PPB Unit CChapter Notes6–8 Marks Expected

Agricultural Finance

Principles & Practices of Banking | Unit C · Chapter 37

Chapter 36 covered Priority Sector Lending norms. This chapter goes deeper into agricultural finance — the largest component of PSL. It covers the two broad categories of agricultural credit (short-term and medium/long-term), the Kisan Credit Card (KCC) scheme in detail (credit limit formula, KCC for Animal Husbandry & Fisheries, disbursement channels), selected agricultural activities, the MSP Scheme, and PMFBY crop insurance.

By Bankopedia.co.inUpdated 2026JAIIB PPB · Module C

📌 Why This Chapter Matters in JAIIB

Expect 6–8 questions from this chapter. Key focus areas: KCC credit limit formula (scale of finance × area + 10% post-harvest + 20% farm maintenance + insurance); 10% annual escalation for 5 years; marginal farmer Flexi KCC (₹10,000–₹50,000; ≤1 ha land); margin norms (nil ≤ ₹1.6L; collateral discretionary above ₹1.6L non tie-up / ₹3L tie-up); KCC eligibility — owner cultivators, tenant/oral lessees/sharecroppers, SHGs/JLGs; MSP — 25 crops, FCI as nodal agency; and PMFBY — basic cover (area-based, non-preventable risks) vs add-on cover; Aadhaar mandatory.

Key Facts & References — Chapter 37 at a Glance

Short-term loans:Repayable ≤ 18 months — crop loans, KCC, gold ornament loans

Medium/long-term loans:> 36 months — irrigation, mechanisation, plantation, dairy, sericulture

Scale of finance fixed by:District Level Technical Committee (DLTC)

KCC limit formula:Scale of finance × area + 10% (post-harvest/consumption) + 20% (maintenance) + insurance

Annual escalation:10% each year for 5 years on crop loan component

Marginal farmer (Flexi KCC):Land ≤ 1 ha; limit ₹10,000–₹50,000; fixed for 5 years

Small farmer definition:Land > 1 ha to ≤ 2 ha

KCC margin:Nil for loans ≤ ₹1.6 lakh

Collateral security:Above ₹1.6L (non tie-up) / ₹3L (tie-up) — at bank's discretion

KCC documentation:One-time at first availment; simple declaration from 2nd year onwards

Farm mechanisation margin:Maximum 25%; tractor needs minimum 5 acres perennially irrigated land

Farm mechanisation tenure:3–9 years depending on borrower's activity

Land purchase repayment:Half-yearly/yearly over 10 years with adequate gestation period

MSP crops:25 crops announced at start of Rabi and Kharif seasons

FCI role:Nodal Agency for MSP procurement; NAFED for oilseeds and pulses

PMFBY launched:2016 — replaced all yield insurance schemes including NAIS (1999)

Aadhaar for PMFBY:Mandatory for availing crop insurance under PMFBY

Introduction, Loan Types & Crop Loan

Free

Nearly 70% of India's population depends on agriculture. Agricultural credit is met through direct finance (to farmers) and indirect finance (to input suppliers, electricity boards, storage agencies, etc.). Based on tenure, direct finance is classified as short-term or medium/long-term.

Short-Term Loans (≤ 18 months)

▸Crop loans for seasonal farming expenses (seeds, fertilisers, pesticides, irrigation).
▸Kisan Credit Card (KCC) scheme for raising crops.
▸Loans against gold ornaments for agricultural purposes.

Medium / Long-Term Loans (> 36 months)

▸Minor irrigation, farm/land development, farm mechanisation.
▸Plantation and horticulture.
▸Allied activities: dairy farming, sheep/goat rearing, piggery, rabbit farming, poultry farming.
▸Fisheries, sericulture, bee-keeping, mushroom cultivation, bio-gas plants.
▸Indirect: fertiliser/pesticide distribution, Rural Electrification (REC), storage facilities.

37.4 Crop Loan

A crop loan is extended to facilitate agriculturists to meet expenses for raising seasonal crops — including cost of seeds, fertilisers, pesticides, and irrigation charges. The loan amount is worked out based on the cost of cultivation (Scale of Finance) assessed by the District Level Technical Committee (DLTC) per hectare for different crops.

