Need, importance &

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

1
 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

2
 What is Credit?

 Credit is a deferred payment arrangement between

a borrower and a lender that facilitates access to
funds for repayment at a later date.
 Formal / 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

3
 Need for credit

 Production credit
Development Credit
 Livelihood generation
 Capital formation – asset creation
 New investments to adopt new technologies
 Storage , Marketing & Processing
 Infrastructure development
 Household needs – education, housing, consumption,
consumer durables
 Poverty alleviation

4
 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

5
 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

6
 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

7
 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

8
 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)
9
 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 )

10
 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

11
 Types of credit
Agriculture infrastructure
 Storage & Marketing infrastructure
 Warehouses / godowns
 Market yards
 Silos
 Cold storage units
 Cold chains
 Land development
 Soil conservation
 Watershed development

12
 Types of credit
Agriculture infrastructure others
 e-NAM
 Tissue culture
 Agri bio technology
 Seed production
 Bio pesticides / fertiliser
 Vermi composting

13
 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

14
 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

15
 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

16
 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.
17
 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.

18
 Agriculture infrastructure
 Loans for following activities of agricultural
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.
19
 Agriculture infrastructure
 Plant issue culture and agri-biotechnology, seed
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.

20
 Ancillary activities
 Following loans under ancillary services will be subject o
limits prescribed as under:
 Loans upto Rs 5 crore to co-operative societies for
purchase of the produce of members.
 Loans upto Rs 50 crore to Start-ups, engaged in agriculture
and allied activities.
 Loans for food and agro processing upto an aggregate
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.

21
 3. Ancillary activities
 Ancillary activities include
 Loans for setting up of Agri-clinics and Agri-business
centres
 Loans to Custom Service Units
 Bank loans to PACS / FSS / LAMPS for onlending to
agriculture
 Loans by banks to MFIs for onlending to agriculture sector
 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)
22
 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.

23
 Others
 Loans to distressed persons ( other than distressed
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.

24
 Weaker Sections
 Small and Marginal Farmers
 Artisans, village and cottage industries where
individual credit limits do not exceed Rs 1.00 lakh
 SC & ST
 Beneficiaries of DRI
 SHGs
 Distressed farmers indebted to non-institutional
lenders

25
 Weaker Sections
 Distressed persons other than farmers, with loan
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

26
 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.

27
 Housing
 Loans 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.

28
 Housing
 Bank 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.

29
 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.

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

31
 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.
32