JAIIB PPB Paper-2 Module-B Unit 16: Agricultural Finance

25/03/2023

Table of Contents

JAIIB Paper 2 (PPB) Module B Unit 16: Agricultural Finance (New Syllabus)

The IIBF has recently announced updates to the JAIIB Exam 2023, including changes to the syllabus and exam format. Candidates will now be required to complete four papers, with Paper 2 (Principles & Practices of Banking) covering Unit 16: Agricultural Finance. This unit is particularly crucial for candidates, as it will significantly impact their performance in the exam.

To assist candidates in understanding the topic, we will provide all the necessary details related to Unit 16: Agricultural Finance of JAIIB Paper 2 (PPB) Module B: Functions of Banks. We strongly recommend that candidates refer to this article and utilize our Online Mock Test Series to enhance their understanding of Foreign Currency Accounts for Residents and other related aspects.

Candidates must comprehend each unit in the syllabus, including the Marketing unit, to excel in the JAIIB Certification Examination 2023 and establish a successful career in the banking sector. This unit is of great importance in the banking industry, and candidates must prepare thoroughly.

Short-term Loan

Loans repayable up to 18 months are termed as short-term loans

Medium/ Long –term Loan

The period of credit under this category is more than 36 months. This includes loan for the purpose of minor irrigation, farm/land development, farm mechanization, plantation and horticulture, allied activities

Crop Loans

The purpose of the crop loan is to facilitate the agriculturists undertake farming, i.e. to meet the expenses for raising of seasonal crops including the cost of seeds, fertilisers and pesticides, irrigation charges; labour charges, etc.
Agriculturists, tenant farmers and share croppers who actually cultivate the lands are eligible for these loans.
Loan amounts are worked out based on the cost of cultivation (scale of finance) incurred, for each crop per acre of the crop cultivated, keeping a margin, say of 10 per cent.

Kisan Credit Card Scheme

The Kisan Credit Card (KCC) scheme provides for issue of credit cards (including electronic cards) to farmers (as per their land holding) for purchase of inputs, and investment for allied and non-farm activities.

Objectives

It aims at providing adequate and timely credit support from the banking system under a single window to the farmers for their cultivation and other needs such as – Post harvest expenses, Consumption requirements of farmer household, Maintenance of farm assets and activities allied to agriculture.

Eligibility

Farmers – Individuals/Joint borrowers who are owner cultivators;
Tenant Farmers, Oral Lessees & Share Croppers;
SHGs or Joint Liability Groups (JLGs) of Farmers including tenant farmers, share croppers.

Fixation of Credit Limit

1)All Farmers Other Than Marginal Farmers

Short term limit for farmers raising single crop in a year:

For uniformity, the District Level Technical Committee (DLTC) assesses cultivation cost per hectare for different crops raised in the district, and determines the scale of finance.

Short term limit for the first year: Scale of finance for the crop (as per DLTC) x Extent of area cultivated +10% of limit towards post-harvest/ household/ consumption requirements + 20% of limit towards repairs and maintenance expenses of farm assets + crop insurance and/ or accident insurance.
Limits for second & subsequent year: First year limit for crop cultivation purpose + 10% of the limit towards cost escalation/increase in scale of finance for every successive year (2nd, 3rd, 4th and 5th year).

For farmers raising more than 1 single crop in a year:

For farmers who raise more than one crop in a year, the limit is to be fixed as stated above depending upon the crops cultivated as per proposed cropping pattern for the first year, and additional 10% of the limit towards cost escalation/ increase in scale of finance for every successive year (2nd, 3rd, 4th and 5th year). In case the cropping pattern is changed subsequently, the limit may be reworked.

Term loans for investments:

The term loan component is for investment towards land development, minor irrigation, purchase of farm equipment and allied agricultural activities. Banks may fix the quantum of credit for term loan based on the unit cost of the asset/s proposed to be acquired by the farmer, and credit limit for allied activities based on the allied activities already being undertaken on the farm, and the bank’s judgment on repayment capacity.

Maximum Permissible Limit:

The short term loan limit arrived for the 5th year plus the estimated long term loan requirement will be the Maximum Permissible Limit (MPL) and treated as the Kisan Credit Card Limit.

Fixation of Sub-Limits:

The card limit is bifurcated into sub-limits for short- term cash credit limit and term loans.

(a) Drawing limit for short term cash credit is based on the cropping pattern. The amounts for crop production, repairs and maintenance of farm assets and consumption are drawn as suits the farmer. In case of revision of scale of finance exceeding the assumed hike of 10%, drawable and credit limits may be revised.