Kisan Credit Card (KCC) — Eligibility & Credit Limit

Free

KCC is a single-window credit facility for farmers covering cultivation expenses, post-harvest needs, household consumption, maintenance of farm assets, and allied agricultural activities.

37.5.3 Eligibility

(i)Farmers — Individual/Joint borrowers who are owner cultivators

(ii)Tenant Farmers, Oral Lessees, and Share Croppers

(iii)SHGs or Joint Liability Groups (JLGs) of Farmers including tenant farmers and share croppers

37.5.4 Credit Limit Fixation

Definitions: Marginal Farmer = land ≤ 1 hectare | Small Farmer = land > 1 ha to ≤ 2 ha

Formula — Short-Term Limit (1st Year)

+Scale of Finance (per DLTC) × Extent of Area Cultivated

+10% of limit → Post-harvest / household / consumption requirements

+20% of limit → Repairs and maintenance of farm assets

+Crop insurance premium and/or accident insurance

=Short-term KCC Limit for Year 1

Year-on-Year Escalation (Years 2–5)

Each year, the previous year's limit is increased by 10% for cost escalation / increase in scale of finance. The same cropping pattern is assumed.

Year	Crop Loan Limit
Year 1	Base limit (formula above)
Year 2	Year 1 limit + 10% of Year 1
Year 3	Year 2 limit + 10% of Year 2
Year 4	Year 3 limit + 10% of Year 3
Year 5	Year 4 limit + 10% of Year 4

Term Loan Component

Added to the crop loan component to cover investment needs: land development, minor irrigation, purchase of farm equipment, allied activities. The term loan is based on unit cost of assets and the farmer's repayment capacity.

Maximum Permissible KCC Limit = Crop Loan Component (A) + Term Loan Component (B)

Illustration Summary

Farmer Type	Land	Crop Loan (A)	Term Loan (B)	KCC Limit (A+B)
Small Farmer (Illus. I)	2 acres	₹63,000	₹70,000	₹1,33,000
Large Farmer (Illus. II)	10 acres	₹4,09,000	₹7,00,000	₹11,09,000
Marginal Farmer (Illus. III)	1 acre	—	—	₹36,000 (Flexi KCC)

Marginal Farmer — Flexi KCC

For farmers with land ≤ 1 hectare, a flexible limit of ₹10,000 to ₹50,000 is provided (Flexi KCC) based on land holding, crops, post-harvest needs, consumption requirements, and small term investments (mini dairy, backyard poultry). The composite KCC limit is fixed for 5 years without relating it to the value of land. A higher limit may be sanctioned if cropping pattern changes.

KCC — Animal Husbandry, Fisheries & Operational Features

Members Only

37.5.5 KCC for Animal Husbandry & Fisheries

KCC covers short-term credit for rearing of animals, birds, fish, shrimp and other aquatic organisms, and capture of fish. Scale of finance is fixed by DLTC based on per acre/per unit/per animal/per bird cost.

Fisheries Eligibility

▸Must own or lease fisheries-related assets (ponds, tanks, open water bodies, raceways).
▸Inland: individual fishers, fish farmers, SHGs, JLGs, women groups.
▸Marine: must own/lease a registered fishing vessel/boat and hold necessary license/permission.

Poultry / Small Ruminant

▸Individual or joint borrower poultry farmers.
▸Joint Liability Groups for rabbit and other small ruminant rearing.
▸Must own, rent, or lease sheds.

Dairy

▸Individual or joint borrower dairy farmers.
▸JLGs and SHGs including tenant farmers.
▸Must own, rent, or lease sheds.

37.5.6 Disbursement Channels

The short-term component is a revolving cash credit facility with no restriction on the number of debits and credits. Farmers may draw via:

▸Branch counter using cheque

▸ATM / Debit Cards

▸Business Correspondents (BCs) / Ultra thin branches

▸PoS machines (at sugar mills, input dealers, contract farming companies)

▸Mobile banking / IMPS capabilities / IVR

▸Aadhaar-enabled Cards

37.5.7 Electronic KCC

All new KCC must be issued as a smart card cum debit card. NPCI has designed the KCC card format to be adopted by all banks with their own branding. Until composite software is in place, two separate cards may be issued for the crop loan and term loan sub-limits.

