 1 April to March
wheat 30 Sept next year
Jowar ordinary 2500 3000 5000 5000 1 April to
March
monsoon crop 30 Sept
next year
2010
Kharif Crop 4500 5500 15000 20000
Rabi Crop 6000 5000 6000 15000
1 Oct to
hybrid jowar 7000 4500 9000 9000 May next
31 Mar
irrigated year
2011
rabbi jowar 7000 7000 10000 10000
irrigation
Rice Ordinary Rice 3000 9000 5000 5000 1 April to March
30 Sept next year
improved rice 10000 3000 11000 12000
May next year
1 Oct to May next
improved 5000 11000 6000 10000 year
31 Mar
summer rice
basmati Rice 6000 11000 12000
Source: Circulars on Scale of Finance issued by the Lead District Officer of Bank of India- Sangli
214
Itmay be seen that the SOF issomewhat in detail, indicated interms ofvarious
varieties of crop and spell out the installments and time in which the amount
has to be disbursed, period of disbursement and the dates of repayment.
The circulars of commercial banks to their branches on KCC indicate that the
branches can sanction the fullamount of scale offinance to the farmer without
any margin. However ifthe branch feels that the SOF as arrived by the District
Level Technical Committee (DLTC) is not adequate for its farmer (who may be
adopting improved agricultural practices) it may sanction a higher amount by
estimating the SOF afresh and keeping a 10-15% margin on it.The cooperative
banks adopt the scale of finance strictly.
The DLTC meeting which is convened by the District Central Cooperative

Bank approves the scale of finance (SOF) for various crops for a particular
year. SOF is fixed as a range, the lower range being indicative of the credit
the requirement of those cultivating under traditional method and the higher
range for meeting the requirement for those cultivating with improved
agricultural practices. The SOF isarrived at on the basis of cost of cultivation of
the crops and isconsidered to be one of the important guidelines forfixingthe
KCC limit by banks. All major banks, agriculture and cooperative departments
of the government at the district level are the members of the committee. The
DLTC meeting is convened every year to review the adequacy of SOF so that
the financing banks can sanction adequate limit to the farmers based on their
cropping pattern and land holding. The details of SOF fixed by DLTC for major
crops during the lastthree years In the district are given in Table 8.17.
The SOF is reviewed periodically. It is observed (table 8.17) that in Sangli

district the SOF was revised in the year 2008-09 after a gap of two years. It
is seen that, in the current revision, the cash crops have been revised up by
a higher percentage whereas the change in the cereals and food grains is
moderate. The banks have not been able to prevail on the DLTC for regular
revision. Bankers pointed out that, because the DCCB was in the past, short
of funds it had resisted the revision of SOF. In the current year, thanks to the
Vaidyanathan Committee and the Debt Waiver Scheme of GOI and the State
215
Governments, the Co-operative banks are flush w/ith funds and, hence, the
upward revision. Another issue brought forth during the discussion isthat the
Chairman of the DCCB is a non-official and is the ex-officio the Chairman of
DLTC. This comes in the way of efficient administration of DLTC. At the time of
interaction, the farmers pointed out that the SOF does not cover the cost of
cultivation. (The DCCB in each district was made the convener of DLTC based
on the crop loan system and as the Cooperatives were the leading purveyors of
crop loan credit. Now that the commercial banks have a leading share and each
district has a lead bank officer of commercial bank and District Development
Manager of NABARD there is a case to shift the DLTC as a subcommittee of
the District Level Bankers Committee so that the SOF can be arrived at more
professionally.)
As a rule, while arriving at the SOF the DLTC considered all the inputs and
from that reduced the labour expenses. The underlying presumption of SOF
is that the labour and other expenses will be the farmer's margin or down
payment towards cost of cultivation. Farmers however indicated this may
be appropriate in a small farm and in respect of other farms labour is often
hired and isa regular outflow. Often the farmers do not have liquid surplus to
meet the outflow and as such the labour cost must be included and a higher
amount of SOF arrived at. It seems the labour cost could be as much 25 to
30% of the Scale of Finance. Further in the case of small farmers and marginal
farmers, ifthey do not work in own farm they take up labour work. Thus they
have to forego income to cultivate in the own farm. Moreover, in the case of
small farmers, the need to maintain the family is also an important criterion.
As the small farmer's cash flow or surplus isvery less there isa case to finance
them for labour cost also. Finally the fact that income on account of sale of
agricultural produce happens once a year, points out to the need of financing
all the expenses. The SOF was observed to be around 40 tO 45% of the value
of likely produce and about 65% of the cost of cultivation.
In order to ascertain the appropriateness of the scale of finance, the cost of

cultivation of some of the crops was ascertained and compared with the SOF
216
Table 8.18. Scale of finance and approximate cost of cultivation
(major crops) as indicated by some of the sample farmers
Rs. Hectare
SN Crop. Scale of Cost of Credit Gap
Finance cultivation
2008-09 2008-09 Amount % of SOF
1 Cotton- Dry land 9000 17000 8000 89
2 Wheat- Monsoon 6000 9000 3000 50
3 Jowar- kharif 5500 6700 1200 22
4 Sugarcane 45000 50000 5000 11
Inthe sample study, however, majority of the farmers were sugarcane farmers.
The SOF of sugarcane was much closer to the farmers estimate. The bankers
and the farmers alike pointed out that inthe case of cash crops and sugarcane,
the SOF isreasonable.
The DLTC developed the crop wise SOF. The SOF circular spelt out not only
the amount to be financed but also the details of disbursements such as
number of installments and amount of each installment in which the money
is to be disbursed and also the repayment period. Banks adopted this SOF in
their lending operations and adhered to these stipulations. The details of SOF
were available with all the branches visited during the field work. However,
wherever banks strictly adhered to all the guidelines, it tended to reduce
the efficacy of cash credit limit. Disbursing the amount sanctioned as per
installments stipulated in the SOF circular necessitated many visits by KCC
holders to the branch for requesting the release. As such, account could not
be operated like a cash credit. Moreover, whereas the KCC guidelines issued
by the banks stipulate that each drawal could be repaid in one year; the SOF
circular stipulates crop-wise single date for repayment. Some of the branches
have, therefore adopted the practice of sub-limits which tends to reduce the
cash credit like features of KCC. Itcan be concluded that the DLTC, while fixing
the SOF continues to adopt the practices prevalent at the time the loans were
sanctioned for a season, this must change. The Scale of finance alone may be
arrived and indicated and the rest of the details may be worked out by the
217
branches such that the cash credit aspect of the KCC can be implemented in
full spirit.
Not all the banks followed the SOF completely. The guidelines issued by some
of the banks empowered the branch to sanction a higher limit than what is
arrived at on the basis of SOF in the case of improved agriculture practices
and progressive farmers. Given this, isthe limit adequate and how much isthe
actual limit in comparison to the one that isarrived at on the basis of Scale of
Finance? Adequacy can be evaluated in terms of the farmers' perception of
cost of cultivation and in terms of branches following the guidelines issued by
their head offices. A bank issaid to be following the guidelines ifthe sanction
amount is more than the sum based on the cropped area multiplied by the
scale of finance. For this purpose, the details collected from the banks were
collated and the limits were tested with reference to the crops for which the
limit was sanctioned and compared with the limit.
Chart 8.5. Am ount sanctioned on the basis of scale of finance
P e r c e n t a g e o f lo a n a m o u n t t o lo a n e le ig ib ility
o n S O F ts a s is
Less th a n
75%
wmmm100-12S%
BOB InSangliBdO
BOIon fielddatf collected
Bas^d iIVIict
str
In 32 % of the cases, itwas found that the limits were lessthan or equal to area
multiplied by scale of finance. The KCC guidelines of various banks (annexure)
indicate that the limit should include certain percentage of loan towards
consumption expenses and certain percentage towards non-farm expenses.
In view of this, it can be concluded that 32% of the cases were definitely,
underfinanced. During discussion on this issue, the banks indicated that lower
218
limits were sanctioned based on the amount applied by each farmer. This may
not be correct as itwas observed that only after deciding to finance a borrower
a bank parts with the application form. Another issue that was noticed was
that some of the farmers were content with the limits arrived on the basis of
the crops with higher scale of finance though other crops went un covered.
In 35% of the sample, the amount sanctioned was between 100 to 125%. In
23% of the cases the limit was in excess of 150 and in 10% of the cases itwas
between 125 to 150 %. One more reason that was put forward for less than
optimal financing or lower than what would have been the entitlelment on the
basis of scale offinacne isthat the borrowers do not liketo borrow in excess of
Rs 3 lakh as that would rob them of their eligibiltyto get interest subvention^^
from the Government. Overall itis seen that there is scope for improving the
limits in the cases of KCC.
To ascertain the gap in SOF, the farmers perception about SOF was sought.
Nearly 39% of them were sugarcane farmers and reamining were grape
farmers. Among them, 50% indicated that the amount santioned was adequate
while the remaining said itwas not adequate and they had to meet many cash
expenditures which were not fully coverered by the limit. A stduy by NABARD
in Pune and Aurngabad distircts had shown that in the case of cereal and food
crops, the amount of loan was observedinadequate.
This has, possibly resulted in some of the KCC holders approach the private
sources to meet the balance requirements. To a question as to how did they
meet the shortfall, the farmers indicated that they were able to (a) get some
ad-hoc loans and (b) used their savings. None of the respondents had resorted
to borrowing from money lenders. This, however, points out to a need to
increase the SOF to meet the actual cost of cultivation so that adequate loan
amount issanctioned to the farmers. Itwould be appropriate ifthe DLTCs issue
guidelines as to what percentage of the cost of cultivation has to be financed
such that a greater clarity prevails in arriving at the SOF. One of the training
modules of a commercial bank on KCC for itsfield officers points out that SOF
could be inadequate and, therefore, the limits could be arrived at on the basis
of realistic cost of cultivation less 10 to 15% as margin.
219
The SOF has been revised for the year 2010 and itisobserved that the current
revision in respect of some crops has arrived at SOF which could be higher
than the cost of cultivation.
8.4.8 Rate o f Interst on the loan
In the past, the rate of interest on the loan varied with the limit sanctioned.
Currently , the GOl has announced that the 2% subvention that it had
announced in the year 2007 in case the crop loans of less than rs 3 Lakh will
continue and these loans will be issued at 7% making the yield to the bank
at 9%. The Maharastra State Government has added that Itwill also offer 1%
sub vention. Thus, currently the rate of interst on loans up to Rs. 3 lakh is6%.
Infact the rate is rather low for the big farmers and there is an apprehension
that they may be borrowing and using this money elsewhere. Banks are not
allowed to compound the interest. Bank of Maharashtra charged a penalty of
2% on delayed payment. In these cases, the bank stipulated the repayment on
a standard way and did not adhere to the one year repayment norm for each
drawal. Currently the rate of interest, chargeable in the case of loans in excess
of Rs. 3 lakh is about 10.5%. Rate of interest on loan is one of the important
criteria in making the loans accessible to allthe farmers.
8.4.9 O ther Charges in th e account
Banks charged many types of fees in the KCC account. Some of them are
discussed below;
(A) Processing charges
In respect of new KCC accounts banks charged processing charges if the