(b) For term loans, may be allowed to be withdrawn in instalment based on the nature of investment and repayment schedule drawn as per the economic life of the investments. Total liability should be within the drawing limit of the year.

2)For Marginal Farmers

A flexible limit of Rs. 10,000 to Rs. 50,000 be provided (as Flexi KCC) based on the land holding and crops grown including post-harvest warehouse storage related credit needs and other farm expenses, consumption needs, etc., + small term loan investments like purchase of farm equipment, establishing mini dairy/ backyard poultry as per assessment of Branch Manager without relating it to the value of land.
The composite KCC limit is fixed for a period of five years. Wherever required, due to change in cropping pattern and/ or scale of finance, a higher limit may be arrived at.

KCC For Animal Husbandry & Fisheries

Eligibility

Inland Fisheries and Aquaculture: Fishers, Fish Farmers, Self Help Groups, Joint Liability Groups and women groups. Must own or lease any of the fisheries related assets and possess necessary authorization /certification for fish farming and related activities.
Marine Fisheries: For inland fisheries, to who own or lease registered fishing vessel / boat, possess necessary fishing license/permission for fishing/fish farming/ mariculture activities in estuaries and open sea and allied activities.
Poultry and small ruminant: Farmers, poultry farmers either individual or joint borrower, Joint Liability Groups or Self Help Groups including tenant farmer of sheep/goats/pigs/poultry/birds/ rabbit and having owned/rented/ leased sheds.
Dairy: Farmers and Dairy farmers either individual or joint borrower, Joint Liability Groups or Self Help Groups including tenant farmers having owned /rented/leased sheds.

Scale of Finance:

The scale of finance will be fixed by the DLTC based on local cost worked out on the basis of per acre/ per unit/per animal/per bird etc.

Fisheries: The scale of finance, may include recurring cost towards seed, feed, organic and inorganic fertilisers, lime/other soil conditioners, harvesting and marketing charges, fuel/electricity charges, labour, lease rent (if leased water area) etc.
Animal Husbandry: The scale of finance, may include recurring cost towards feeding, veterinary aid, labour, water and electricity supply.

The maximum period for assessment of working capital requirement may be based on the cash flow statement or completion of one production cycle.

Drawing Power

The drawing power is worked on the basis of the latest valuation of stocks, receivables and/or cash flows.

Repayment

The loan is in the nature of a revolving cash credit limit. Repayment will be fixed as per the cash flow/ income generation pattern of the activity undertaken by the borrower.

Monitoring of end use

The account/smart card for the loan issued under the scheme is to be maintained/issued separately from the existing KCC loan to monitor the utilization limit. The monitoring of end use of funds will be in line with other loans viz., field visits to the site of unit/project to be carried out by the branch officials. Banks will periodically review the facility.

KCC Scheme

Disbursement: The short term component is in the nature of revolving cash credit facility. There should be no restriction on the number of debits and credits. The drawing limit could be allowed to be drawn using any of the delivery channels. The long term loan may be drawn as per installment fixed.
Issue of Electronic Credit Cards: All new KCC must be issued as smart card cum debit card. Until a composite card could be issued with appropriate software to separately account transactions in the sub limits, two separate cards may be issued for the two components. NPCI designed the KCC card to be adopted by all the banks with their branding.
Periodic Review of KCC: Banks need to undertake periodic review of KCC that may result in continuation, enhancement, or cancellation/ withdrawal of limit depending upon increase in cropping area/ pattern and performance of the borrower. When the bank grants extension and/or re-schedules the period of repayment on account of natural calamities affecting the farmer, the period for reckoning the status of operations gets extended together with the extended amount of limit.

Documentation: One time documentation is to be obtained at the time of first availment and thereafter simple declaration (about crops raised/ proposed) from the second year onwards may be obtained, keeping in view the limitation period.
Rate of Interest (ROI): Rate of Interest will be as per the RBI Directions on Interest Rates on Advances. Interest is to be charged as applicable to agricultural advances.
Repayment Period: The repayment period is fixed as per the anticipated harvesting and marketing period for the given crops. For term loans 5 year period is normal, if required longer period may be considered.
Margin and Security: Margin may be decided by banks. No margin is required for loans up to Rs.1.6 lakh. Security will be as per RBI guidelines, and may be as follows:

i)Against Hypothecation of crops alone: Up to card limit of Rs.1.60 lakh (Rs.3.00 lakh with tie-up for recovery)

ii)Collateral security: At the discretion of bank for limits above Rs. 1.60 lakh (non tie-up) and above Rs. 3.00 lakh (with tie-up).

