In Balsuan village, about 20 km from Ambala, Jarnail Singh and his two brothers are thriving. Well, they do own 55 acres and the paddy and maize they grow has an annual turnover of over Rs 10 lakh. The family also owns a tractor, three cars, a dozen buffaloes, a few TV sets and uses mobile phones. Their sprawling house in the middle of lush green fields even has a huge water tank shaped like a fifa football. The past two years have been good, profits (and wealth too) have zoomed to nearly 50 per cent of their turnover.
The reason: the Kisan Credit Card scheme announced by former finance minister Yashwant Sinha in Budget 1998. Two years ago, the village sarpanch urged Jarnail to opt for the card and the three brothers got a credit facility of Rs 1.5 lakh each. In one stroke, they got out of the clutches of moneylenders, who used to charge an exorbitant interest of 2.5-5 per cent a month. In comparison, the kisan card charges them an annual interest of 10 per cent. Says a happy Jarnail, "The card saved us from the moneylenders and commission agents who had fleeced us for years."
Even the poor farmers, including tenants, have benefited from the card. For instance, in states like Andhra Pradesh and Orissa (where the population of poor farmers is high), almost every farmer owns a kisan card. Explains S.S. Kohli, CMD, Punjab National Bank (PNB): "The scheme has enhanced the socio-economic status of cardholders, strengthening their bargaining position for purchase of inputs and disposal of produce." PNB itself has provided over Rs 3,000 crore under this scheme.
Today, nearly 3.5 crore farmers have been covered under the scheme and the credit disbursed has topped a whopping Rs 75,000 crore. In 2002-03, farmers borrowed Rs 23,500 crore through the over 71 lakh cards issued during the year. In fact, the number of kisan credit cards grew by over 32 per cent in 2002-03 over the previous year and stood at 3.13 crore on March 31, 2003.
The government aims to cover all the 5-crore-odd farmers in the country by March next year and banks are confident of achieving this target although the target for the current year is to issue another 75 lakh cards only. Banking sources say that nearly 80 per cent of the entire crop loans given to the agriculture sector is being routed through the cards—issued by 27 commercial banks, 373 cooperative banks, and 196 regional rural banks. The finance ministry hopes it'll become 100 per cent by the end of the current fiscal.
So here's how the scheme works. It provides revolving cash facility with overall limits based on landholding and cropping patterns. Farmers get loans up to five times their annual farm income or 50 per cent of the value of their land. The card is valid for three years and, typically, the limits vary between Rs 2,000 and Rs 5 lakh. At the end of this period, the money has to be repaid by the holder, after which he can get a fresh card issued. While the normal interest rate is 10 per cent per annum, loans of over Rs 3 lakh attract 12-13 per cent.
And farmers are queueing up for the cards. In states like UP and Haryana, 80 per cent of farmers now have kisan cards. In other states like Punjab and Rajasthan, the coverage is almost 100 per cent among the eligible population. In fact, in Punjab banks have overshot targets. Claims Gurinder Singh, senior manager, PNB, who's based in Bassi Pathana (Fatehgarh Sahib district): "Our target was 1.5 lakh cards last year. Against this, we issued 2.52 lakh cards."
While the banking sector is gung-ho about the scheme's progress, there are concerns about defaults, especially next March when the three-year validity period of most of the cards ends. At present, the default rate is under 2 per cent and seems within manageable limits.But this may increase. So, if the loans are not paid back, what will happen to banks which have huge exposures? A senior bank manager puts it bluntly: "It will just add to the npas."
The kisan card scheme is also facing competition from the moneylenders now. In Punjab, local lenders have reduced interest rates to as low as 14 per cent per annum—down from a high of 30 per cent. Some banks have in turn decided to levy a standard 10 per cent charge on all loans. The more important fear, though, lies in how the loans are being used by the cardholders.
The government says that at least 75 per cent of the loans have to be used for direct farming purposes—buying seeds, fertilisers or pesticides. But many farmers use the money entirely for buying appliances like refrigerators and TVs. Bank officials say this is happening because unlike salaried employees in urban areas, rural farmers don't get loans to buy consumer appliances. So they use the kisan cards for this purpose. A few have even used it for children's education and family marriages. Take the case of Nahar Singh, a paddy farmer in Rajpura, Punjab, who took Rs 3 lakh against his card last year and used it to fund his nephew's wedding in January this year.
There are other cases of misuse too. Some farmers have turned into moneylenders themselves: they take low-cost credit through the scheme and lend it to others at a higher interest rate. In addition, cooperative banks (which account for nearly two-thirds of the disbursements) have been known to be lax in their operations. Other banks too are not obliged to ask for proof (in the form of receipts or anything) in case the loan amount is less than Rs 3 lakh. The farmers have to show funds equivalent to the loan in their bank accounts at the end of 12 months; but the smart ones put in the money for a day and take it out the next.
Now the question is whether such practices are widespread or not. If they are, the banks may well be unable to recover dues. It could also become a highly politicised issue in case the lenders decide to seize farmers' assets. In such a situation, the kisan card too could go the way of other much-hyped schemes—the loans written off and the scheme discontinued. Right now, it's a different story.