Loan for agriculture & allied activities

Now ‘J&K Bank Asset Based Easy Agri Loan Scheme’ to provide finance to famers up to Rs.200 Lakh
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Agriculture has a great impact on the people especially in a developing country like ours. It is our mainstay of the economy as majority of the country’s population depends directly or indirectly on agriculture for their livelihood.

Over a period of time, it has been observed that due to lack of infrastructure and other facilities, the agriculture sector has been witnessing a dwindling trend and many farmers are looking for alternative employment opportunities.

They have been struggling to scale up their agricultural activities to remain afloat and it’s the lack of finance which deters them from carving out their living out of the agricultural activities. It’s worth mentioning that finance is critical for the growth of the agriculture sector. 

Farmers need finance to meet  day  to  day  working  capital  needs  and  also  for  adopting  new  technology  in agriculture, which  in  turn increases productivity. A well-financed agriculture sector plays an important role in rural development and poverty alleviation.

Precisely, access to agricultural finance has been a problem for most. Many are not able to get financial support for their agricultural needs.

There is an urgent need to keep the agriculture sector vibrant where farmers and those associated with the sector are encouraged to adopt the latest farming techniques and acquire the newest agricultural devices and technology.

To fall in line with the modern agricultural practices, the farming community needs hassle free finance. It’s here the banks assume significance in terms of extending tailor-made loan schemes for the agriculture and allied sector.

There are several loan schemes in place for farmers, especially small and marginal farmers, which provide interest subvention to the borrowers. For instance, Kisan Credit Card (KCC) Loan has become a popular scheme among farmers where farmers availing the facility have an option to pay only 4% interest if they repay the amount within one year from the date of disbursement. The Reserve Bank of India (RBI) on November 23 announced the interest rate for short-term loans up to Rs 3 lakh through Kisan Credit Cards (KCC).

Notably, the short-term loan through KCC is provided for agriculture and allied activities including animal husbandry, dairy, fisheries, beekeeping etc. In a notification, the central bank said the Government has approved the continuation of the Interest Subvention Scheme (ISS) with modification for FY 2022-23 and 2023-24.

The interest rate on short-term loans up to Rs 3 lakh through KCC will be 7% for farmers. The rate of interest subvention for lending institutions would be 1.5%. These rates will apply for both FY 2022-23 and FY 2023-24.

“An additional interest subvention of 3% per annum will be provided to such of those farmers repaying in time, i.e., from the date of disbursement of the loan/s up to the actual date of repayment or up to the due date fixed by the banks for repayment of such loan/s, whichever is earlier, subject to a maximum period of one year from the date of disbursement,” the RBI said.

Meanwhile, J&K Bank has tailored a scheme for ‘Asset Based Easy Agri Loan Scheme’ to finance farmers for traditional and modern farm & farm related activities including emerging and High Tech Agri activities. The facility would help the farmers to meet short term production/ working capital and investment credit. And the loan facility ranges from Rs.3 lakh to Rs.2 crore, which would be purely calculated on need-based assessment.

There are various loan schemes for agriculture and allied activities. What is the exact nature of ‘Asset Based Easy Agri Loan Scheme’?

Almost all agriculture activities come under the ambit of the scheme. For instance, any farmer requiring money for cultivation of crops, meeting harvest /post-harvest & other expenses, running/maintenance of activities allied to agriculture, like dairy animals, inland fishery etc. would be financed under the scheme.

Even a Working Capital facility is available for running/ maintenance of Agro-Processing Units/ Food processing Units etc. The scheme also covers Agri-Based Projects such as establishment & running of agriculture infrastructure units designed to store agriculture produce/products, establishment of plantation nurseries etc. for finance.

To be precise, ‘Asset Based Easy Agri Loan Scheme’ of the bank covers any agriculture and allied activities capable of generating income for the farmer or those involved in the farm related activities.

Which segment of farmers or those involved in allied activities are covered under the scheme?

The loan would be granted to any progressive farmer irrespective of being literate or illiterate. Individuals/Joint, sole proprietary concerns, partnership firms and companies are eligible to take benefit of the scheme.

One of the exciting features of the scheme is that it encourages agri-entrepreneurs and loans can be granted to corporate farmers, farmers’ producer organizations/companies, partnership firms and co-operatives of farmers directly engaged in agriculture and allied activities. Activities such as dairy, fishery, animal husbandry, poultry, beekeeping and sericulture are covered in the scheme.

What kind of security is accepted by the bank against the said loan facility?

One of the major confidence building measures for extending loan facilities for the banks is the security against which the facility would be granted. In this scheme, as the name suggests, the loan would be granted against the mortgage of immovable property having realizable value of not less than 1.33 times of the loan amount by way of first charge. Gold Ornaments/ Jewellery, bank’s own deposits, PNB Metlife/ LIC policies and NSC/ KVP can also be accepted as security against the loan amount.

However, these assets can be accepted together or separately for arriving at the required quantum of finance.

Besides, wherever applicable personal guarantee from the promoters/partners of the unit/owner may also be obtained. Primarily, the loan would be secured through hypothecation of standing/future crops and assets created out of bank loan.

What should be the nature of property to be mortgaged for obtaining the loan?

The property should be SARFAESI Act compliant. It should be in the name of the borrower or in the name of a 3rd party. The property in the name of a 3rd party has to be totally unencumbered. The property offered as mortgage should either be occupied by the borrower /mortgagor himself/ herself/itself or should be vacant.

Properties already charged/mortgaged to the bank (J&K Bank) against other loan obligations in the name of borrower only, can be accepted as security for financing under the scheme. However, the property has sufficient residual value to meet the stipulated security cover and meets all the other criteria laid down under the scheme.

Leasehold properties, where lessor is a government agency, can also be accepted as a mortgage with certain conditions. 

For instance, the lease deed should permit mortgage of the leasehold property. Notably, mortgage of leasehold properties is allowed only Term Loan AND/ OR “Dropline limit” on monthly Reducing Drawing Power basis.

Industrial properties won’t be accepted for mortgage.

What is the mode of repayment of the loan?

As far as farm/ production credit & working capital component is concerned, the facility shall be initially valid for one year and subject to annual review thereafter.

Repayment of Term loan is linked to the nature of the project. However, the Door to Door Tenor of the Loan is 72 Months.

In case of Dropline limits, the repayment ranges from 12 months to 72 months with either equated reduction in limit or customized reduction in limit, depending upon the cash accruals. 

DISCLAIMER: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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