amount of loan is above Rs. 25000. In the sample accounts, randomly sleeted
there were no new KCCs.
(B) Inspection Charges
Banks visited the field and the farmer's place of rseidence before the sanction
to ascertain the details of the case. This isknown as the pre-santion visit. Once
220
the loan is santioned, banks made periodical visits to ascertain the status of
the farming and verifying the assets. To defray their expenses in carrying out
these inspections and vists, banks collected certain fee towards known as
inspection charges. Banks charged these in terms of pre-sanction inspection
charges and post sanction visit charges in the account. The inspection charges
were debited once a year or once per crop. Commercial banks did not charge
inspection and/or other fee for loans up to Rs 25000. Some of the commercial
!
banks charged the fee only ifthe loans were in excess of Rs 50000. The co-1
operative banks did not charge any visit or inspection fee. I
(C) Cheque Book Charges : Whereever the banks issued cheque books,
there was a provison for collection of charges for the cheque book .Bank of
Maharastra debited Rs 53 per account as cheque book (MICR) charges. Loose
cheque leaves did not attract any charge.
(D) Personal Accident Insurance Premium (PAIS)
Personal Accident Insurance Scheme is an add on that has been included in

the KCC for the farmers. The KCC holder can get an insurance claim up to
Rs. 50,000 in the case of loss or harm to the parts of the body on account of
accident. The premium for the policy is subsidised and works out to Rs 3 per
half year. Itwas found that in the sample of 164 farmers who had taken KCC
68 farmers had objected to the PAIS. As such, the premium was not levied
in these accounts. Farmers felt that PAIS is unncecessary and could be kept
outside the KCC. They, however, indicated that the premium payable is not an
issue as itis really affordable. The cooperative bank did not insist on PAIS as it
has been offering, free of cost, a similar insurance for all its members. Some
of the commercial banks extended similar accident insurance to itsSB account
holders free of cost.
(E) Crop Insurance: The crop isnurance scheme covers identified or select
crops and the premium varies froml.5% to 5% per crop. Itwas observed that
in all the cases of KCC farmers who are cultivating sugarcane and growing
grapes, there was no crop insurance. 52 of the sample KCC accounts were
221
cultivating multiple crops. These 52 KCC holders indicated that they have inthe
last three years invariably suffered crop loss or substantial yield fall in one or
more crops on one or more years. However, in not even a single occasion they
have recmed crop insurance. The popularity of the crop isnurance scheme is
at its lowest point now. In the case of Grape farmers, itwas observed that the
crop losses were heavy in the year 2008 but there were no insurance options.
Sugarcane crop had suffered a major setback in yield on account of deficient
rains of 2008. The premium of 5% was rather high for a area based scheme said
the farmers. The procedure for rescheduling in the event of flood, drouhgt etc
isfull of details and most banks do not offer the faciltiies. In the year 2004 the
Minisrty of Finance had announced a scheme for postponing or rescheduling
the dues of farmers who have been affected by natural calamities but have
not been extented the benfit of roll over etc. The circular isa case in the point
that the existing procedures are difficultto comply with as far as rescheduling
isconcerned because itis linked to the system of "anewari" which islinked to
revenue recovery system. These aspects need a fresh look.
8.5 Efficiency o f the KCC
(A) Santion of Limits; Banks and DCCB sanctioned a three year limit arrived
on the basis of SOF.Commercial banks had provided for santion of additional
limitson account ofconsumpiton (contingency), workign capital needs forother
incidntal activities and non-farm activities. However in practice itwas found that
they added 20% of the amount arrived on the basis of SOF as consumption or
contingency limits. Though the banks have indicated that term loans could be
sanctioned under KCC, in practice itwas seen that term loans were santioned
separate. Further, the limits were reviewed annually for performance. The
enhancement of the limit happened normally once in three years.
(B) Disbursement Process: As soon as the limit is sacntioned and

documents executed, banks make disbursement in the account which is
withdrawn immediately by the KCC holder. In the case of grape and sugarcane
the amounts were released in two three installments. As regards subsequent
transactions, in the past banks used to insist on issuing the pay order for a
222
input purchase in the name of the dealer to ensure that the farmer does not
misuse the money. It Is, however, seen that this has been discontinued and
the farmer merely makes an application or shows an invoice and isallowed to
withdraw the cash for inputs or items to be purchased. Some of the banks do
not ask for such evidence and cheques are allowed to be encashed. Another
aspect isthat some of the banks disbursed the money to the SB account. The
borrower uses the cheque book under SB account to withdraw the money.
Thus, in these cases the KCC was not at all a cash credit account. The NABARD
and RBI guidelines on KCC indicate that the chequebooks may be issued but
must be accompanied by the pass book at the time of taking out money. This
makes it necessary for the farmer to be present in the bank for withdrawal.
This condition needs to be removed ifcheque book has to become effective.
(C) Cheque books: One of the important constraints in the previous crop
loan system was the need to come to the bank to withdraw money and use the
same for purchase of inputs. In the case of coopertives ,there was the issue of
compulsory kind compnenet. In order to over come this inthe KCC,the scheme
had envisaged provision of cheque books and operations on the basis of Cash
credit account for all KCC holders. In this regard, itisthe availability of cheque
book and more importantly its acceptance at mechant establihsments that will
make the KCC freely hassle free. As regards the issue of cheque book it was
seen that, SBI, BOB and BOI had issued loose cheque-leaves and not regular
cheque books. BOM had issued a cheque book and charged a fee for the same.
Itisalso seen that,as of now, allthese banks have moved to core banking and,
the customers accounts ( KCC) are already in the core banking system. When
contacted for a feed back the controlling offices of the banks have indicated
that in a shortwhile all the literate farmers will be issued cheque books.
(C) Use of Chequebooks: Currently, the cheque books/leaves are used only
for withdrawing cash from the KCC issuing branch and a particular account.
Some of the banks deposit the loan amount or a particualr installment in SB
account and the KCC holders draw the money from the SB account. In sum,
as of now, the accounts are not operated like a normal cash credit account
223
(wherein the cheques are accepted under clearing and there is no need for
getting each cheque passed by the loans and advances department) excepting
that more number of withdrawals are possible.
Merchants in the area ( other than district places) indicated that they are
not keen to accept cheques. Itcan be added here that even in cities cheques
are not popular mode of payment. It is only credit cards that have a greater
acceptability with the merchants as there is no chance of loosing out on
account of dishonour of cheques. In view of this, the KCC holder has to come
to the branch, draws cash and uses itfor various purposes including purchase
of inputs. It can be concluded that the accounts, ineffect remained the same
as they were before KCC were introduced.
(D) Use of Cheques in other Branches of the Bank: The scheme envisages
that the cheques can be used for drawing money inother branches ofthe bank.
Such facility could be limited to a few branches around the place such that the
borrower need not carry heavy cash for purchase of inputs. This facility has
not been extended under KCC in the sample cases. Banks indicated that this
facility is, as of now, not implemented. However with the intoduction of core
banking, this could be extended in the future.
(E) Operations In the account; The KCC is a cash credit and the customer
should be able to use itas often he/she wants. To evaluate this aspect, specific
data was collected at the time of visit to the branches. Details of visits to the
bank for drawing cash and making repayment were collected. These details
are given in Table 8.19 and 8.20.
Table 8.19: Details of visits to the Branch for Operating KCC

