Ramesh Patil's Kisan Credit Card: Scale of Finance, a Past Overdue and a Borewell
Ramesh Patil owns and cultivates 4 acres of irrigated cotton and 2 acres of rainfed soybean in Jalgaon district, Maharashtra. The district-level technical committee's scale of finance for the current season is Rs 45,000 per acre for irrigated cotton and Rs 28,000 per acre for rainfed soybean. He has applied for a Kisan Credit Card limit of Rs 4.00 lakh and wants a further Rs 1.20 lakh as a term loan for a borewell and drip set. His earlier crop loan of Rs 1.40 lakh (2022 kharif) remained 95 days overdue after unseasonal rain and was cleared on 12 March 2024 from the sale of a plot; no compromise or write-off was involved. Land records show 6 acres in his name and no other bank loan. Approximately 45 grams of gold is pledged with an NBFC against a Rs 1.00 lakh loan. CIBIL returns 'no record'. He offers two farmer guarantors and refuses to create a mortgage on his land.
1. Compute the permissible KCC limit and explain exactly what security position follows from your computation. How should the Rs 4.00 lakh request be answered?
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Crop loan component
- Cotton: 4 acres x Rs 45,000 = Rs 1,80,000
- Soybean: 2 acres x Rs 28,000 = Rs 56,000
- Crop loan = Rs 2,36,000
KCC add-ons (standard KCC structuring)
- 10% of the crop loan for post-harvest/household expenses = Rs 23,600
- 20% for repair and maintenance of farm assets (including the borewell/drip) = Rs 47,200
Total permissible KCC limit = Rs 3,06,800, rounded to Rs 3.05 lakh.
The request for Rs 4.00 lakh is roughly Rs 0.95 lakh above the assessed requirement and is not supported by scale of finance. Sanctioning it as a single crop limit would fund consumption or an unassessed asset, and would be repayable only out of the next harvest.
Security position. Agriculture loans up to Rs 2.00 lakh (raised from Rs 1.60 lakh with effect from 1 January 2025) are collateral-free - no mortgage of land may be insisted upon at that level. Since the assessed limit is Rs 3.05 lakh, roughly Rs 1.05 lakh sits above the collateral-free ceiling and requires a charge on land or other acceptable security. Because the borrower refuses a land mortgage, the practical answer is either:
- sanction Rs 2.00 lakh as a clean KCC, or
- sanction the full Rs 3.05 lakh only against a registered charge on land, which he has declined.
Do not use the gold ornament (already pledged to an NBFC) as a substitute without release and take-over documents.
2. How should the 95-day overdue of 2022 kharif be treated in the credit decision, both technically and in judgement?
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Technically: an account becomes an NPA when it is overdue for more than 90 days. This loan crossed 90 days, so the account would have passed through SMA-1 (31-60 days), SMA-2 (61-90 days) and into sub-standard classification before being cleared on 12 March 2024. There is no bar on fresh finance now - it was repaid in full without compromise or write-off, so it is a standard account today. But confirm three things: (a) the NPA/upgradation was properly recorded in the system, (b) no suit, decree or wilful-default tag exists, (c) the credit information report reflects closure - 'no record' on CIBIL is meaningful for a first-time borrower but the bank's own internal history must be checked.
In judgement: the cause matters more than the event. Failure was tied to unseasonal rain, an exogenous shock, and the repayment source was the sale of an asset, not crop income. That shows willingness but weak cash-flow resilience.
Consequences for structuring:
- Reduce exposure rather than scale up; do not treat the Rs 4.00 lakh ask as a fresh capacity test.
- Insist on crop insurance (PMFBY or equivalent) for both crops with the bank's interest noted.
- Shift repayment from a single annual bullet to quarterly/monthly instalments matched to the cotton and soybean sale windows.
- Add a second, non-land safeguard: warehouse receipt financing or a tripartite arrangement with the local ginner so that sale proceeds come directly to the account.
- Keep a written record of the reason for the earlier default at the time of sanction; it is a documented mitigation, not an excuse.
3. Evaluate the Rs 1.20 lakh borewell and drip-set term loan: repayment capacity, tenor and how it should be documented alongside the KCC.
Read the worked answer
Assess cost and economics first. Obtain the quotation for the borewell and drip set; fund only the actual cost, with the subsidy component (Micro Irrigation Fund/Per Drop More Crop, where applicable) netted off so that the loan is on the farmer's share, not the gross cost. Financing a subsidy portion means the loan is repaid from money the farmer never spends.
Repayment capacity. A 5-year loan at 9% works out at roughly Rs 30,800 per year (Rs 1.20 lakh x 0.2571). The incremental net income from converting 2 acres of rainfed soybean to assured irrigation is typically Rs 20,000-30,000 a year - so a 5-year tenor leaves almost no cushion. Stretch the tenor to 7 years with a 12-month moratorium matched to the first harvest after commissioning, and trim the loan to the farmer's net cost after subsidy.
Aggregate exposure check. KCC of Rs 2.00 lakh plus term loan of Rs 1.20 lakh gives total agricultural exposure of Rs 3.20 lakh - above the Rs 2.00 lakh collateral-free ceiling. Either keep the aggregate within Rs 2.00 lakh, or take the land charge he declines; the decision must not be fudged by putting the two facilities in different buckets.
Documentation:
- