Kisan Credit Card Two Swords in One Sheath Occasionally we come across such thing that we don’t believe due to our existing knowledge. There is a saying that two swords can’t live in a sheath, but I experience something opposite to it when I read about the Kisan Credit Card. Kisan Credit Card has made the adage untrue because it is said that only one sword can live in one sheath. It will be the new experience for you also when you reach at the end of this. You will be obliged to think that every law and adage can be proved wrong in special circumstances. Introduction: The Kisan Credit Card (KOC) scheme introduced in August 1998 has emerged as an innovative credit delivery mechanism to meet the production credit requirements of the farmers in a timely and hassle-free manner. The scheme is under implementation in the entire country by the vast institutional credit framework involving Commercial Banks, RRBs and Cooperatives and has received wide acceptability amongst bankers and farmers. However, during the last 17 years of implementation, many impediments were encountered by policy makers, implementing banks and the famers in the implementation of the scheme Recommendations of various Committees appointed by Gol and studies conducted by NABARD also corroborate this fact. It was, therefore, felt necessary to revisit the existing KCC Scheme to make it truly CA Mukesh Saran (The author is @ member of the Institute, He can be reached at saranfea@gmail com simple and hassie free for both the farmers and bankers. Accordingly, Ministry of Finance, Dept of Financial services, Govt of India had constituted a Working Group under the Chairmanship of Shri T. M. Bhasin, CMD of Indian Bank to review the Kisan Credit Card to suggest changes to be made in the KCC scheme tomake it a Smart Card cum Debit Card. On acceptance of the recommendations of the Working Group by Govt. of India, revised operational guidelines on KCC were issued by NABARD to Cooperative Banks, RRBs and by RBI to Commercial Banks in the year 2012, Banks were advised to devise suitable strategies to implement the scheme in a time bound manner. Based on the recommendations of the Working Group which were accepted by the Gol, the guidelines are issued. Detailed guidelines along with illustrations are contained in RBI circular no. RBI/2011-12/553 RPCD.FSD.BC.No. 77105.05.09/2011-12 dated May 11, 2012 Objective! Purpose: Kisan Credit Card Scheme aims at providing adequate and timely credit support from the banking system under a CM Maho Ser: Dekesingle window to the farmers for their cultivation & other needs as indicated below: a. To meet the short term credit requirements for cultivation of crops b. Post harvest expenses c. Produce marketing loan d. Consumption requirements of farmer household e. Working capital for maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery etc. f, Investment credit requirement for agriculture and allied activities like pump sets, sprayers, dairy animals ete. The aggregate of components a. to e. above will form the short term credit limit portion and the aggregate of components under f will form the long term credit limit portion. Eligibility: All Farmers-Individuals/Joint borrowers who are owner cultivators, Tenant Farmers, Oral Lessees & Share Croppers and SHGs or Joint Liability Groups of Farmers including tenant farmers, share croppers etc. are eligible for KCC scheme. Kisan Credit Card Limit for all farmers other than marginal farmers For these farmers Short term limit for 1" year and subsequent 4 years will be fixed as per guidelines and illustrations given in the RBI circular dated May 11, 2012. ‘While the long term loan limit for these farmers is based on the proposed investments during the five year period and the bank's perception on the repaying capacity of the farmer. The short term loan limit arrived for the Sth year plus the estimated long term loan requirement will be the Maximum Permissible Limit (MPL) and treated as the Kisan Credit Card Limit. Here ‘Marginal Farmer’ means a farmer cultivating (as owner or tenant or share cropper) agricultural land up to 1 hectare (2.5 acres), fixation of sub-limits for farmers other than marginal farmers: i. Short term loans and term loans are governed by different interest rates. Besides, at present, short term crop loans are covered under Interest Subvention Scheme/ Prompt Repayment Incentive scheme. Further, repayment schedule and norms are different for short term and term. loans. Hence, in order to have operational and accounting convenience, the card limit is to be bifurcated into separate sub limits for short term cash credit limit cum savings account and term loans. ji, Drawing limit for short term cash credit should be fixed based on the cropping pattern and the amounts for crop production, repairs and maintenance of farm assets and consumption may be allowed to be drawn as per the convenience of the farmer. In case the revision of scale of finance for any year by the district level committee exceeds the notional hike of 10% contemplated while fixing the five year limit, a revised drawable limit may be fixed and the farmer be advised about the same. In case such revisions require the card limit itself to be enhanced (4th or 5th year), the same may be done and the farmer be so advised. For term loans, installments may be allowed to be withdrawn based on the nature of investment and repayment schedule drawn as per the economic life of the proposed investments. It is to be ensured that at any point of time the total liability should be within the drawing limit of the concerned year. Wherever the card limitliability so arrived warrants additional security, the banks may take suitable collateral as per their policy. an Credit Card Limit for marginal farmers: A flexible limit of Rs.10000 to Rs.50000 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, ete., plus small term loan investments like purchase of farm equipments, establishing mini dairy/backyard poultry as per assessment of Branch Manager without relating it to the value of land. The composite KCC limit is to be fixed for a period of five years on this basis. Wherever higher limit is required due to change in cropping pattern and/or scale of finance, the limit may be arrived at as per the estimation indicated CA. Mukesh Saran, Lucknowat para 5.1 of the RBI circular dated May 114, 2012. Disbursement: The short term component of the KCC limit is in the nature of revolving cash credit facility. There should be no restriction in number of debits and credits. However, each installment of the drawable limit drawn in a particular year will have to be repaid within 12 months. The long term loan for investment purposes may be drawn as per installment fixed Thus aggregate card limit is consisting of two distinct components, CC limit and the term loan limit. As both limits bearing different rates of interest and repayment periods, until a composite card could be issued with appropriate software to separately account transactions