SDCCB BOM BOI BOB SB)
Average number of Visits 4 5 3 4 5
Maximum number of Visits 22 14 8 20 17
Minimum number of Visits 0 0 0 0 0
Median 2 4 3 3 5
Mode 2 4 2 3 5
224
Table 8.20: Number of operations in the account of sample KCC
Debits (disbursement and Charges) Credits (repayments and
receipts)
Total With Interest PAIS Inspection Credits Subvention Sugar
Debits drawals debit Factory
BOM
BOB
BOI
SDCCB
SBI
Source: Field Survey: Details from the account ledgers.
Itcan be seen (table 8.20) that though the withdrawals are more than two, the
repayment is only one. This aspect has been commented by other stuides in
the past too .Ithas been pointed out that the borrowers do not like to repay
and withdraw for us€ again. They are apprehensive that they may not be able
to draw again. This issome what true tillthe accounts are fully in the mode of
cash credit. As of now the accounts are not used as cash credit. Possibly ifthe
SOF had not indicated disbursement in installments, the drawals may also be
not more than one. KCC holders point out that the systems in banks are not
geared to allow operations on a cash credit basis. In support ofthis, itwas seen
that the agricultural ledgers were not handled by the front office {counter staff
)ofthe bank and the KCC holders had to approach the agriculture department/
cellfor enabling credit or debit inthe account. In sharp contrast the cash credit
for comercial and industrial credit were handled by the counter staff and the
cheques were honoured in the banking hall. In the case of commercial cash
credit there was no need to refer each cheque to the advances department.
One of the arguments in favor of KCC is that it is a three to five year limit
and can be operated by cheque .Consequently, the number of visits to the
branch are reduced thereby resulting in savings of expenses. Given that the
ratio of fixed expenses tend to be higher for small farmers such reduced visits
helped in icreasing the viability of small loans. It is however seen that though
the sanction related visits have come down the number of visitsto the branch
has only gone up. The number of visits could be reduced ifthe cheque books
225
were to be issued and could be used in merchant establishments. The visitsare
more possibly because the use of cheque books was restircted to drawing cash
from the branch. The cheque books, despite the intoduction of core banking
systems, are not being made payable by other branches of the same bank.
The KCC farmers were queried on the use of KCC/Cheque books. They indicated
that there is a need to make available KCC in the form of a real credit card
acceptable at merchant establishments which will reduce the need to carry
large volume of cash. Itisalso worth mentioning that unlike garment and other
merchants, the agricultural input sellers are not using the electronic payment
devices. (POS machines for card swipe). Itissuggested that banks may arrange
with merchants to accept the cheque. Itwas found that banks had envisaged
a tie up with merchants. For example. Bank of Baroda had instructed that
the branches should tie up with input dealers to enable the KCC holders to
show their KCC passbook/ID card and buy the inputs directly. For this purpose,
the branch can issue triplicate voucher books to the dealers/KCC holders
which will enable the merchants to sell the inputs to KCC holders and claim
reimbursement direclty from the bank. No such arrangement has been made
so far. Also this is feasible only ifthe dealer also maintains an account with
the same branch. This is indeed a simple and workable idea but sadly not in
position.
As regards the exepnses on visiting the bank, most of them opined that the
trips by themselves do not add to the cost as they visit the district or taluk
place for their other needs and a visit to the branch is combined with other
items of work and seldom exclsuive.
They pointed out that the amount of loan is not automatically available for
withdrawal in the account and often the agricultural loan department had
to process the request and transfer the funds to the account.This procedure^
needs to be simplified.
226
Chart. 8.6. Num ber of visits to the branch for operating the account
N u m b e r o f V isits t o t h e b a n k fo r t r a n s a c t io n s
m
b
e
r 15
o
f
10
!■ II i h l a II
SDCCB BOM BOi BOB SBI
As ascertained from the bank account and bankers
(E) W ithdrawals and Repayments: Analysis shows that, whereas the

withdrawal happened nnany tinnes in the cash credit accounts, the repaynnent
was invariably one. There are a few accounts where the farmers had not drawn
the amount in one lump sum and used it in many small sums of withdrawal.
There were one or two entries for subvention. There exists a guideline on KCC
that each drawal could be repaid in twelve months time. This has not been
used optimally. Repayments were stipulated arbitrarily for March orûne each
year. Once a repayment is made, the full amount of limit isdrawn again. Ifthe
one year for each drawal could be explained to the KCC holder, the cost of
credit could come down.
Table 8.21 The repayment dates fixed by the sample branches

Agency Bank Repayment Dates
Kharif RabI
CBS BOM 31st March 30th June
CB BOB 31st May 31st May
CB BOI 31st March 30th June
DCCB SDCCB Last Friday of March Last Friday of June
Source: Banks circular
227
Instead if the banks had adopted the one year repayment for each drawal
the borrower would have a greater flexibility and in the case of Bank of
Maharashtra the penal interest could not have been charged. Alternatively,
based on the scale of finance guidelines the banks could have varied the dates
of repayment. Yet this was seldom the case.
(F) Security for the loan: All the commercial banks had indicated that they
will issue KCCs for limits up to Rs25000/ Rs 50,000 without any collateral other
than hypothecation of crop. Yet in practice, itwas found that the banks had
taken the third party guarantee as surety even for amount as low as Rs 25000.
Banks indicated that the surety was available and not insisted upon. For loans
in excess of Rs 50,000, surety and mortgage were taken. Here again, one of
the securities should have been sufficient and taking two collaterals indicate
how much the banks are driven by security consciousness. In the case of loans
above Rs 50,000, most banks insisted on a mortgage of landed property or
surety. SBI did not take mortgage for loans up to Rs one Lakh.
Banks desired the registered mortgage as equitable mortgage was not feasible
as the title to land was not in the form of stamped documents. This is an
age old problem; get a special mention by the R.V. Gupta committee which
said that the State Governments should proactively solve the issues as this is
crucial for the growth of agricultural advances. However the situation today
is that mortgage has to be registered on the basis of land record abstracts
such as 7/12, 6D and 8A. Therefore, the borrowers were advised to get a,'no
encumbrance report' from the banks approved advocates. This costs around
Rs. 2000 to Rs. 2500. Then the mortgage was registered at a fee of 1.5% ad
valorem. Thus, the mortgage for Rs one lakh would cost Rs. 3500 to Rs 4000.
An equitable mortgage on the other hand could be less costly. The mortgage
had a limitation or validity period of 12 years.
(G) Documentation: Borrowers signed a promissory note, an agreement

of hypothecation of standing crop and continuing security and if need be a
guarantee agreement by the surety. These documents together cost Rs 350 to
228
Rs 400. In addition, tlie borrower was asked to produce the land records such
as 7/12, 6D and 8A evidencing (a) ownership of land and crops grown and
(b) details of holdings in different places and aggregate area owned. The land
records are maintained by the village officials and extract of the same should
be available at a fee of Rs.25. Yet borrowers and bankers alike indicated that
the trips made to the village official'soffice and other expenses added up to Rs
500. The banks insisted on similar documents forthe surety also. Itisalso seen
that for annual renewal the banks insisted on latest land abstracts to satisfy
that the lands are not leased out. Thus the cost of obtaining these documents
was annual.
Though the limits were sanctioned for three to five years and the mortgage
is valid for 12 years, banks reviewed the account every year and obtained a
letter of acknowledgement of debt and securities to confirm the outstanding
and the validity of the securities. The purpose of this document is to extend
the limitation period by three years. Such a document is needed only in the
case of promissory notes whose limitation period is normally three years and
not in the case of mortgage. Yet banks obtained the same.
It is for this purpose of review that the banks insisted on getting the latest
copies of land extract every year at the time of review. A controlling office
official (law officer) clarified that this is to ensure that the land is still in the
same name. Much needs to be done in this area.
PACS and DCCBs did not takeany mortgage. The DCCB was however constrained
^ ^ __-------------------------------------------- ---
that its individual member's maximum borrowing power was, till recently Rs
50,000. Recently on account of debt waiver funds and funds received under
the Vaidyanathan committee recommendations, the bank is having a heavy
surplus of funds and hence has increased the (m B ^ o Rs 1 lakh.
(H) Financial education and Staff availability: During the course of field
study, it was observed that the commercial bank branches had employed
qualified agricultural officers and the branches had full complement of staffto
handle KCC work. Yet, itwas observed that in most branches the time spent by
229
the bank staffwith the borrowers was mostly on the loan amount and the rate
of interest. Banks did not take up any financial advising of the KCC borrowers.
The borrowers were not appraised on how to use the KCC effectively. For
example it is important to educate the farmer the advantage of a cash credit
account.
(I) Appraisal Process: The commercial banks had issued detailed

guidelines to its branches on various aspects of KCC including appraisal. The
circulars contain farm models and examples of how to assess the peak credit
requirement in the case of multiple crops to arrive at KCC limits. However in
practice, the branches simply multiplied the crop area by the appropriate SOF,
added the consumption loan & other percentages as given in the circular and
issued the loan. For example, on a scrutiny of some KCC accounts of different
branches wherein the farmers had declared having more than one crop, itwas
found that the branches had financed only the major crop (cash crop) which
attracted the highest SOF. In these cases, however, the loan was more than
what was applied for by the farmer (application amount). Further, while fixing
the limits the branches took into account the consumption credit needs of the
farmers as per the guidelines in the respective of Head office circulars. It is
observed that, even though the branches had qualified field staffthey did not
take efforts to arrive at the limit based on actual requirements.
The commercial banks had a well structured pass book for KCC containing all
the information. The pass book, however, did not contain, unlike the case of a
savings pass book, important terms and conditions ofthe KCC. As such, farmers
were unaware that the limit isvalid for three to five years. While some of the
branches released the KCC amount in installments as stipulated in the SOF
circular others debited the loan accounts with a lump sum.
The branches of SDCCB were sanctioning the limits under KCC. Technically the
limit can be operated in the PACS also. But the KCC accounts were operated in
the DCCB branch only. The DCCB has since started issuing KCCs to itsborrowing
members and allowing the farmers to draw the money as and when they
require. By and large, majority of the farmers were withdrawing in a lump sum
230
and were, except in the case of default repaying on or near the due date. In
case of sugar cane the sale proceeds were received from the sugar factory also.
The reasons for not operating the account as cash credit as revealed during
the course of discussions with KCC holders and bank officials are as under:
i. The farmers were not sure whether they would be able towithdraw when
they want. The KCC holders are particularly apprehensive in the case of
DCCB whose financial position isknown to be volatile and uncertain.
ii. There is subtle pressure by the cooperatives on the KCC borrower to

