Instrument to Reduce Transaction Cost in Rural Lending

1
Instrument to Reduce Transaction Cost in Rural
Lending

• Kissan Credit Cards
• - reduce the transaction cost of the borrowers
  and lenders
• - flexibility and convenience to the farmers in
  borrowing

2
Features of Kissan Credit Card

• 1. Eligibility of farmers
• existing borrowers having good track record for
  the last 2-3 years
• existing and new borrowers (All farmers with
  requirement of production credit Rs. 5000 and
  above) Syndicate Bank
• farmers having one acre of irrigated land
  Allahabad Bank, PNB
• All borrowers for tractor loan Punjab Sindh
  Bank
• Owner cultivators only Aligarh RRB

3
Features of Kissan Credit Card

• 2. Minimum credit limit
• - Rs. 3000 to 5000
• 3. Maximum credit limit
• - no maximum limit
• - slabs according to size of holdings (Allahabad
  Bank PNB)

4
Features of Kissan Credit Card
Allahabad Bank Punjab National Bank
1 1-2 acre, Rs. 25000 1-2 acre, 30,000
2 2.5-7 acres, Rs. 40,000 2.5-6 acres, Rs. 2 lakh
3 7-9 acres, Rs. 60,000 6-8 acres, Rs. 3 lakh
4 More than 9 acres, Rs. 1 lakh More than 8 acres, Rs. 3 lakh and above
5
Features of Kissan Credit Card

• 4. Basis for fixation of credit limit
• - operational land holding, cropping pattern and
  scale of finance for each crop
• - 50 of the total income of the family from
  all sources Allahabad Bank and PNB

6
Features of Kissan Credit Card

• 6. Fixation of seasonal limit
• - no seasonal limit, entire limit sanctioned can
  be operated throughout the year.
• - seasonal limit based on nature of crop
• - seasonal limit if total credit limit is above
  25000
• - seasonal limit expires if not used
• - month-wise limit depending upon cash flow
  (Bank of India)

7
Features of Kissan Credit Card

• 7. Separate limit for Non-farm activities or
  allied activities
• - 10 to 30 of crop credit limit as additional
  credit for allied activities
• - additional fixed amount per activity
• - actual requirement and sanction separately
• - Clubbed in crop credit limit
• - some percentage of crop credit limit as
  consumption loan (contingency)

8
Features of Kissan Credit Card

• 8. Facility of drawl at other branches
• - only card issuing branch
• - all branches
• - identified branches within the district
• - only literate borrowers can avail this
  facility
• - charge service charges for this facility
• - 2-3 per cent of cash withdrawn as service
  charge

9
Features of Kissan Credit Card

• 9. Repayment
• - specific repayment norms
• - fixing sub-limit (separately for rabi and
  kharif)
• - operation on next sub-limit is possible when
  repayment for previous sub-limit are made.

10
Features of Kissan Credit Card

• 10. Insurance of the card holder
• - in few cases (Andhra Bank, Allahabad Bank and
  Vijaya Bank), Rs. 1 lakh
• - premium to be born by card holder
• - premium for small and marginal farmers is
  shared between card holder and bank

11
Features of Kissan Credit Card

• 11. Issue of cheque book
• - yes but only to literate borrowers
• - yes but given only to existing borrowers with
  good track record
• - no, withdrawal only through debit slip at the
  card issuing branch only

12
Features of Kissan Credit Card

• 12. Service charges
• - exempted small borrowers (Canara bank, UCO
  bank)
• - 100 as admission fee/membership fee
• - Rs. 200 as fee for duplicate card

13
Features of Kissan Credit Card

• 13. Opening of Saving Bank Account
• Except Syndicate bank, none of the other
  commercial banks have made it compulsory for
  borrower to open a saving bank account with the
  bank branch to avail the kissan card facility

14
Features of Kissan Credit Card

• 14. Payment of interest on credit balance
• - No interest in most of the cases
• - Few banks prescribe certain minimum credit
  balance (Rs. 500) for paying the interest _at_ 4
  percent p.a.