1. Farm loan waivers: What is farm credit? All you need to know

Farm loan waivers: What is farm credit? All you need to know

Farm loan waivers: Farmers have been protesting in states like Maharashtra and Madhya Pradesh, demanding a waiving of their loans.

By: | Published: June 14, 2017 4:40 PM
farm credit, farmers credit, farm loans, what is farm credit Farm credit, as defined by the Reserve Bank of India, includes short term, medium term and long term credits to farmers. (Reuters)

Farm loan waivers: Farmers have been protesting in states like Maharashtra and Madhya Pradesh, demanding a waiving of their loans. While Maharashtra Chief Minister Devendra Fadnavis has granted a farmers’ loan waiver, the situation in Madhya Pradesh has not been the same as 5 farmers have been killed in police gunfire during the period of their protests and inquiry has been ordered into the matter. However, for the uninitiated, the entire matter can be extremely confusing. So here are a few things that you must know about farm loans.

What is farm credit?

Farm credit, as defined by the Reserve Bank of India, includes short term, medium term and long term credits to farmers. Short term credit, as the name itself suggests are loans by farmers for a period of 6 months or at best one year to help them raise money before and after the harvest. Basically, the banks distribute loans to farmers for a variety of activities such as purchasing fertilisers, harvesting, spraying, grading and transporting their produce to the nearest market. Now, these farmers could be into traditional forms of farming, which means crops such as sugarcane, pulses and various plantations like tea, coffee and horticulture. For other activities such as irrigation, development of farms and purchase of equipment, the lenders provide loans for a longer period of time.

Any other segments of lending by banks classified as loans to the farm sector?

Yes, banks do offer loans for certain other segments such as the construction of storage facilities, like warehouses, godowns, market yards and cold storage units and for the conservation of soil, watershed development, seed production and plant tissue culture, Indian Express reported. Although such activities do come under the definition of farm loans, these have been classified as agri-infrastructure loans.

Are banks obliged to give loans to farmers?

According to the Indian Express, from the time when the contribution of the farm sector to the GDP was high, the legislators had set out mandatory lending targets for banks. So 40% of the bank credit has to be given priority for the priority sector. There is also a target set for foreign banks in India. Within this limit, there is a sub-limit of 18% for agriculture. And within this 18%, the Reserve Bank has set a target of 8% for small and marginal farmers.

Who could be defined as a small or marginal farmer?

A marginal farmer is one who has a landholding up to one hectare, while small farmers are those who have landholding between one and two hectares.

How much can banks lend to farmers/ farmers’ organisations?

Banks can lend up to Rs 50 lakh with the backup as a pledge of hypothecation of their products for a period of not more than 1 year. For corporate farmers and organisations that deal in dairy, fishery and animal husbandry among other things, the limit has been set at Rs 2 crore. Although, Indian Express reports that for agricultural infrastructure, the lending limit is Rs 100 crore.

Does the government set a limit on the interest rates?

Banks can lend at a maximum rate of 7% with the government providing a subsidy of 3% to the borrowers who are punctual in payment.

  1. No Comments.

Go to Top