take the inputs like fertilizers form the PACS. However the situation
was replete with shortage of inputs viz., fertilizers, improved seeds etc
during the peak season of agriculture operations.
iii. Interms of interest subvention schemes of GOI and State Governments,

the farmers are getting crop loans @ 6% rate of interest p.a. which is
very reasonable. As the interest rate for production credit is low, the
farmers have tendency to draw the available funds in one go and retain
the same for the maximum period.
Excepting funds constraints almost similar views are expressed in the case
of commercial banks too. Banks do not proactively advise the KCC holders in
usingthe account as a cash credit.
(J) Other issues: Inthe case ofsugarcane farmers, the payment by the Sugar
Factory isoften delayed. Sugar factories do not adhere to the repayment dates
and delay the repayment to manage their float and reduce their finance cost.
They do not seem to honor the dates set by the DLTC. Itwas, for this reason,
that one bank had charged penal interest for delayed payment in respect of
many sugarcane borrowers whose payments were received late from the sugar
factories.
To su m up it can b e sa id th a t th e KCC has re m a in e d in e ffe c t sim ilar to th e

previo u s version o f d e m a n d loan w ith th e single exception th a t th e lim it
u n d er KCC is sa n tio n e d fo r th re e to fiv e years. The procedural hassles have
n o t co m e d o w n .
231
8.6. Cost of accessing institutional credit
8.6,1 Borrowers cost
Cost isone of the factors that determine the flow and effectiveness of credit. If
inthe case of a given source, the costs were to be high and procedures lengthy,
borrowers may avoid that source of funds. Also, inability to comprehend the
terms and the officious behavior of the bank staff could come in the way of
outreach of credit. Often itispresumed that the interest paid on the account is
the cost of credit. This is incorrect. The cost of credit is more than the interest
paid on the amount borrowed. The cost of credit includes the travel cost to
the bank to get the sanction, withdraw cash, inspection charges levied in the
account, amount paid to the advocate as search fee in the case of mortgage,
stamp fee paid for mortgage etc. To this, one must add the expenses in
connection with getting the documents on land ownership from the village
talati office. Transport cost will vary based on the distance of the village from
the branch and other market place where the inputs have to be purchased. It
isoften difficultto segregate the transport cost exclusively incurred for banking
transaction.
The exact amount spent on these items is neither documented by the bank
nor the KCC holder. Farmers do not maintain any form accounts for their
operations. The sample borrowers were queried on this issue. On the basis of
broad information provided by the respondents, an attempt has been made to
estimate various types of costs of borrowing from the formal credit institutions.
In order to arrive at the cost of credit to the borrowers, information on various
types of costs viz. documentation, travel, bank charges paid for 'no dues
certificates' from banks and other expenses, etc were analyzed and presented.
Assumptions
1. The KCC Limit isvalid for 3 years.
2. In the case of cash crops the crop insurance is not in operation.
3. l/3rd of PAIS premium is borne by the beneficiaries. PAIS is paid

annually.
232
4. ROI is 6 % for loans up to Rs. 3 Lakh. (GOI subvention 2 % and GOIVI
subvention 1%).
5. After receipt of application the banks undertake a pre sanction

inspection. After sanction of loan at least one post sanction inspection
iscarried out halfyearly.
7. Processing charge is applicable in case of loans in excess of Rs 50000.

Processing charge varies between Rs.150 to Rs.250. Itisapplicable only
for new borrowers.
8. Advocate fee for verifying encumbrances and search is Rs 2500.
9. Mortgage registration costs an ad-valorenn fee of 1.5 % on thelinnit

sanctioned.
10. Registered Mortgage is taken in the case of loans in excess of Rs

50000.
11. The documents taken for loans up to Rs 50000 are Deed of

Hypothecation, letter of surety etc. These costs are Rs 300.
12. The minimum number of visits, on the basis of the sample, to the
branch for sanction and operation is 4. (Sanction 2, withdrawal land
repayment 1).Two more visits are seen in the case of higher volume of
KCC limit.
13. For initialsanction and annual review the borrower had to produce land
records. The expenses there against istaken at Rs. 500 per annum.
14. Each withdrawal must be repaid in one year.
In the case of PACS and DCCB, the stamp cost and mortgage cost are absent
but a KCC holder must invest money equal to 10% of the loan amount in share
capital. Most of the KCC holders are members of the society from a long time
and have more share capital than required. Itmust be noted that this amount
does not even earn a dividend and the opportunity cost should be added a
cost. However for the purpose of the KCC since no additional share capital is
involved, the opportunity cost has not been reckoned.
233
The table could have been drawn for actual amount of loan by some of the
sample borrowers. But that would not enable comparison and therefore itwas
decided to apply the cost on a series of amount of Loan starting from Rs. 10000.
In the sample the lowest amount was Rs.l9000 and the highest was Rs 570000.
Table 8.23. Estimated cost of credit based on responses by sample KCC holders (In Rs )
Commercial Banks KCC Non-Cash Crops Cash Crops
10 20 30 50 100 300 50 100 300
000 000 000 000 000 000 000 000 000
Visit Expenses ( Travel Etc) 400 400 600 600 600 600 400 / 600 600
Land Record Related 500 500 500 500 500 500 500 500 500
PAIS per annum 5 5 5 5 5 5
Crop Insurance / 150 300 450 750 1500 4500
Mortgage cost annualised 650 800 1400 650 800 1400
for five years
Documents cost Stamp 100 133 133 133 133 133 133 133 133
Total 1155 1338 1688 2538 3538 713^ ' 1683 2033 2633
Interest Amount 600 1200 1800 3000 6000 18000 3000^ 6000 18000
Total Expenses per annum 1755 2538 3488 5538 9538 25138 ►4683 f 8033 20633
Cost of Credit 17.55 12.69 11.62 11.07 9.54 8.3^ 9.37 8.03 6.88^
4 7
Cooperative KCC All Crops Cash Crops
10 20 30 50 100 300
000 000 000 000 000 000
Visit Expenses (Travel Etc) 400 400 400 400 600 600
PAIS per annum 5 5 5 5 5 5 \ v.c
/
Crop Insurance 150 300 450 750 < ^’ <
Total 555 705 855 1155 605 605
y
Interest Amount 600 1200 1800 3000 feooo 18000
Total Expenses 1155 1905 2655 4155 6605 18605
' 1 ^
Cost of Credit 11.55 9.53 8.85 , 8.31 6.60, 6.2^
Source: Field survey and estimate by the researclier
Itcan be seen from the above that in the case of small loans the effective cost
V,
of borrowing is higher. This is because the fixed costs get divided on a lower
loan amount. Also the cost in the case of cooperatives is much lower than the
commercial banks. That the cooperatives enjoy exemption from stamp duty
and registration charges help in the matter. However a number of constraints
234
such as Individual Maximum Borrowing Power (IMBP), FACS borrowing powers
etc come in the way of extending more credit by cooperatives. In the above
calculations, the financial cost on account of loss of working days has been
ignored. This is because the loss of man days for bank work has not been
established. At best, it is a part of the day's work. These costs are incurred
even ifone were to transact in a savings bank account. Ifthese costs were to
be added, the cost for small farmers, in whose case the labour income isvery
important will only go up. The sample does not contain such small farmers
and, hence, no attempt was made to estimate the amount. NABARD study
has placed the loss of wages etc at about Rs 262.50 in a study conducted In
Aurangabad district. The wage loss was the lowest at the DCCB level because
the FACS isavailable at the village level.
The cost of cheque book may be added in the case of big farmers. But most
banks did not issue cheque books. Bank of Maharashtra charged Rs 53 per
MICR cheque book. Another cost that could not be confirmed was the cost of
obtaining NOC. In one area, there were 25 other banks and a customer had
produced a NOC with signature and stamps of majority of these banks. This
is indeed a cumbersome process and not always a transparent process. KCC
borrowers complained about lack of courtesy bordering arrogance on the part
ofsome bankers when they approached for NOC or NDC. Some ofthem alleged
expenses In this respect. Even though verification of such events isbeyond the
scope of the study, the need to get NOC from 25 lenders in an area isbaffling.
Fossibly the cost, coupled with the procedural difficulties and the distance
from the banks could be the reason why a high percentage of small farmers
(NSSO survey 2003) borrow from money lenders. The KCC as a product has not
addressed this issue. That the cost of credit for small and marginal farmers was
high was also true in the case of previous (demand loan) crop loan also. But it
must be said that the cost of credit may not be dissuading the small farmers
because they are paying higher rates of interest with the money lender. But in
the case of the money lender the only cost isthat of the interest and there are
hardly any procedural issues involved.
235
8.6.2 Yield on small loans to banks
On account of guidelines that it a bank may not charge any processing or