37.5.8 Periodic Review

Banks must periodically review KCC for continuation, enhancement, or cancellation based on change in cropping area/pattern and borrower performance. In case of natural calamity, the review period is extended.

37.5.9 Documentation

One-time documentation at first availment. From the second year onwards, only a simple declaration about crops raised/proposed is required — keeping in view the limitation period.

37.5.10 Rate of Interest

As per RBI Directions on Interest Rates on Advances — applicable to agricultural advances. Short-term crop loans covered under Interest Subvention / Prompt Repayment Incentive scheme.

37.5.11 Repayment Period

Fixed as per the anticipated harvesting and marketing period for the given crops. Different norms apply to short-term and term loan components.

37.5.12 Margin & Security

Loan Amount	Margin	Security
Up to ₹1.60 lakh	Nil (no margin required)	Hypothecation of crop; no collateral needed
Above ₹1.60 lakh (non tie-up farmers)	As decided by bank	Collateral at bank's discretion
Above ₹3.00 lakh (tie-up arrangement)	As decided by bank	Collateral at bank's discretion

37.5.13 Other Features

Insurance

Option to take Assets Insurance, Personal Accident Insurance Scheme (PAIS), and Health Insurance — premiums paid through KCC. Crop insurance is mandatory; other insurance requires farmer's consent.

Interest Subvention

Farmers must be informed about Interest Subvention / Prompt Repayment Incentive available from Central/State Government. All Short-Term Crop Loans eligible for subvention are extended only through KCC.

NPA Classification

IRAC and provisioning norms apply to KCC loans — same as other bank loans.

Warehouse Receipts

KCC can be linked with crop loan account. Credit against warehouse receipts may be considered as per procedure, and crop loan outstanding can be settled on disbursal of pledge loan.

Selected Agricultural Activities

Members Only

37.6.1 Agricultural Term Loans

Purpose:Purchase of assets (farm machinery, bullocks, sheep) and creation of assets (orchard development, poultry/dairy development) — connected with agriculture, horticulture, plantation, sericulture, animal husbandry, fisheries.

Eligibility:All categories of farmers and agricultural labourers.

Tenure:Repayable over more than 3 years.

Documents:Purchase of bullocks etc. — no supportive documents. Larger investments — estimate/quotation. Land-based activities — land records required.

37.6.2 Land Development

Activities:Land clearance (removal of bushes/trees), land levelling and shaping, bench terracing (hilly areas), contour stone walls, staggered contour trenches, disposal drains, reclamation of saline/alkaline soils, fencing.

37.6.3 Minor Irrigation

Purpose:Credit for creation of irrigation facilities from underground/surface water sources, including all associated structures and equipment.

Activities:Digging new wells (open/borewells), deepening existing wells, energising wells (oil engine / electrical pump set), laying pipe lines, drip/sprinkler/lift irrigation systems.

Eligibility:All farmers having a known source of water usable for irrigation.

Documents:Estimate for civil works, quotations for assets, land records, Geologist certificate, feasibility certificate from electricity board (where relevant).

37.6.4 Farm Mechanisation

Scope:Tractors, power tillers, threshers, combine harvesters, sprayers, dusters — for increasing production and productivity.

Tractor:Minimum 5 acres of perennially irrigated land required for viable tractor use. Banks may relax norm based on deposits pledged, custom hiring, value of account.

Second-hand:Banks may finance second-hand tractors or repair of machinery financed earlier, subject to stipulations.

Margin:Maximum 25% depending on activity.

Tenure:3–9 years depending on borrower's activity.

Other:Banks also finance Agri Clinics and Agro Service Centres run by Agricultural Graduates / technically qualified persons.

37.6.5 Finance to Horticulture

Fruit orchards:Mango, chikoo, guava, grapes, pomegranate, apple, litchi, etc.

Short-term fruit:Banana, pineapple, etc.

Flowers:Roses, carnation, chrysanthemums, jasmine — open and green houses.

Vegetables:Potato, tomato, brinjal, gourds, peas, etc.

Documents:Water/soil test report, land records, feasibility certificate from horticulture department, quotations/estimates, project report (if large).

