Credit to farmers: Chastised banks to monitor fund use

Under pressure to ramp up exposure to farm loans, banks are planning to put in place a mechanism to monitor the end-use of funds: they will IT-enable Kisan credit cards (KCCs) to ensure a check on the end-use of funds and need-based withdrawal of money.

Public sector banks were singed by the 'loan melas' of early 1980s and loan waivers of late 1980s, when farm loans turned bad. They say monitoring end-use will help maintain the quality of assets. The Indian Banks' Association and the Smart Cards Forum of India (SCFI) have formed working group towards this.

KCCs were launched in 1998-99 to enable farmers to readily purchase agricultural inputs such as seeds, fertilisers, pesticides, etc. and also draw cash for their farming needs.

Banks have issued 4.14 crore cards with the cumulative amount sanctioned being Rs 97,710 crore.

"It is a challenge for the banks to monitor the end-use of credit under KCC. Misuse of the Card can be checked only if its use is restricted to approved locations," Piyush Khaitan, chairman, e-payments focus group, SCAFI, said.

Khaitan, who is also the founder-director of Venture Infotek, pointed out that credit drawals could also be controlled based on the cropping pattern. Need-based financing should replace the temptation of drawing the entire sanctioned amount, which could be squandered away.

Value added features like downloading information from Internet kiosks on weather, seeds/fertilisers to be used, mandi rates, freight costs, etc are proposed to be incorporated in the KCC.

Eligible farmers are provided with a KCC and a pass book or a card-cum-pass book and any number of drawals and repayments are allowed on a revolving cash-credit basis within the limit.

The limit is fixed on the basis of operational land holding, cropping pattern, scale of finance and an assessment of the credit needs for the full year plus ancillary activities related to crop production.

KCC is valid for three years subject to annual review. As an incentive to good performance, credit limits can be enhanced to take care of increase in costs, change in cropping pattern, etc.

Each drawal needs to be repaid within a year and reschedulement of loans is permissible in case of damage to crops due to natural calamities.