inspection fee on loans of less than Rs 25,000 the yield in the case of such
loans will be less than the interest charged in the account. Governnnent is
giving subvention for the interest rate foregone in respect of all the loans but
the concessions in fee, share inthe premium of PAIS and crop loan etc., met by
the banks for small loans and small farmers is not met by the government. All
these make the return on small loans lower in comparison to bigger loans and
make small loans less viable for the banks. Bigger loans are more viable for the
banks as over and above the interest, all other charges are also recovered.
8.7. Facility of drawing cash from other branches
Allthe branches visited were inthe Core Banking Solution. Yet, itwas found that
the KCC holders were not issued cheque books and, therefore, they could not
use itin other branches. Though BOI had announced a Shatabdi ATM Card the
KCC farmers are not issued the same. SBl has enabled the ATM cash withdrawal
but the process of issuing ATM cards under KCC has not yet started.
8.8 Use of Credit
The inspection reports ofthe banks and interview with the farmers showed that
most KCC holders (94%) had used the KCC for agricultural and crop purposes.
A few indicated that they had used itfor on farm investment purposes. One or
two indicated that they had used the money for emergencies that occurred.
8.9 Utility of KCC
In general, the KCC has been well received by farmers who have already
established good terms with the banks. Bankers had not observed any gross
misuse of KCC. There were defaults in the account and were being followed up
by the banks.
The farmers holding KCC were interviewed to know their opinion on the utility
of KCC. All the respondent farmers indicated that the sanction of three to five
year limit is good and gave them a sense of assurance in carrying on farming
activities. They said that there was not much saving in the cost due to this.
236
They also said that there isno need to add the cost of travel etc to the bank for
arriving atthe cost of borrowing as the trips are combined with other activities.
Possibly, the first two visits at the time of sanction or renewal could be taken
exclusive. They indicated that frequent repayment was unnecessary as the
cash has to be withdrawn again for use. The cash out flows were occurring
throughout the year whereas the cash inflows occurred only once. The limits
were made available without much difficulty.
8.10 Problems faced by farmers with KCC

Rigidities in implementation process, the lack of awareness among farmers
about KCC, need to obtain updated land records, small land holdings and
illiteracy of borrowers have been some of the problems hindering the progress
of the scheme. The farmers expect higher quantum of finance from the banks
and were of the view that increased cost of cultivation may be taken into
account while sanctioning the credit limit. The present SOF is at lower side
as compared to cost of cultivation resulting into inadequate finance by banks.
All the farmers were of the view that getting the land record documents from
government agencies was most time consuming. The cost of mortgage ishigh.
8.11 Conclusions
Field visit has shown that the commercial and cooperative banks issue the KCC
for three to five years. The limits are arrived at on the basis of extant guidelines
but there isscope forreviewing some ofthese guidelines. Operational constraints
are very much observed which include: non-issue of cheque books, inability to
use the cheque books in merchant establishments, ineffective crop insurance,
lengthy procedures, need to produce a listof documents year after year. These
issues came inthe way offulfillingthe promise of hassle free credit. Itwas found
that the high cost of credit, coupled with procedural constraints kept the small
farmers away from KCC. There isneed to review and improve the product.
Some attempt has been made in this regard. For instance, in the year 2004,
NABARD and RBI had issued circular to the banks indicating that the KCC
can also include a term loan for the farmers. However it was found that the
composite limit has not been sanctioned inthe KCC cases ofthe district/sample.
It should, however, be said that even prior to the introduction of KCC term
237
loans by NABARD banks had issued circulars to the branches on KCC variants
which covered term loans and also included rural activities like poultry etc. In
sonne KCC like cards bank sanctioned the linnits based on land value. The KCC
schenne of commercial banks covers a wide range of activities and the move is
towards a composite limit to the farmer. There isa strong need to redesign the
product to reflect the cash flows of the farmer (Bhaskaran).
The commercial banks have linked the improvements in KCC to the efforts in
doubling of credit. The recent circulars of commercial banks emphasize the
need to improve credit through KCC.
The summary position of major features of the scheme is given in Annexure.

However, a review isgiven as under:
Table: 8.24 Comparison among KCC schemes :

Feature BOI DCCB BOM BOB SBI
EligibilityCriteria: 1.Own land 1. Must be a l.Own land l.Own land l.Own land
Existing client 2. Good member 2. Good 2. Good 2. Good
Repayment 2. Own land Repayment Repayment Repayment
performance 3. Good performance performance performance
3. Non Defaulter Repayment 3. Non Defaulter 3. Non Defaulter 3. Non Defaulter
4. No dues to performance 4. No dues to 4. No dues to 4. No dues to
others 4. Non others others others
Defaulter
EligibilityNew Above plus Above plus Above plus Above plus good Above plus
client good track good track good track track record with good track
record with the record with record with the the previous record with the
previous banker. the previous previous banker. banker. No dues previous banker.
No dues to banker. No No dues to to others No dues to
others dues to others others others
Are Lease farmers Allowed. Not Not mentioned Allowed. Not Recorded or Registered
eligible? explicit explicit registered lease. Share
lease or share croppers with
croppers established
cultivating crops performance.
fora period not
lessthan five
years
Minimum Credit Rs.lOOO Rs.5000/- Rs.5000/- Rs.lOOO Rs.3000
Limit
Maximum Credit Amount arrived IMBPor Amount arrived Amount arrived Amount arrived
Limit on the basis of amount arrived on the basis of on the basis of on the basis of
norm or on the on the basis of norm or on the norm or on the norm or on the
basis ofvalue acreage and basis ofvalue basis ofvalue basis ofvalue
of collateral. No SOF whichever of collateral. No of collateral. No of collateral. No
Ceiling limit islower. Ceiling limit Ceiling limit Ceiling limit
238
Delegation to the Rs 15 lakh Not adequate Rs 10 lakh Rs 15 lakh Rs 15 lakh
branch at PACS level
Basis offixation of Cropping Pattern Cropping Cropping Cropping Pattern Cropping
production credit SOF * Crop acres Pattern SOF * Pattern SOF * SOF * Crop acres Pattern SOF *
Limit forthe fullarea Crop acres for Crop acres for forthe fullarea Crop acres for
Manager has the fullarea the fullarea Manager has the full area
the discretion the discretion Manager has
to vary ifhe to vary ifhe the discretion
feels SOF isnot feels SOF isnot to vary ifhe
adequate adequate feels SOF isnot
adequate
Basis offixation 50% ofthe 75% ofthe 50% ofthe 50% ofthe 50% ofthe
Produce Pledge produce value value of produce value produce value produce value
limit against ware produce against ware against ware against ware
house receipt pledged inthe house receipt house receipt house receipt
PACS Godown.
Not being
operated.
Basis offixation 20% ofthe 20% ofthe 15 to 35% ofthe 15 to 25% ofthe
Contingency or production limit production limit production limit production limit
consumption limit
Basis offixation 20% of 15% ofthe 20% of 20% of
Maintenance sub production limit production limit production limit production limit
limit
Basis offixation As estimated NO Estimated Estimated Estimated
Other Working
Capital for dairy,
non-farm etc
Seasonal sub Advised but Yes Advised but Advised but Advised but
limits? discretionary discretionary discretionary discretionary
What isissued? A passbook cum A passbook A passbook cum A passbook cum A passbook cum
Passbook or a ID cum ID ID ID ID
card?
Isterm loan part NO No No No
ofKCC
Basis offixation 10 times the Not mentioned 6 times the net 10 times the
Term Loan net incremental inthe KCC incremental net incremental
income or 70% circular income or 75% income or 70%
of the value of ofthe value of ofthe value of
the collateral the collateral the collateral
Separate limitfor Yes NO NO yes yes
NFS
Any separate Limit Yes NO NO yes yes
forother activities
Margins Production NIL NIL Production Production
Credit NIL Credit NIL Credit NIL
Term Loan 10% Term Loan 10 to Term Loan 10%
25%
239
Security Up to Hypothecation Hypothecation Hypothecation Hypothecation Hypothecation
RsSOOOO of crop of crop ofcrop of crop of crop
50 and Hypothecation+ Hypothecation Hypothecation+ Hypothecation+ Hypothecation+
above Mortgage+ of crop Mortgage+ Mortgage+ SBI stipulates
Surety Surety Surety Mortgage+
Surety only if
loan isabove Rs
lakh
Facilityof drawal NO NO NO NO NO
at other branches
Facilityfor direct YES. Purchase Kind YES. Purchase YES. Purchase YES. Purchase
purchase of inputs and produce component and produce and produce and produce
from market invoice. Cash invoice. Cash invoice. Cash invoice. Cash
disbursed disbursed disbursed disbursed
Any arrangement NO NO NO No NO
with Merchants
for use of KCC for
purchase of inputs
Ischeque book No Yes Yes No No

