Crop loans provide short-term production credit for seasonal agricultural operations, while term-loans finance medium to long-term investments in agriculture and allied activities, with NABARD’s refinance architecture enabling cooperative banks and RRBs to deliver these at scale and affordable cost. RBI’s Master Directions guide banks on providing structured relief in areas hit by natural calamities, ensuring timely restructuring, conversion of loans, and fresh credit to protect livelihoods and resilience.
Production credit (crop loans)
Production credit covers inputs for seasonal operations such as seeds, fertilizers, labor, and plant protection, typically aligned to crop-wise scales of finance and repaid post-harvest under the Kisan Credit Card framework and similar bank products classified under agriculture priority sector. Crop loans are recognized within priority sector lending as short-term credit, complemented by pre- and post-harvest working capital, and pledging of produce against warehouse receipts up to defined limits to mitigate distress sales and improve price realization.
NABARD refinance: basics
NABARD extends short-term refinance for crop production to State Cooperative Banks, District Central Cooperative Banks, and RRBs, enabling timely and concessional flow of seasonal credit to farmers for SAO and marketing credit lines. Beyond short-term, NABARD provides medium- and long-term refinance for investment in agriculture and allied activities, supplemented by the Long Term Rural Credit Fund that channels concessional resources to RCBs and RRBs for term lending.
Refinance features: crop production
Short-term refinance supports SAO-based lending through credit limits to eligible banks, with additional short-term refinance extended in specific years to augment liquidity for crop lending as notified by government and NABARD. Pricing is concessional for eligible institutions and periodically notified, with policy emphasis on passing benefits to ultimate borrowers and targeting under-served districts as per fund-specific guidelines like LTRCF.
Banks’ relief in calamities
RBI’s Master Directions specify relief measures when governments declare natural calamities, including restructuring of existing loans, conversion of short-term crop loans into medium-term loans, moratoriums aligned to damage assessment, and sanction of fresh credit for resowing and restoration. The recognized calamities include cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack, and cold wave/frost, ensuring a uniform framework across bank categories including SCBs and RRBs.
Conversion and fresh finance
Banks convert crop loans into term credit with suitably extended repayment schedules when crop loss meets threshold norms, often accompanied by interest relief and rescheduling consistent with district-level assessments and State/District authorities’ declarations. Fresh crop finance is expedited for replanting or resowing, alongside need-based working capital for input purchases, with documentation simplification to restore productive capacity quickly.
Term-loans: scope and tenor
Term-loans address medium to long-term investments such as minor irrigation, farm mechanization, land development, horticulture, dairy, fisheries, poultry, beekeeping, sericulture, and other allied activities, falling under agriculture and allied components of priority sector. Typical tenors match asset life and gestation, with repayment schedules structured to cash flows of the enterprise; refinance to lending institutions can extend up to 15 years under NABARD’s long-term refinance policy.
Refinance for term credit
NABARD’s long-term refinance covers farm and off-farm rural investments, delivered through eligible institutions under Section 25 of the NABARD Act with windows such as the Automatic Refinance Facility that streamlines post-disbursement claims based on declarations. LTRCF operational guidelines emphasize concessional rates, targeted deployment, and alignment with agriculture asset creation, strengthening banks’ capacity to expand term credit portfolios.
Sectoral opportunities for term credit
- Irrigation and water management: Micro-irrigation, wells, pump-sets, community irrigation, and on-farm water conservation improve productivity and resilience, backed by priority sector classification for agriculture infrastructure and watershed activities.
- Farm mechanization: Tractors, power tillers, harvesters, drone spraying, and post-harvest equipment raise efficiency and reduce labor bottlenecks, forming a core area of medium/long-term lending.
- Horticulture and plantations: High-density orchards, protected cultivation, nurseries, and drip systems require multi-year term finance aligned to gestation and yield patterns recognized within agriculture components.
- Dairy and livestock: Dairy units, chilling equipment, fodder development, goatery, poultry sheds, and sheep rearing qualify under allied activities and benefit from both general and scheme-linked support.
- Fisheries and aquaculture: Ponds, cages, feed, aeration systems, and cold chain linkages for inland and coastal aquaculture are eligible as allied activities and agro-processing linkages under priority norms.
- Storage and logistics: Warehouses, godowns, silos, and cold chain infrastructure including reefer logistics qualify under agriculture infrastructure with specified limits per borrower from the banking system.
- FPO/FPC and ancillary services: Financing to FPOs/FPCs and agro-processing up to defined limits promotes aggregation, value addition, and market access, expanding bankable rural term credit opportunities.
Priority sector alignment
RBI’s Priority Sector Lending framework explicitly classifies crop loans, medium/long-term agriculture and allied loans, pre/post-harvest finance, warehouse receipt-backed credit, and agriculture infrastructure under agriculture, with specified per-borrower and per-entity limits guiding bank portfolios. RRBs follow aligned PSL instructions tailored to their mandate, ensuring consistent inclusion for agriculture and allied activities across institutional categories.
Operational good practices
Banks align crop loan assessment to district scales of finance, ensure KCC limit sizing for both production and ancillary needs, and synchronize repayment schedules with harvest cycles to minimize slippages. For term credit, robust techno-economic appraisal, cash flow–based structuring, insurance coverage, and convergence with government schemes improve viability and risk-adjusted returns, supported by refinance to lower funding costs.
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