Need, importance &

types of Credit
Session - 1
A.K.Pasrija
Former GM, NABARD
Mobile: 95016-66337

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 Session – 1
Meaning of Credit

❑ Need for production and development Credit

❑ Importance of agrl credit & its characteristics
❑ Types of Short Term, Medium & Long Term Credit
❑ Need for institutional credit for agricultural and
rural development

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 What is Credit?

⚫ aCredit is a deferred payment arrangement between

borrower and a lender that facilitates access to

⚫ Formal
funds for repayment at a later date.
/ Institutional credit: through financial
institutions such as banks, MFIs, Financial
Corporations, Agri finance Companies, set up

⚫
under law
Informal / non institutional credit: through money
lenders, commission agents, etc

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 Need for credit

⚫Development
Production credit

⚫
⚫
Credit
Livelihood generation

⚫
⚫
Capital formation – asset creation
New investments to adopt new technologies

⚫ Storage , Marketing & Processing

⚫ Household
Infrastructure development
needs – education, housing, consumption,

⚫ Poverty alleviation
consumer durables

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 Short Term Credit
Credit for period not exceeding eighteen months for
financing
• Agricultural operations / marketing of crops
• Marketing and distribution of inputs necessary for
agriculture or rural development
• Any other activity for promotion of or in the field of
agriculture or rural development
• Bonafide commercial or trade transactions
• Production or marketing activities of artisans or of SSI,
industries in the tiny and decentralized sector, village &
cottage industries / handicrafts / other rural crafts

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 Medium / Long Term Credit
▪ Medium Credit: for period exceeding eighteen months
and not exceeding seven years
▪ Long Term: Not exceeding twenty five years
Conversion loan: Conversion of production credit for
financing agricultural operations or marketing crops due to
natural calamity
Reschedulelment of loans to artisans, SSIs, etc
▪ Rescheduling of loans and advances due to unforeseen
circumstances made to artisans, SSIs, industries in tiny and
decentralized sector, village & cottage industries,
handicraft & other crafts

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 MSME
1. Micro enterprise: Investment in Plant &
Machinery or equipment not more than Rs one
crore and turn over not more than Rs 5 crore.
2. Small enterprise: Investment in Plant &
Machinery or equipment not more than Rs ten
crore and turn ov4r not more than Rs fifty crore
3. Medium enterprise: Investment in P&M or
equipment not more than Rs fifty crore and turn
over not more than Rs two hundred & fifty crore

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 Types of credit
1. Working Capital (frequent drawings & repayments)
▪ To meet day to day expenses for investment in plant and
machinery
▪ Or business / trading /manufacturing activities
▪ Cultivation and operating purposes in creation of current
assets for production and the sale of final produce or
finished goods
2. Term Loan ( Medium or long term duration repayable in

⚫
quarterly or half yearly or annual instalments)
To establish, expand, modernize a farming and service
enterprise by acquisition of assets

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 Types of credit
⚫ Artisans, MSME
⚫ Manufacturing / Production / Processing units
⚫ Service sector, Transport Operators
⚫ Export credit
⚫ Education
⚫ Housing
⚫ Infrastructure
⚫ Renewable energy
⚫ Informal credit delivery system ( Self Help Groups, Joint
Liability Groups, NRLM Groups, etc)

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 Examples of credit
❑ Personal loans
❑ Consumer loans – Cars, TV / Fridge / AC / Fridge
❑ Tourism
❑ Professionals
❑ Retail trade / Business
❑ Loans against gold / shares / NSC / immovable property etc
❑ Credit cards
❑ Loans against salary / pension
❑ Reverse mortgage loans ( Baghban )

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 Examples of credit

⚫
Farm Sector

⚫ Crop cultivation, crop production, maintenance & marketing

Water resources ( Tubewells, Pumpsets, Drip Irrigation, Sprinker

⚫ Irrigation, UGPL, water pumping systems, etc)

Farm Mechanization (tractor, harvester combines, power tiller,
rotavator, seed dril, paddy nursery raising machine, paddy

⚫
⚫
trnsplanter, etc)
Land Development (Farm bunding, land levelling)
Plantation & Horticulture (Fruit crops, floriculture, bee keeping,

⚫
⚫
nursery, green houses, mushroom)
Forestry & wasteland
Allied ( Animal Husbandry ( Dairy / Poultry / Piggery / Sheep /goat)