issued
Isthis an No No No No No
electronic card
Processing charges No No Yes No NO
Penal Charges for No No Yes Yes Yes
late payment
PAIS fee 2:1 bank and NO 2:1 bank and 2:1 bank and 2:1 bank and
KCC holder KCC holder KCC holder KCC holder
Fully by bank in
higher limits
Documents to 1. Photograph 1. No due 1. Photograph 1. Photograph 1. Photograph
produce for 2. Land certificate 2.Land 2.Land 2.Land
sanction ownership ownership ownership ownership
abstract abstract abstract abstract
3. Land abstract 3. Land abstrac3t. Land abstrac3
t. Land abstract
showing crops showing crops showing crops showing crops
4.No Due 4.No Due 4.No Due 4.No Due
Certificate Certificate Certificate Certificate
5. Similar 5. Similar 5. Similar 5. Similar
documents for documents for documents for documents for
surety surety surety surety
6. No 6. No 6. No 6. No
encumbrance encumbrance encumbrance encumbrance
report from report from re port from report from
advocate in case advocate in case advocate incase advocate incase
of mortgage of mortgage of mortgage of mortgage
Special KCC Yes Kisan Kisan Silverand No.
Samadhan Card Kisan Gold Card
240
Appendix to Chapter 8
Review of IVIajor Features of KCC Schemes Launched by Different Banks
The information on the features of KCC was compiled from the circulars issued
by Bank of Maharashtra, Bank of India, Bank of Baroda, State Bank of India and
Sangli DCCB. After the field study discussions were held with the bank officials
on understanding some of the issues. In the year 2004 NABARD and RBI had
issued circulars to the banks indicating that the KCC can also include a term
loan for the farmers. However itwas found that the composite limit has not
been sanctioned in the KCC cases of the district/sample. Itshould however be
said that even prior to the introduction of KCC term loans by NABARD banks
had issued circulars to the branches on KCC variants which covered term loans
and also included rural activities like poultry etc. In some KCC like cards bank
sanctioned the limits based on land value. The KCC scheme of commercial
banks covers a wide range of activities and the move is towards a composite
limit to the farmer. There is a strong need to redesign the product to reflect
the cash flows of the farmer (Bhaskaran^®).
The commercial banks have linked the improvements in KCC to the efforts in
doubling of credit. The recent circulars of commercial banks emphasise the
need to improve credit through KCC. A review of each of the bank's guidelines
on KCC and the implementation of the same in the branches isgiven below:
MahgbanH Kigan Creîit Cgrri (MKCC)
The major features of the Maharastra Bank's MKCC scheme are given below:
Purpose of Loan
The MKCC covers short-term production credit for raising field crops, short
term working capital required for agricultural activities and additional 20 per
cent towards contingency. Each KCC borrower was issued a passbook cum ID
card.
241
Eligibility of Farmer
Regular borrowers of the bank having good track record (regular in repayment
except in case of natural calamities) for the last 2-3 years are eligible for credit
under the scheme. In case of new borrower, the bank had stipulated that the
applicant should not be defaulter to any bank or any financing agency.
M inim um Credit lim it
The BOM stipulated Rs. 5000/- as minimum; however, no upper limit was
stipulated.
Fixation of lim it
The credit limit was fixed taking into consideration land holding, cropping
pattern including horticultural crops and SOF fixed for various crops by DLTC.
The limit to be considered for sanction included the sum of season wise
expenses plus 20 per cent towards contingencies.
Docum entary proof
The branches were required to obtain revenue records i.e. 8A, 7/12, 6 D
abstract, plantation slip etc.
Security
S.No. Particulars Details

1 Loans up to Rs 50000 Hypothecation of crop and other assets.
(25000 previously)
2 Loans above Rs.50,000 Mortgage of land/creating of charge on land,
third party guarantee, acceptance of terms and
conditions ofsanction letterand acknowledgement
of debt and security. Also guarantee wherever
available
The branch took third party guarantee even in those cases where the limits
were below Rs.50000.
Margin M oney or down payment: Nil
242
Rates of interest
Sr.No. Particular Rate of Interest (p.a.)

1 Up to and inclusive of Rs.3.00 lakh 1%
2 Above Rs.3.00 lakh to Rs,10.00 lakh 11.25%*
Term Loan
3 Above Rs.2.00 lakhs to Rs.5.00 lakh 12.25%*
* Linked to PLR Rate Penal interest of 2% levied forthe delayed period.
The bank charged penal interest in the case of loans above Rs 25000. This was
seen in the case of loans which have been repaid but delayed beyond the due
dates.
Repayment Date: 3T‘March & 30**"June for Kharif and Rabi crops respectively.
Long duration crops given a longer period. The branch was not following the
guideline regarding long duration crops.
Processing Charges
The processing charges are levied at the time of sanction as well as at the time
of renewal. The details are given below:
Sr.No. Particular Charges (Rs.)

1 Up to and inclusive of a limit Rs.25,000/- Nil
2 Above Rs.25,000/- to Rs.2.00 lakh 100/-
3 Above Rs.2.00 lakhs to Rs.5.00 lakh Rs.lOO/- per Rs.1.00 lakh or
part thereof.
Insurance
Notified crops under comprehensive crop insurance scheme of Govt, of India

may be insured, however the scheme was optional.
Validity of the linnit -3 years
Docum entation
i) Application form
ii) Guarantee form
243
iii) 7/12 & 8A and 6D abstracts (land records) ofapplicant and guarantors.
iv) No dues Certificate from nearby branches/PACS
v) NOC from Service Area bank/brancli if the applicant is outside the
area
vi) Plantation slip in case of sugarcane crop.
Review of the Scheme
Bank was sanctioning credit limits under KCC to eligible^ borrowers only. The
sample branch was found to be obtaining allthe documents prescribed by their
HO. The credit requirement of the farmer was assessed on the basis of his land
holding, cropping pattern, scales of finance fixed for the crops to be grown
and 20 per cent towards contingencies. The sample branches had not issued
KCC to any of its borrowing farmers. Further, the crop loans sanctioned under
KCC were either disbursed directly or credited to the SB account of the farmer.
Hence, there were no frequent operations in the KCC account. The processing
charges levied by the bank appear to be reasonable. Due to lack of awareness
the crop insurance scheme was not popular among the farmers. The bank was
charging Rs 53 for the MICR cheque book.
The bank charging penal interest in case of default of repayment beyond the
stipulated date. This was charged in the case of delay by the sugar factory
also. No entry for SB rate interest was seen in the accounts which had credit
balances for some period. The repayment periods were shorter as the bank
did not follow the SOF guidelines.
Kisan Credit Card (BOH
Earlier Bank of India had a simple KCC. Ithas revised the KCC in the year 2004
to include many new items and has named itthe Kisan Samadhan Card. The
major features of the KCC scheme and Kisan Samadhan Card of Bank of India
are given below:
' Eligibility is defined in terms of ownership of land, tracl< record etc.
244
Purpose of Loan
Item Loan for meeting Details

Production Credit Crop Cultivation Expenses Based on crop, area under
cultivation and SOF
Short term working Ancillary Activities Based on estimates
Capital
Short term Domestic needs 25% of Gross estimated
consumption income subject to max
Rs.50000
Against Warehouse Pledge limitforstoringso that 50% of the valued of produce
Receipts correct price isobtained pledged. Max Rs 5 Lakh
Investment Credit Land development, Purchase lOtimesthepostdevelopment
(2004 onwards) of farm machinery, irrigation net annual income, 100% of
facility etc + consumer the mortgage value, 70% of
durables (1 Lakh) the value of collateral.
Every KCC farmer is issued a passbook with an ID card. Recently the bank has
issued ATM cards to sonne KCC holders. But no one in the sample was issued
ATM card.
Type of Facility
Revolving cash credit limit subject to annual review. Three years in the case of
K S Card.
Regular borrowers of the bank coming from the operational area of the bank
having good track record are eligible. No dues to other banks and institutions.
M inim um Credit lim it
Bank has not stipulated any minimum but normally itisseen not less than Rs.
5000/-
M axim um Credit Limit
There is no maximum limit per farmer. Subject to eligibility and security any
amount can be sanctioned.
245
Fixation of lim it
pattern including horticultural crops and SOF fixed for various crops by DLTC.
Docum entary proof
The branches were required to obtain from the borrower revenue records i.e.
8A, 7/12, 6 D abstract, plantation slip etc.
Security
S.IMo. Particulars Details

1 Loan up to Rs.50000 Prinnary Security
Hypothecation of standing crop. If it is for
other working capital needs the other assets
may be hypothecated.
2 In case of loans above Mortgage of land/creating of charge on
Rs.50,000 land, third party guarantee, acceptance of
terms and conditions of sanction letter and
acknowledgement of debt and security.
3 In case of loans above These loans can be considered against surety
Rs.50,000 also.
4 Finance against ware Only primary security of hypothecation/pledge
house receipts ofware house receipt
Rates of interest
Sr. No. Particular Rate of Interest (p.a.)

1 Up to and inclusive of Rs.3.00 lakh 7%
2 Above Rs.3.00 lakh to Rs,10.00 lakh 11.25%*
Term Loan
3 Above Rs.2.00 lakhs to Rs.5.00 lakh 12.25%*
* Linked to PLR Rate Penal Interest of 2% levied for the delayed period.
246
In view of the GOI and State Government of Maharashtra's subvention the rate
of interest on loans up to Rs 3 lakh is6%. (total subvention 3%).
Repayment Date: 31"' March & 30'*"June for Kharif and Rabi crops respectively.
Repayment period for Long duration crop may be linked to crop harvest and
marketing. The sum of the credits in 12 months to equal all debits in the 12
month period.
Insurance