in either sub limits, two separate electronic cards may be issued. Validity/Renewal: Banks may determine the validity period of KCC and its periodic review. The review may result in continuation of the facility, enhancement of the limit or cancellation of the limit / withdrawal of the facility, depending upon increase in cropping area J pattern and performance of the borrower. When the bank has granted extension and/or re-schedulement of the period of repayment on account of _ natural calamities affecting the farmer, the period for reckoning the status of operations as satisfactory or otherwise would get extended together with the extended amount of limit. When the proposed extension is beyond one crop season, the aggregate of debits for which extension is granted is to be transferred to a separate term loan account with stipulation for repayment in installments. Repayment Period: Each withdrawal under the short term sub- limit as estimated under (a) to (e) of Para 3 of the RBI circular dated May 11, 2012 {also given above in objective/purpose) be allowed to be liquidated in 12 months without the need to bring the debit balance in the account to zero at any point of time. No withdrawal in the account should remain outstanding for more than 12 months. Whereas the term loan component will be normally repayable within a period of 5 years depending on the type of activity / investment as per the existing guidelines applicable for investment credit. Financing banks at their discretion may provide longer repayment period for term loan depending on the type of investment. Other features: Uniformity to be adopted in respect of Interest Subvention/incentive for prompt repayment as advised by Government of India and / or State Governments. The bankers will make the farmers aware of this facility. The KCC holder should have the option to take benefit of Crop Insurance, Assets Insurance, Personal Accident Insurance Scheme (PAIS), and Health Insurance (wherever product is available and have premium paid through his KCC account). Necessary premium will have to be paid on the basis of agreed fatio between bank and farmer to the insurance companies from KCC accounts. Farmer beneficiaries should be made aware of the insurance cover available and their consent is to be obtained, at the application stage itself. One time documentation at the time of first availment and thereafter simple declaration (about crops raised / proposed) by farmer from the second year onwards. Classification of account as NPA: With a view to simplifying asset- classification, the Committee has recommended that an account could be treated as "standard", when the balance outstanding is less than or equal to drawing limit [short term (crop) loan] at any point of time during the preceding one year. In other words, it is suggested that the short term loan (with major component of crop loan) sanctioned on the KCC can be given the same treatment as a “cash credit” account for the purpose of applying prudential norms and should not be treated as ‘out of order’ if the balance outstanding is less than or equal to the drawing limit and each draw is repaid within a period of 12 months. Term loan under KCC has fixed repayment schedule CA. Mukesh Saran, Lucknowand is to be governed by extant prudential norms. (para 14.1 of the RBI circular dated May 11, 2012) Changes: Some of the guidelines as given in of the RBI circular dated May 11, 2012 have been revised by RBI circular RBV/2012- 143/162 RPCD.FSD.BC.No.23/05.05.09/ 2012-13 dated August 7, 2012. These are as under: Para 6.1 of the RBI circular dated May 11, 2012 As regard Disbursement word and phrase “However, each installment of the drawable limit drawn in a particular year will have to be repaid within 12 months” has been removed.” Para 10.1 of the RBI circular dated May 11, 2012 As regard Repayment of each withdrawal under the short term sub-limit as estimated under (a) to (@) of para 3 (of the RBI circular dated May 11, 2012) be allowed to be liquidated in 12 months without the need to bring the debit balance in the account to zero at any point of time. No withdrawal in the account should remain outstanding for more than 12 months has been replaced by word and phrase “The repayment period may be fixed by banks as per the anticipated harvesting and marketing period for the crops for which a loan has been granted.” Para 14.1 of the RBI circular dated May 11, 2012 As regard Classification of Account as NPA para which reads, ‘With a view to simplifying _asset-classification, the Committee has recommended that an account could be treated as “standard”, when the balance outstanding is less than or equal to drawing limit [short term (crop) loan] at any point of time during the preceding one year. In other words, it is suggested that the short term loan (with major component of crop loan) sanctioned on the KCC can be given the same treatment as a “cash credit’ account for the purpose of applying prudential norms and should not be treated as “out of order” if the balance outstanding is less than or equal to the drawing limit and each drawl is repaid within a period of 12 months. Term loan under KCC has _ fixed repayment schedule and is to be governed by extant prudential norms” has been replaced by word and phrase “The extant prudential norms for income recognition, asset-classification and provisioning will continue to apply for loans granted under revised KCC Scheme.” It means for classifying a KCC account as NPA, Prudential norms for income recognition, asset-classification and provisioning are given in RBI master circular RBV2014-15174 DBOD.No.BP.BC.9/21.04.048/2014-15 dated July 1, 2014 will be applicable Para 4.2.13 of RBI master circular RBV2014-15!74 DBOD.No.BP.BC.9/21.04 048/2014-15 dated July 1, 2014 defines Agricultural advances as ‘A loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for two ctop seasons. A loan granted for_long duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for one crop season. For the purpose of these guidelines, “long duration” crops would be crops with crop season longer than one year and crops, which are not “long duration” crops would be treated as “short duration” crops. The crop season for each crop, which means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers’ Committee in each State. Depending upon the duration of crops raised by an agricuttutist, the above NPA norms would also be made applicable to agricultural term loans availed of by him. The above norms should be made applicable to all direct _ agricultural advances as listed at paragraph Ill (1.1) of the Circular on Priority Sector Lending- Targets and Classification RPCD.CO. Plan.BC.9/04,09.01/2013-14 dated July 1, 2013. Kisan Credit Card is one which is included in this list. Thus in my view for classifying KCC as NPA its CC limit will be treated by ‘out of order’ criteria and term loan limit will be treated by “overdue” criteria as given in para 2.1.2 of the MC of July 1, 2014. CA. Mukesh Saran, Lucknow