Microfinance Story of India

Kisan Credit Card (KCC) Scheme

Schemes | Economics | Mains Paper 3: Agriculture and related issues
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From UPSC perspective, the following things are important :

Prelims level: Kisan Credit Card (KCC) Scheme

Why in the News?

According to the RBI, bad loans in the Kisan Credit Card (KCC) Scheme segment increased by 42% over the last four years, reaching ₹97,543 crore by December 2024, up from ₹68,547 crore in March 2021.

About the Kisan Credit Card (KCC) Scheme

  • The KCC Scheme is a government-backed credit initiative designed to provide timely and adequate credit to farmers for agricultural and allied activities.
  • Launched in 1998 on the recommendation of NABARD (R.V. Gupta Committee), the scheme aims to ensure easy access to institutional credit, reducing farmers’ dependency on moneylenders and informal credit sources.
  • Purpose of KCC:
    • Provides short-term credit for crop cultivation and post-harvest needs.
    • Supports working capital requirements for farm mechanization, dairy, poultry, fisheries, and other allied agricultural activities.
    • Helps meet household consumption needs of farmers.
    • Allows credit access for investment in agriculture-related businesses.
  • Credit and Repayment System:
    • Farmers can avail collateral-free loans up to ₹2 lakh.
    • Interest rates start as low as 4% per annum (with government interest subvention for timely repayment).
    • The loan limit was increased from ₹3 lakh to ₹5 lakh in Budget 2025-26.
    • Revolving credit system allows farmers to withdraw and repay as needed within the sanctioned limit.
    • Repayment schedules are linked to the crop harvesting cycle, ensuring no undue financial burden.
  • Implementation: Commercial Banks; Regional Rural Banks (RRBs); Small Finance Banks; Cooperative Banks.
  • Additional Benefits:
    • Comes with insurance coverage under the Pradhan Mantri Fasal Bima Yojana (PMFBY) to protect against crop loss.
    • Covers fisheries and animal husbandry farmers (since 2018-19).

Successes and Limitations of the KCC Scheme:

Successes Failures
  • Increased Financial Inclusion: 7.3 crore active accounts, reducing reliance on moneylenders.
  • Higher Agricultural Productivity:  Easy access to inputs like seeds, fertilizers, and machinery.
  • Increased Support: Interest subvention makes loans affordable; loan limit raised from ₹3 lakh to ₹5 lakh (Budget 2025-26).
  • Promoted Rural Development: Covers women farmers, Farmer Producer Organizations (FPOs), and non-farm activities.
  • Rising NPAs:  Discussed above.
  • Loan Misuse: Funds diverted for non-agricultural expenses, increasing defaults.
  • Low Financial Literacy: Many farmers unaware of repayment terms, leading to debt traps.
  • High Credit Dependency: Continuous borrowing without income growth raises financial risks.

PYQ:

[2020] Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes?

  1. Working capital for maintenance of farm assets
  2. Purchase of combine harvesters, tractors and mini trucks
  3. Consumption requirements of farm households
  4. Post-harvest expenses
  5. Construction of family house and setting up of village cold storage facility

Select the correct answer:

(a) 1, 2 and 5 only

(b) 1, 3 and 4 only

(c) 2, 3, 4 and 5 only

(d) 1, 2, 4 and 5

 

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