Validity of the lim it -3 to 5 years
Docum entation
i) Application form
ii) Guarantee form
iii) 7/12 & 8A and 6D abstracts (land records) of applicantand guarantors.
iv) No dues Certificate from the institutions in the area of operation
v) NOC from Service Area bank/branch if the applicant is outside the
area
vi) Plantation slip in case of sugarcane crop.
Bank was sanctioning credit limits under KCC to eligible borrowers only. The
sample branch was found to be obtaining allthe documents prescribed by their
HO. The credit requirement of the farmer was assessed on the basis of his land
holding, cropping pattern, scales of finance fixed for the crops to be grown and
20 per cent towards contingencies. The pass books were issued with transaction
details. Further, the crop loans sanctioned under KCC were either disbursed
directly or credited to the SB account of the farmer. Hence, there were no
frequent operations in the KCC account. The HO circular had indicated that a
247
single withdrawal of more than Rs 25000 should be monitored. Branches were
advised to follow seasonal sub limits. Branches were also advised to insist on
invoices, receipts etc. Itwas indicated that for each drawal the borrower must
bring the pass book thereby precluding payment of cheque to 3rd party or in
clearing. The branch was not charging any processing charges. The borrowers,
mostly sugar cane growers had indicated that they do not want crop insurance
and PAIS. The sugarcane was not a notified crop. The branch had not Issued
any cheque book to its KCC holders. None of the KCC holders of the branch
were issued ATM cards. No entry for SB rate interest was seen in the accounts
which had credit balances for some period.
The guidelines issued by the bank enabled the sanction of limits which were
higher than the past. But the procedures constrained the operations and
showed a focus on end use verification. The repayment terms very restrictive.
Kisan Card -S ta te Bank of India
Purpose of loan
The KCC covered short-term production credit for cultivating crops, short term
working capital required for agriculture activities and 20 per cent towards
contingency.
Owner cultivators and registered tenant cultivators/share croppers who have

done tenancy for five years.
Regular borrowers means those who have a good track record (regular
repayment except in case of natural calamities) for the last 2-3 years were
eligible under the scheme. In case of new borrower, the applicant should not
be defaulter to any bank or any financing agency.
M inim um Limit: Rs. 3000.
M axim um L im it :As arrived on the basis of SOF etc.
248
Fixation of lim it
The credit limit was fixed taking into consideration the annual cropping pattern
proposed by the farnner, number of seasons for which the crops are grown
and scale of finance. Having arrived at the peak season requirements for
crops ancillary needs @ 20% of the peak crop requirements, contingent needs
(including consumption and other working capital requirements) of 20% were
added to arrive at the total sum to be sanctioned. The branch was instructed
to calculate month wise such requirement and the highest amount of the year
was to be sanctioned as the limit.
The branches were required to obtain proof of ownership of land by revenue

records i.e. 8A, 7/12, 6 D extract, plantation slip etc.
Security
Sr.No. Particulars Details Documents

1 Up to Rs Hypothecation of crop and other Simplified Hypothecation
50000 assets. agreement
2 Rs 50000 Hypothecation of crop and Simplified Hypothecation
to Rs Mortgage of land/creation Agreement
100000 of charge on land, 3rd party Guarantee agreement
guarantee.
Letter of Arrangement
3 Above Rs Hypothecation of crop and Hypothecation agreement
100000 Mortgage of land/creation Guarantee Agreement
of charge on land, 3rd party
guarantee. Arrangement letter.
Margin M oney Nil

Rate of Interest 7% pa (upto Rs. 3.0 lakh).
Repayment Date As per SOF circular
Insurance
All cardholders are eligible for Personal Insurance under Personal Accident
Insurance Scheme (PAIS). Under the scheme premium of Rs. 40/- isshared by
farmer and bank in the ratio of 1:2 i.e. Rs. 14/- & Rs. 26/- respectively, which
will be paid in advance. Risk coverage under the scheme is Rs.50,000/-.
Validity 3 to 5 years
249
Bank was sanctioning credit limits under KCC to eligible borrowers only. The
sample branches of the bank were obtaining all the documents prescribed by
their HO. The credit requirement of the farmer was assessed on the basis of
his land holding, cropping pattern and scales of finance fixed by the DLTC and
20 per cent towards contingencies. Ifthe farmer had milch animals or other
activities a sub limit for that was also sanctioned. No cheque books were
issued to its borrowing farmers. Further, the branches allowed its borrowers to
operate the KCC account on the lines of CC account.
The branch did not follow the monthwise requirement to arrive at the limit but
simply multiplied the acreage under crops by the SOF, added the percentages
of additional limit and sanctioned the loan.
Kisan Credit Card (BOB)
Bank of Baroda offers three types of KCC. It has upgraded the KCC product in
the year 2004 to include many new items. The KCC cards are known as BKCC
(green/silver/Gold). Its approach isto sanction a composite limit with cheque
books and merchant arrangement for input purchase. Not all the details have
been implemented.
Purpose of Loan
Item Loan for meeting Details

Production Credit Crop Cultivation Based on crop, area under
Expenses cultivation and SOF
Short term working Capital Ancillary Activities Based on estimates
Short term maintenance Farm needs 15% of limitfixed for crop
Consumption Domestic needs 15 to 25% ofProduction credit.
Not more than RsSOOOO
Investment Credit (2004 Land development, 6 times the net annual income,
onwards) Purchase of farm 75% of the value of collateral.
machinery, irrigation 100% of value of assigned
facilityetc+consumer securities.
durables (1 Lakh)
Every KCC farmer is issued a passbook with an ID card.
250
Type of Facility
Revolving cash credit limit subject to annual review.
Owner cultivator, registered tenant farmers, sharecroppers. Regular borrowers

of the bank in the operational area of the bank having good track record are
eligible. No dues to other banks and institutions.
Minimum Credit limit
Bank has not stipulated any minimum but normally itisseen not less than Rs.
5000/-
Maximum Credit Limit
There is no maximum limit per farmer. Subject to eligibility and security any
amount can be sanctioned.
Fixation of limit
pattern including horticultural crops and SOP fixed for various crops by DLTC.
Documentary proof
The branches were required to obtain from the borrower revenue records i.e.
8A, 7/12, 6 D abstract, plantation slip etc.
Security
S.No. Particulars Details

1 Loan up to Primary Security
Rs.50000 Hypothecation of standing crop. Ifitisfor other working
capital needs the other assets may be hypothecated.
2 In case of loans Mortgage of land/creating of charge on land, third
above Rs.50,000 party guarantee, acceptance of terms and conditions
of sanction letter and acknowledgement of debt and
security.
251
3 In case of loans These loans can be considered against surety also.
above Rs.50,000
4 Finance against Only primary security of hypothecation/pledge of ware
ware house house receipt
receipts
Rates of interest
Sr.No. Particular Rate of Interest (p.a.)

Up to and inclusive of Rs.3.00 lakh 7%
Above Rs.3.00 lakh to Rs,10.00 lakh 11.25%*
Term Loan
Above Rs.2.00 lakhs to Rs.5.00 lakh 12.25%*
* Linked to PLR Rate Penal interest of 2% levied forthe delayed period.
In view of the GOI and State Governnnent of Maharashtra's subvention the rate
of interest on loans up to Rs 3 lakh is6%. (total subvention 3%)
Repayment Date: 31^‘March & 30'^ June for Kharif and Rabi crops
respectively, repayment period for Long duration crop may be linked to crop
harvest and marketing. The sum of the credits in 12 months to equal all debits
in the 12 month period.
Insurance

Validity of th e lim it - 3 to 5 years
Docum entation
i) Application form
ii) Composite Hypothecation Agreement
iii) Guarantee form
iv) 7/12 & 8A and 6D abstracts (land records)of applicant and guarantors.
v) No dues Certificate from the institutionsin the area of operation
252
vi) NOC from Service Area bank/branch if the applicant is outside the
area
vii) Registration of banks lien with the land registry of the village.
Bank was sanctioning credit limits under KCC to eligible borrowers only. No
cheque book was being issued. The credit requirement of the farmer was
assessed on the basis of his land holding, cropping pattern, scales of finance
fixed forthe crops to be grown and 20 per cent towards contingencies. The pass
books were issued with transaction details. Further, the crop loans sanctioned
under KCC were either disbursed directly or credited to the SB account of the
farmer. Hence, there were no frequent operations in the KCC account. The HO
circular had indicated that a single withdrawal of more than Rs 25000 should
be monitored. Branches were advised to follow seasonal sub limits, where
ever needed. Branches were also advised to insist on invoices, receipts etc.
The branch was not charging any processing charges. The borrowers, mostly
grape growers had indicated that they do not want crop insurance and PAIS.
The sugarcane was not a notified crop. In the case of higher limits the banks
circular states that the PAIS ismet by the bank. But this was not evident in the
accounts. No entry for SB rate interest was seen in the accounts which had
credit balances for some period.
Conclusion: The guidelines enabled the sanction of much higher limits than
the past. But the pronouncement on procedures constrained the operations
and showed a focus on end use verification. The repayment terms belie the
fact this isa cash credit.
Kisan Credit Card - Saneli District Central Cooperative Bank (SDCCB)
Purpose of Loan
To cover short-term production credit for raising of crops and short term
working capital required for agricultural activities.
253
Eligibility
Regular borrowers having good past track record were considered eligible for
sanction of loan under KCC.
Extent of the limit- Rs 5000 to Rs. 3.00 Lakh subject to Individual Maximum
Borrowing Power.
Fixation of limit
The credit limit is fixed taking into consideration the annual cropping pattern
and scales of finance fixed by DLTC.
Security
Sr. No. Particulars Details

1 Upto Rs 100000 Hypothecation of crop and other assets.
2 Above Rs. 100000 Hypothecation + Mortgage of land/creation of
charge on land.
Margin M oney Nil
Rate of interest :6%pa(upto Rs. 3.0 lakh).
Repayment Date Last Friday of March and June for Kharif and Rabi seasons
respectively. As per SOF circular.
Crop Insurance
Notified crops under comprehensive crop insurance scheme of Agricultural

Insurance Corporation of India (AlC) were required to be insured.
Validity : 3 years
Docum entation
i) Application Form.
ii) Extracts (land records) of applicant and guarantors.
iv) No dues Certificate.
v) NOC from Service Area bank/branch ifthe applicant is outside the
area.
254
The DCCB Bank was sanctioning credit limits under KCC to eligible borrowers
only. The PACS was obtaining all the documents prescribed. The credit
requirement of the farmer was assessed on the basis acreage under crop and
SOF. The sample branch of the bank had started issuing KCC to its borrowing
farmers during the year 2009-10. The crop insurance scheme was not popular
among the farmers as they feel the scheme is of no use and the farmers have
never got any insurance money. They point out that the crop insurance covers
only the loan account and issimilar to debt waiver offer by the Government. It
does not help in risk management of the farmers. DCCB offers itsown accident
insurance scheme ( state scheme run with another insurance company) and
did not insist on PAIS. DCCB has recently increased the limit of KCC without
mortgage to Rs 100000 which has seen some borrowers move from commercial
banks to DCCB. The PACS was maintaining a shadow account. It appears that
the PACS was offering normal crop loans also.
255
Appendix 2
Two sets of questionnaires were developed. The information was collected

fronn bank, borrowers and others.
Questionnaire for Banl< details
Banl< Details
Name ofthe Bank

