Agricultural Credit

&
Crop Insurance

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National Common Minimum Programme
Flow of rural credit to be doubled in
the next three years.

Rural credit delivery system will be

reviewed and immediate steps will be
taken to ease the burden of debt and
high interest rates on farm loans.

Rural cooperative credit system will be

nursed back to health.

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 Some recent GOI initiatives
Targets fixed to double agriculture credit flow in 3
years - increase @ 30% per year
Debt restructuring in respect of farmers in
distress and farmers in arrears to make all
farmers eligible for fresh credit
Banks to finance for redeeming the loans taken
by farmers from private moneylenders
Com. Banks to finance @ 100 farmers/ branch -
50 lakh new farmers in a year
New investments – 2 to 3 projects/ branch
Refinements in KCCs and Scale of Finance
Com. Banks to finance 10 Agri- Clinics/District

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 Achievement during 2004-05
 Credit flow
 Target for 2004-05 - Rs.1,04,500 crore;
 Achievement : Rs.1,08,500 crore
 Target for 2005-06: Rs. 1,41,050 crore
 Financing new farmers
 Target- 50 lakh; Achievement (Jan., 05) : 58.20 lakh
 Restructuring of loans - as on Jan., 05
 Farmers in distress: Rs. 6036.56 crore;
 Farmers in arrears: Rs.1436.97 crore
 One Time settlement:Rs. 475.61 crore
 Financing Agri Clinics
- Target @ 10 per district: ~ 5000
- Achievement ( Jan., 05) : 490
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 Major Issues in Agri. Credit
Poor health of credit cooperatives
Low share of RRBs (~11%)
High cost of borrowing - Cost of borrowing vis-a-vis
rate of interest?
Perceived high risk associated with agriculture lending
Hassles in credit delivery viz.complex documentation,
collateral requirement, delays, under financing
Limited access to credit to MF/ tenant farmers/ oral
lessees/share croppers
Provision of adequate & timely credit

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 Future Agenda
 Reforming Credit Cooperatives – Issues to be addressed:
i. Governance and regulation
ii. Capital adequacy
iii. Continued solvency, and
iv. Safety of public deposits
 To facilitate timely availability of credit, DCCBs should
sanction credit limit to PACS in advance
 RRBs to emerge as niche operators; their credit share to
increase to at least 25%.
 Need for encouraging a credit culture that provides
incentive for repayment rather than default
 DLBC to ensure adequate & timely availability of credit
through adjustment in Scale of Finance

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 Future Agenda…..
 Need for effective risk mitigation -
production and price risk
 Correct regional imbalances in rural credit
flow
 Cover all farmers within institutional
credit fold
 Reverse declining capital formation in
agriculture – higher public investments,
encourage private investments,
improving infrastructure
 Promoting value addition in agriculture –
agro/food processing 7
 Future Agenda - contd..
 Corporate Sector involvement in rural credit; contract farming-
legislative framework
 Role of State Governments -
I. Effective extension and liaisoning with RFIs,
II. Adequate publicity of Government initiatives & intentions
III. Demand side management – enabling environment for
facilitating hassle free credit flow
IV. Storage/processing & marketing arrangements.
V. Support for banks in dues recovery
VI. Revisit Stamp Duty structure on agricultural loans
VII. Creation of charge on the basis of declaration

VIII. Computerisation of land records- lien marking instead of

mortgaging land

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 Role of State / UTs
 Activate SLBC, DLBC & BLBC
 Put in place an appropriate review and
monitoring mechanism - Mid-term
corrections in allocation of institution
wise target
 Keep watch on interest rate movement
on agri- loans and procedural
complexities to remove distortions.
 Undertake pilot study on cost of
borrowings

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 Risk Management and Crop Insurance
Government sponsored National Agricultural
Insurance Scheme (NAIS) in operation since Rabi
1999-2000.
Farm Income Insurance Scheme (FIIS)
implemented on pilot basis in Rabi 2003-04 and
Kharif 2004. Discontinued w.e.f. rabi 2004-05.
Varsha Bima Yojana (Rainfall Insurance) being
implemented by some insurance companies like
ICICI- Lombard, IFFCO-Tokio, AIC on Pilot basis.

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 NATIONAL AGRICULTURAL INSURANCE
SCHEME (NAIS)
The scheme is implemented by 23 States and 2 Union
Territories.
During first eleven crop seasons, 592 lakh farmers have
been covered over an area of 1018 lakh hectares.
Claims to the tune of Rs. 4997.52 crores have become
payable against the premium income of Rs. 1689 crores.
Crops covered are food crops (Cereals, Millets & Pulses), Oil
seeds and Annual Commercial/ horticultural crops - Cotton,
Potato, Sugarcane, Onion, Chilly, Ginger, Turmeric, Jute,
Annual Banana, Pine-apple and Topioca.
Government proposes to continue NAIS in its present form.