Insurance Facilities: Option to take benefit of Assets Insurance, Personal Accident Insurance Scheme (PAIS) and Health Insurance, and pay premium through KCC. Crop insurance is mandatory.
Incentives: Farmers should be informed about Interest Subvention/ Incentive for prompt repayment available from Central/ State Government. All Short Term Crop Loans eligible for incentives. Incentive are now extended only through KCC.
Classification as NPA: IRAC and provisioning norms apply to KCC loans.

Selected Activities Under Agricultural Financing

Agricultural Term Loans

These are provided for purchase of assets, creation of assets connected with agriculture, horticulture, plantation, sericulture, animal husbandry, fisheries
The loan amount is repayable over a period exceeding three years.
All categories of farmers and agricultural labourers are eligible.
For activities like purchase of bullocks, etc., no need for supportive documents. For larger loan, an estimate/quotation is called for. For land based activities, land records are required.

Land Development

Loans cover various activities like land clearance land levelling and shaping, bench terracing for hilly areas, contour stone walls, fencing, etc.
All farmers owning agricultural land are eligible.
The borrower has to produce a report on the estimated cost, supported by estimates of an engineer.

Minor Irrigation

Credit for the creation of irrigation facilities from underground/surface water sources. All structures and equipment necessary for irrigation are also financed
All farmers having known source of water, usable for irrigation purposes are eligible
Estimate for civil works needed and quotations for the assets to be purchased are obtained. Land records for the title to the property, a Geologist certificate and a feasibility certificate from the electricity board, where relevant

Farm Mechanization

Farm mechanisation besides tractors also includes use of other machinery viz., power tiller, threshers, combine harvester, sprayers, dusters, power tillers etc. for increasing production and improving productivity.
Farmer should have minimum 5 acres of perennially irrigated land for viable use of tractor.
Maximum margin money is 25% depending on the activity taken by the farmer. The repayment period varies from 3-9 years depending on borrower’s activity.

Finance to Horticulture

Loans for development of fruit orchards, short-term fruit crops, flowers in open and green houses and vegetable crops are extended.
All farmers having cultivable lands are eligible.

Documents:

Water and soil test report
A feasibility certificate from the local horticulture department
Land records
Quotation/estimates for the costs to be incurred
If the project is large then a project report.

Poultry Farming : broiler farming and layer farming

Dairy Farming

Sericulture

Drip, Sprinkler and Lift Irrigation System

Minimum Support Price Scheme

It is a scheme of the Government of India (GOI) under which, the covered agricultural produces are purchased from the farmers at the declared MSP thereby preventing distress sale.
The Food Corporation of India (FCI) acts as the Nodal Agency of GOI. These prices are announced for 25 crops currently at the commencement of the Rabi and Kharif seasons to encourage farmers to pursue their efforts.
National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) is the nodal procurement agency for Oilseeds and pulses.
In September 2018, the Government of India announced a new Umbrella Scheme, “Pradhan Mantri Annadata Aay Sanrakshan Abhiyan” (PM-AASHA) which includes the mechanism of ensuring remunerative prices to the farmers comprising (i) Price Support Scheme (PSS), (ii) Price Deficiency Payment Scheme (PDPS), (iii) Pilot of Private Procurement & Stockist Scheme (PPPS).

Prime Minister Fasal Bima Yojana (PMFBY)

In 2016, the Pradhan Mantri Fasal Bima Yojana (PMFBY) replaced all the prevailing yield insurance schemes in India. It has extended coverage under localized risks, post-harvest losses etc. and aims at adoption of technology for the purpose of yield estimation.
All farmers including share-croppers and tenant farmers growing the notified crops in the notified areas are eligible for coverage.
It has two components viz. Basic Cover, and Add-on Coverage. The basic cover is mandatory, add-on covers may be chosen by the State Governments. Losses arising out of war and nuclear risks, malicious damage and other preventable risks are excluded.
Aadhaar is mandatory for availing crop insurance.
States/UTs choose either the Scale of Finance or Notional Average Value (Notional Average Yield * MSP/Farm Gate) price method for computation of Sum Insured.
The Actuarial Premium Rate (APR) would be charged under PMFBY by implementing Insurance Company.

JAIIB PPB Module B Unit- 16 Agricultural Finance (Ambitious Baba) PDF