37.6.7 Dairy Farming

Activities covered:(1) Small dairy unit — 2 to 4 milch cattle (2) New/expanding medium/large dairy units (3) Collection, processing and distribution of milk (4) Manufacturing milk products and related business (5) Setting up breeding farms, semen banks, AI centres, veterinary clinics.

Assessment:Projects must be formulated and evaluated for technical feasibility and economic viability.

37.6.8 Sericulture

Nature:Highly labour-intensive activity.

4 Phases:(i) Cultivation of host plant (ii) Rearing of silk worms up to cocoon stage (iii) Reeling of cocoons into continuous filaments called raw silk (iv) Silk processing and weaving.

37.6.9 Drip, Sprinkler & Lift Irrigation

Drip Irrigation:Slow, drop-by-drop application to root zone. Equipment: pumping unit, PVC tubing/pipelines, drip nozzles, filter unit.

Sprinkler Irrigation:Water sprayed from above onto crop/soil surface. Equipment: pump, pipes/tubing, sprinkler heads/nozzles, risers.

Lift Irrigation:Water lifted from low-level reservoirs (wells, lakes, rivers) using horizontal and turbine pumps.

37.6.10 Land Purchase

Eligible borrowers:Small/marginal farmers, tenants, sharecroppers (subject to land holding criteria).

Security:Mortgage of land purchased.

Repayment:Half-yearly/yearly instalments over 10 years, with adequate gestation period.

MSP Scheme & PMFBY

Members Only

37.7 Minimum Support Price (MSP) Scheme

Purpose:Government purchases notified agricultural produce from farmers at declared MSP — prevents distress sale.

Crops covered:25 crops — announced at the commencement of Rabi and Kharif seasons.

Nodal Agency (GOI):Food Corporation of India (FCI).

NAFED role:National Agricultural Cooperative Marketing Federation of India Ltd. — nodal procurement agency for Oilseeds and Pulses; Cotton Corporation of India for cotton.

PM-AASHA:Pradhan Mantri Annadata Aay Sanrakshan Abhiyan — three components: (i) Price Support Scheme (PSS) (ii) Price Deficiency Payment Scheme (PDPS) (iii) Pilot of Private Procurement & Stockist Scheme (PPPS).

37.8 Pradhan Mantri Fasal Bima Yojana (PMFBY)

History:National Agriculture Insurance Scheme (NAIS) introduced in Rabi 1999, replacing earlier scheme. AIC (Agriculture Insurance Company of India) took over from GIC. PMFBY launched in 2016 — replaced all prevailing yield insurance schemes.

Farmers covered:All farmers including sharecroppers and tenant farmers growing notified crops in notified areas — farmers must have insurable interest. Aadhaar is mandatory.

Nature:Optional scheme.

Basic Cover (Mandatory)

Area-based approach — loss of yield to standing crop from sowing to harvesting due to non-preventable risks:

✓Drought / dry spells
✓Flood / inundation
✓Widespread pest and disease attack
✓Landslides
✓Natural fire due to lightning
✓Storm, hailstorm, cyclone

Add-On Coverage (Optional — State Govt. choice)

✓Prevented sowing/planting due to deficit rainfall or adverse seasonal conditions.
✓Post-harvest losses (2 weeks) for crops in cut-and-spread condition — against cyclone, cyclonic rains, unseasonal rains.
✓Adverse seasonal conditions during crop season.
✓Localised risks — hailstorm, landslide, inundation, cloud burst, natural fire.
✓Crop loss due to attack by wild animals.

Exclusions under PMFBY

Losses from war and nuclear risks, malicious damage, and other preventable risks are excluded.

Chapter Summary & Flashcards

Members Only

Chapter 37 in 6 Lines

Agricultural credit is classified as short-term (≤18 months — crop loans, KCC, gold ornament loans) and medium/long-term (>36 months — irrigation, mechanisation, dairy, sericulture).
KCC credit limit = Scale of Finance × area + 10% (post-harvest/consumption) + 20% (farm maintenance) + insurance. The limit escalates by 10% each year for 5 years. Total KCC limit = Crop Loan + Term Loan.
Marginal farmers (≤1 ha) get Flexi KCC (₹10,000–₹50,000 for 5 years). No margin below ₹1.6L; collateral at bank discretion above ₹1.6L (non tie-up) / ₹3L (tie-up).
KCC covers AH&Fisheries; short-term component is revolving cash credit; new KCCs must be issued as smart card cum debit card (NPCI design); documentation is one-time, then annual declaration.
MSP Scheme: 25 crops announced for Rabi and Kharif seasons; FCI is nodal agency; NAFED for oilseeds/pulses; PM-AASHA has three sub-schemes (PSS, PDPS, PPPS).
PMFBY (2016): replaced NAIS; basic cover for non-preventable risks (area-based); add-on cover includes wild animal attack, post-harvest, localised risks; Aadhaar is mandatory.