⚫ Fisheries, etc)
Bullocks, carts, two wheelers

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 Types of credit

⚫
Agriculture infrastructure

⚫
Storage & Marketing infrastructure

⚫
Warehouses / godowns

⚫
Market yards

⚫
Silos

⚫
Cold storage units

⚫
Cold chains

⚫
Land development

⚫
Soil conservation
Watershed development

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 Types of credit

⚫
Agriculture infrastructure others

⚫
e-NAM

⚫
Tissue culture

⚫
Agri bio technology

⚫
Seed production

⚫
Bio pesticides / fertiliser
Vermi composting

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 Examples of credit

⚫
Agriculture – ancillary activities

⚫
Food and agro processing

⚫
Agri clinic / agri business centres

⚫
Loans to PACS / FSS / LAMPS

⚫
Loans to MFIs for onlending

⚫
Others (Misc)
Loans to distressed persons to prepay non institutional

⚫
lenders

⚫
PMJDY
Loans to State Sponsored Organisations for SC/ST

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 Priority Sector Lending - Categories
1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others

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 Description of agriculture

Agriculture to include:
i. Farm credit ( includes Short term crop loans and
medium term / long term credit to farmers
ii. Agriculture infrastructure
iii. Ancillary activities
Farmers with landholding upto 1 hect Marginal
Farmer and more than 1 hect & upto 2 HA as SF
52% population working in agriculture

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 Farm Credit

⚫ Farm credit – individual farmers – include loans to

individual farmers ( including SHGs or JLGs provided
banks maintain disaggregated data of such loans) –
activities loans under the KCC scheme, loans to SF/MF

⚫
for purchase of land for agricultural purpose,
Loans against pledge / hypothecation of agricultural
produce ( including warehouse receipts) for a period
not exceeding 12 months subject to a limit upto Rs 75
lakh against NWRs / ENWRs and upto Rs 50 lakh
against warehouse receipts other than NWRs /eNWRs.
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 Farm Credit
⚫ Farm credit – Corporate farmers, FPOs / FPCs,
Companies of individual farmers, partnership firms,
and cooperatives of farmers engaged in agriculture and
allied activities: Loans upto Rs 75 lakh against pledge /
hypothecation of agricultural produce ( including
warehouse receipts) for a period not exceeding 12
months against NWRs / eNWRs and upto Rs 50 lakh

⚫ against warehouse receipts other than NWRs /eNWRs.

Loans upto Rs 5 crore per borrowing unit to Farmer
Producers Organisations / Farmer Producer Companies
undertaking farming with assured marketing of their
produce at a pre – determined price.

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⚫ Loans for following activities of agricultural
Agriculture infrastructure

infrastructure will be subject to an aggregate

sanctioned limit of Rs 100 crore per borrower from

⚫
the banking system:
Loans for construction of storage facilities (
warehouse, market yards, godowns and silos)
including cold storage units / cold storage chains
design to store agriculture produce / products,

⚫
irrespective of their location.
Soil conservation and water shed development.
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⚫ Plant issue culture and agri-biotechnology, seed
Agriculture infrastructure

production, production of bio-pesticides, bio-

⚫
fertilizer, and vermi composting.
Loans for construction of oil extraction / processing
units for production of bio-fuels, their storage and
distribution infrastructure along with loans to
entrepreneurs for setting up Compressed Bio Gas
(CBG) plants.

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 Ancillary activities
⚫ Following loans under ancillary services will be subject o
⚫ Loans upto Rs 5 crore to co-operative societies for
limits prescribed as under:

⚫ Loans upto Rs 50 crore to Start-ups, engaged in agriculture

purchase of the produce of members.

⚫ Loans for food and agro processing upto an aggregate

and allied activities.

sanctioned of Rs 100 crore per borrower from the banking

⚫
system.
Outstanding deposits under RIDF and other eligible funds
with NABARD on account of priority sector shortfall.

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 3. Ancillary activities
⚫ Ancillary activities include
⚫ Loans for setting up of Agri-clinics and Agri-business
⚫ Loans to Custom Service Units
centres

⚫ Bank loans to PACS / FSS / LAMPS for onlending to

⚫ Loans by banks to MFIs for onlending to agriculture sector
agriculture

⚫ Loans by banks to registered NBFCs ( other than MFIs)

⚫ 29 permissible activities under food processing sector as
per Ministry of Food Processing Industries (Annexure III to
RBI Master Directions dated 4 September 2020)
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 Others
⚫ Loans not exceeding Rs 1.00 lakh per borrower provided
directly by banks to individuals and individual members of
SHG /JLG, provided tyhe individual borrower’s annual
income in rural areas does not exceed Rs 1.00 lakh and for
non-rual areas it does not exceed Rs 1.60 lakh, and loans
not exceeding Rs 2.00 lakh provided directly by banks to
SHG / JLG for activities other than agriculture or MSME viz
loans for meeting social needs, construction or repair of
house, construction of toilets or any viable commercial
activity by the SHGs.