Branch Situated at
2007 2008 2009
no amt no amt no amt
Deposits
Advances
Of which Agriculture
Of which Crop
Of which KCC
KCC limitsanctioned
KCC limitutilized (highest o/s)
KCC Loans outstanding
Number of KCC accounts
Number of Farmers in the service
area
Farmers financed by bank
Lease Financing details
Isthere $ny special KCC ?
How isthe limit arrived at Value of Land Crop * Scale Other
of Finance (specify)
What are the other Charges
payable
Isthe interest rate flator RBM
How isthe installment stipulated annual HY
When isthe limit renewed annually Once in three
years
All KCC holders get crop insurance?
What isthe premium?,
Did the farmers suffer any loss in
the lastyear
256
Did they get insurance cover
Is the cover adequate
Do you also sanction normal crop
loan
What is the rate of interest on
crop loan? Specify for different
announts?
If a person takes a demand loan
and not KCC will the rate of interest
be lower?
Is the KCC limit higher than the loan
limit
Do you follow CC system of crop
loan?
Do you sanction term loan in KCC?
Are you aware of any borrower
seeking money lenders support?
If so Why?
Questionnaire for borrowers
Field visit Questionnaire

Name of the farmer
Village District State
Details of Land Holding and Crops Grown
Crops Grown Irrigated Acres Un-irrigated Total
Own Leased
1
2
3
4
5
Total
Source of Irrigation
Is there any significant change in
the area in the last two years
Any recent change in the crop
pattern?
Other Farm Assets
1
257
2
3
4
Expenses - Annual (Rs estimate)
Current Year A Year ago Two Years
ago
Cultivation- Direct Expenses
Farm Maintenance
Non Farm Activity
Others
Family expenses- normal
Total
Bank Finance - Limit sanctioned
Availed
Details of Banking/Bank Finance
Type of Deposit account maintained
with the bank
Balance in Deposit account
Credit Facilities KCC Loan (Term) Loan (term) Loan (Outside
from the bank the banking
system)
Limit NA
Sanctioned
Loan Availed
Max
Minimum
Interest Paid
Rate of Interest
Other Expenses
in availing loan
Bank Crop Loan History ( for meeting working capital day to day expenses)
2007 2008 2009
Loan/KCC
Availed
Rate of Interest
Others
Rate of Interest
If there is no Bank Loan
Source of Funds
' This will include the amount spent for getting land records and other documents and trips made
to the bank
258
Amount Borrowed
Rate of Interest
Why no bank loan has been taken?
Is there a Bank/PACS nearby
Have you approached them?
What is the reason for not getting loan
Knowledge about product
What is your limit on KCC
How many times can you draw in a year
What is the rate of Interest?
Is the rate higher than the normal crop
loan?
When is the interest payable
How long have you been borrowing
Is the loan adequate? Specify
Do you borrow from others?
What other loans you have taken
Have you got a pass book?
Do you verify the entries in the pass
book?
Does the bank explain the details?
What is the security/collateral you have
offered?
Is the crop insured?
Did the bank tell you about crop
insurance?
Did you suffer crop loss?
Did you get insurance?
How much and When?
Was it adequate?
Do you pay insurance premium
KCC Transactions- for last one year ( from the pass book or bank)
1Quarter II Quarter III Quarter IV Quarter
No Amt No Amt No Amt No Amt
Limit
Outstanding
Repayments
Withdrawals
259
' Website of Bank of Maharashtra.
^ High Level Committee on Agricultural Credit through Commercial banks. R.V.Gupta Committee
1998. RBI
^ Research Study on 'Support from the banking system- a case study of Kisan Credit Card. Bankers
Institute of Rural Development. Lucknow 2001.
'' NABARD R.O Pune.
^ Doubling off credit (2004-05 to 2006-07) A study, http://www.nabard.org.in
® NABARD study.
^ Potential Linked Development Plan for Sangli District. NABARD. Regional Office. Pune
® Source; Potential Linked Plan 2008-09. NABARD. Sangli District and DSAO Agriculture
Department.
® Economic Survey Maharashtra, 2007-08).
Source: NABARD R.O study of KCC.
The Government of India has announced a subvention of 2% interest rate in the case of crop loans
since the year 2007.
RBI. Circular. RPCD No.PLAN.BC.92/04.09.01/2004-05 dated 24th June 2004.
NABARD studies.ibid
NABARD. NB.PCD (OPR)/794/A-137 (spl)/98-99 dated 18th August 1998 and NB. PCD(KCC)/700/
KCC-1/2000-01 dated 10th February 2001.
Bank of Maharashtra circular dated November 23 1998.
R.Bhaskaran. Beyond Waivers, Need to redesign the Bank Loans and offer hedge products. Indian
Journal of Agricultural Economics. April to June 2008.
‘^Source: Circulars and training material on KCC collected from the banks,
.Bhaskaran. Beyond Waivers, Need to redesign the Bank Loans and offer hedge products. Indian
Journal of Agricultural Economics. April to June 2008.
260

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CHAPTER 8

DATA ANALYSIS AND INTERPRETATION-STUDY FINDINGS

and February 20 1 0 in Sangli district. The discussions w ith th e bank officials

8.1 C redit Flow in M ah arash tra

M aharashtra is one of the leading States in th e country in the m atter of

disbursem ent o f agriculture credit. This is because o f th e active role played by

th e cooperatives in extending agricultural credit. The State accounts for the

largest share o f co-operatives in the country in term s of th e num ber of PACS

and credit extended by cooperatives. The District Central Cooperative Banks

(DCCBs) accounted for 24.10% of th e total agricultural credit extended by all

the DCCBs in India.

predom inance o f agriculture in M aharashtra. Sugarcane cultivation is the m ajor

of credit flo w from th e banks.

loans. Cooperatives had a m ajor share of disbursement to sugar cane farmers.

disbursem ent by th e com m ercial banks has, on th e contrary gone up In the

Eventually th e w aiver did come.

from th e farm produce during 2 0 0 7 -0 8 for raising the crops in 2008-09,

resulting in poor dem and for institutional credit.

providing fresh credit to such borrowers in view of th eir discouraging

th at m ajor w aiver schemes are invariably follow ed by a poor credit off

4) The distribution of monsoon during Kharif 200 8 was uneven. The

agricultural operations in certain parts of th e state resulting in poor

role. It is seen th at though there is a continuous decline in the share of

to com m ercial banks (Table 8.2).

Chart: 8.1 Crop Loan: Agency-wise share in M aharashtra

Source: Regional Office NABARD

2 0 0 4-05 to 2 0 0 6 -0 7 are as under:

The district-wise position of KC cards issued by the financial agencies is

presented in Table 2.2 (Chapter 2). It is seen th a t th e perform ance is uneven

the KCC issued.

It may be observed (Table 8.4) th at in ten districts, th e financing banks have

situated in W estern M aharashtra (five) and N o rthern (tw o ) M aharashtra. These

districts are relatively well developed in agricultural practices and farmers

relatively higher in these districts in comparison to o th e r districts'*. The crops

farm ers here grow food grain crops.

working capital needs. It is in th eir business interest to finance sugarcane crop

(being borrow er dom inated boards). Thus it is seen th a t a higher percentage

of KCCs are seen in sugarcane dom inated area.

As on 3 1 .0 3 .2 0 0 9 , Pune district had ranked first in issuing KCCs (444524)

follow ed by Aurangabad (3 9 0 9 9 7 cards) and Kolhapur (3 719 95 cards).

issued by th e banks in th at district. In term s of latest Agriculture Census,

the n um ber o f operational holdings in the State stood at 1 0 9 8834 1. It may

fu rth e r be observed th a t the num ber of KCCs issued (5 9 2 6 3 3 6 ) is about 54%

8.3 Progress in coverage o f small farm ers

Another yardstick to com pare th e perform ance in issuing KCCs is by measuring

th e perform ance o f banks/credit agencies in issuance o f KCC to small farmers.

But in th e absence of actual data on coverage of small farm ers it is difficult to

has been calculated by assuming the operational holdings as representing

Table 8.5 Number of KCC issued, operational holdings and

districts, th e follow ing conclusions can be arriv e d /a tte m p te d .

Table 8.6: Kisan Credit Card issued and Coverage of Farmers

KCC issued as % of Performance® Districts

of which is m ore than 60 per cent o f the landholdings. It can, therefore, be

extent o f 40% o f th e small farmer. As against this, th e perform ance of small

farm e r coverage seems to be m oderate in 10 districts.

The above m ay not be th e accurate estim ate of small fa rm e r coverage but is

M aharashtra has recorded a much higher percentage o f institutional coverage

of fa rm e r households. This is higher than all India perform ance o f banks in

financing farm ing households which is around 47% . This is an o th er indicative

8 .4 .1 A b o u t th e District: The m ajo r field study In th e fo rm o f sam ple survey

Sangli district has a total geographical area of 85 7 2 sq km. It is m ade up of

Total 404730 100 720612 100 1.78

national average o f 1.6. It is seen th a t 28 % of th e land ow ners had access to

69% of th e area and held an average size of 4.4 0 hectare.