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 Constitution of the Joint Group
 Joint Group constituted by Govt. of India to study the
improvements required in the existing crop insurance
scheme submitted its report on 20.12.2004.
 The Group has made recommendations for improving
NAIS, covering Personal Accident & Package Insurance
Policy, encouraging private sector insurers & weather
insurance products etc.
 The Report of the Joint Group has been circulated to all
States/UTs.
 Further consultation with all the stake holders will be
done on the Joint Group recommendations.

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 Expectations from the States/UTs
 Create infrastructure for moving to Gram Panchayat (GP) as Unit
Area of Insurance in respect of major crops ( even the NAIS
requires this move)
 Arrange for identifying and training additional manpower required
for moving to GP level & for conducting additional CCEs.
 Arrangement for making available CCE data in time.
 Maintenance of Single Series of yield data.
 Strengthen & upgrade weather stations infrastructure for
implementing weather based insurance products.
 Take up location specific innovative crop insurance experiments
 Adequate provision in state budgets for settlement of claims in
time.
 Display list of all insured farmers at GP office. Also arrange to
display the list of benefited farmers together with claim amount
soon after settlement of claims.

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 Recommendations of the Joint Group
 Reduction in the unit area of insurance to the
level of village panchayat for major crops.

 Threshold/guaranteed yield is proposed to be

based on best 5 years out of preceding 7 years
yield data.

 Indemnity levels will be 90% for low risk

areas/crops and 80% for other areas/crops.

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 Recommendations of the Joint Group…… Contd.
 Coverage of pre-sowing/planning risks (i.e. prevented
sowing on account of adverse seasonal conditions).
The indemnity payable may range between 20% - 25%
of sum insured.
 Post-harvest losses on account of cyclone are to be
covered in coastal areas for a period of two weeks from
harvesting provided the harvested crop is lying in the
field.
 Uniform seasonality discipline for loanee and non-
loanee farmers is to be followed in consultation with the
States/UTs.
 On account payment of claims is to be made during the
season on the basis of weather data or satellite imagery
so as to make timely payment of claims.

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 Recommendations of the Joint Group…… Contd.
 An individual assessment of claims will be carried out in
case of specified localized calamities viz. hailstorm,
landslide and damage due to wild animals.

 Insurance scheme to be placed on actuarial regime.

However, the premium to be actually paid by the farmers
be suitably subsidized.

 AIC should expand its network in terms of district level

franchise, rural agents, micro-insurance agents to provide
better service to farmers.

 Insurance coverage should be provided to perennial

horticultural crops and vegetables. A road map is
suggested for designing and launching a pilot insurance
scheme w.e.f. Kharif 2005 seasons.

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 Recommendations of the Joint Group…… Contd.
 The Govt. should provide necessary solvency margin to AIC (as
required under actuarial regime as per IRDA regulations)
through budget allocation (non-plan).

 Banks will bear 25 per cent of net premium payable by loanee

farmers subject to a maximum of 1.00 percentage point of
premium.

 The Govt. should allow private insurers in area based yield

insurance on experimental basis. The method suggested would
entail all insurers to enjoy premium subsidy at uniform rate.

 AIC should take up a pilot project on use of remote sensing

applications in crop insurance, covering – crop health, crop
acreage, yield estimation & reduction of sample size of CCEs
etc.

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 Recommendations of the Joint Group…… Contd.
 Proposed crop insurance scheme (in place of NAIS) will
continue to be compulsory for loanee farmers.

 The banks should display the list of all insured farmers at the
village panchayat office. Further, the banks should also
display the list of benefited farmers together with claim
amount soon after the claims are received from implementing
Agency.

 A single window approach is suggested for providing

comprehensive package insurance to farmers. In this
approach, crops will be covered under area approach and other
assets under individual approach.

 Personal Accident Insurance and ‘dwelling & contents insurance

should be made compulsory along with crop insurance.

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 Recommendations of the Joint Group…… Contd.
 Private sector should be encouraged to provide
competitive environment and better service to farmers.
 State should be permitted to take up small experimental
and innovative crop insurance products including
weather insurance and insurance for horticulture and
plantation crops in collaboration with AIC and other
insurance companies.
 The existing infrastructure of IMD w.r.t. weather stations
need up-gradation and automation to effectively feed
data for weather insurance. Using the services of third
party weather data providers should also be explored.
 There is no relevance for FIIS in the present form. The
pilot project on FIIS, therefore, should be wound up
w.e.f. Rabi 2004-05 season.

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