Flashcards — Chapter 37

1. What is the maximum tenure for short-term agricultural loans?▼

18 months. Loans repayable within 18 months are classified as short-term.

2. What body determines the Scale of Finance for crop loans?▼

District Level Technical Committee (DLTC) — it assesses cultivation cost per hectare for different crops in the district.

3. What are the three components added to the Scale of Finance to arrive at the KCC short-term limit?▼

10% for post-harvest/household/consumption requirements + 20% for repairs and maintenance of farm assets + crop/accident insurance premium.

4. By what percentage does the KCC crop loan component escalate each year?▼

10% per year for each successive year (Year 2 through Year 5).

5. What is the total KCC limit for a small farmer with Crop Loan component of ₹63,000 and Term Loan of ₹70,000?▼

₹1,33,000 (Crop Loan + Term Loan = ₹63,000 + ₹70,000).

6. What is a Marginal Farmer and what is their KCC limit?▼

Marginal Farmer: land holding ≤ 1 hectare. KCC limit: flexible ₹10,000 to ₹50,000 (Flexi KCC), fixed for 5 years.

7. Who is eligible for KCC — name the three categories.▼

(i) Owner cultivators (individual/joint) (ii) Tenant farmers, Oral Lessees, and Share Croppers (iii) SHGs or JLGs of farmers including tenant farmers and share croppers.

8. What is the margin requirement for KCC loans up to ₹1.6 lakh?▼

Nil — no margin is required for loans up to ₹1.6 lakh.

9. Above what limit is collateral required for non-tie-up KCC borrowers?▼

Above ₹1.60 lakh — collateral at the bank's discretion.

10. Above what limit is collateral required for tie-up KCC borrowers?▼

Above ₹3.00 lakh — collateral at the bank's discretion.

11. What type of card is mandatory for all new KCC issuances?▼

Smart card cum debit card (electronic KCC), designed by NPCI, with each bank's own branding.

12. What documentation is required for KCC from the second year onwards?▼

Only a simple declaration about crops raised/proposed — full documentation is done only once at first availment.

13. Is crop insurance under KCC mandatory or optional?▼

Crop insurance is mandatory under KCC. Other insurance (PAIS, health insurance, asset insurance) requires the farmer's consent.

14. What is the minimum land holding required for a bank to finance a tractor?▼

Minimum 5 acres of perennially irrigated land. Banks may relax this based on deposits pledged, custom hiring, or value of account.

15. What is the maximum margin and repayment period for farm mechanisation loans?▼

Maximum margin: 25%. Repayment: 3–9 years depending on borrower's activity.

16. Name the 4 phases of sericulture.▼

(i) Cultivation of host plant (ii) Rearing of silk worms up to cocoon stage (iii) Reeling of cocoons into continuous filaments (raw silk) (iv) Silk processing and weaving.

17. For land purchase loans to marginal farmers, what is the repayment structure?▼

Half-yearly or yearly instalments over 10 years, with an adequate gestation period. Security: mortgage of land purchased.

18. How many crops does the MSP Scheme cover and when are prices announced?▼

25 crops — prices announced at the commencement of Rabi and Kharif seasons.

19. What are the three sub-schemes under PM-AASHA?▼

(i) Price Support Scheme (PSS) (ii) Price Deficiency Payment Scheme (PDPS) (iii) Pilot of Private Procurement & Stockist Scheme (PPPS).

20. What is PMFBY and what are the risks covered under the basic cover?▼

Pradhan Mantri Fasal Bima Yojana (2016) — replaced all yield insurance schemes. Basic cover: non-preventable risks (drought, flood, widespread pest/disease, landslide, natural fire, storm, hailstorm, cyclone) on an area-based approach from sowing to harvesting.

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