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⚫ Loans to distressed persons ( other than distressed
Others

farmers indebted to institutional lenders) not

exceeding Rs 1.00 lakh per borrower to prepay

⚫
their debt to non-institutional lenders.
Loans sanctioned to State Sponsored Organizations
for SC / ST for the specific purpose of purchase and
supply of inputs and / or the marketing of the
outputs of he beneficiaries of these organizations.

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⚫ Small and Marginal Farmers
Weaker Sections

⚫ Artisans, village and cottage industries where

⚫ SC & ST
individual credit limits do not exceed Rs 1.00 lakh

⚫ Beneficiaries of DRI
⚫ SHGs
⚫ Distressed farmers indebted to non-institutional
lenders

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⚫ Distressed persons other than farmers, with loan
Weaker Sections

amount not exceeding Rs 1 lakh per borrower to

⚫
prepay their debt to non institutional lenders
Individual women beneficiaries upto Rs 1 lakh per

⚫
borrower

⚫
Persons with disabilities

⚫
Minority communities
Overdraft availed by PMJDY account holders as per
limits prescribed by DFS, Ministry of Finance

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⚫
Education
Loans to individuals for educational purposes,
including vocational courses, not exceeding
Rs 20 lakh will be considered as eligible for

⚫
priority sector classification.
Loans currently classified as priority sector
will continue till maturity.

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⚫ Loans
Housing
to individuals upto Rs 35 lakh in
metropolitan centres ( with population of ten
lakh and above) and upto Rs 25 lakh in other
centres for purchase / construction of a dwelling
unit per family provided the overall cost of the
dwelling unit in the metropolitan centre and at
other centres does not exceed Rs 45 lakh and Rs

⚫ 30 lakh respectively.
Loans upto Rs 10 lakh in metropolitan centres
and upto Rs 6 lakh in other centres for repairs to
damaged dwelling units conforming to the
overall cost prescribed above.
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⚫ Bank
Housing
loans to any govt agency for construction of dwelling
units or for slum clearance and rehabilitation of slum
dwellers subject to dwelling units with carpet area of not

⚫ more than 60 sq.m.

Bank loans for affordable housing projects using at least
50% of FAR / FSI for dwelling units with carpet area of not

⚫ more than 60 sq.m.

Bank loans to HFCs (approved by NHB for their refinance)
for onlending upto Rs 20 lakh for individual borrowers, for
purchase / construction / reconstruction of individual
dwelling units or for slum clearance and rehabilitation of
individual dwelling units or for slum clearance and
rehabilitation of slum dwellers.

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 Social infrastructure
⚫ Bank loans upto a limit of Rs 5 crore per borrower for
setting up schools, drinking water facilities and sanitation
facilities including construction / refurbishment of
household toilets and water improvements at household
level, etc and loans upto a limit of Rs 10 crore per
borrower for building health care facilities under

⚫
‘Ayushman Bharat’ in Tier II to Tier VI centres.
Bank loans ( excluding RRBs, UCBs & SFBs) extended for
onlending to individuals and also to members of SHGs /
JLGs for water and sanitation facilities.

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⚫ Bank loans upto a limit of Rs 30 crore to borrowers
Renewable energy

for purposes like solar based power generators,

biomass based power generators, wind mills, micro
hydel plants and for non conventional energy
based public utilities viz street lighting systems and
remote village electrification etc will be eligible for

⚫
Priority Sector classification.
For individual households, the loan limit will be Rs
10 lakh per borrower.

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 Need for institutional credit for agriculture &
rural development
1. Non institutional lenders charge exorbitant interest rates,
financing only against collaterals / jewellery, flat rate of
interest, no transparency & do not finance SF/MF/
landless.
2. Requirement of credit is vast and thus cannot be met by
non institutional lenders or even by one agency
3. Institutional credit is also linked with other facilities viz
interest subvention, lesser interest rate for prompt
payment, linkage of credit with marketing , agricultural
insurance, financial inclusion, savings, aadhaar linkage
for DBT, transparency in operations, KCC Card / ATM
credit for withdrawal of funds as and when required,
cash credit facility.
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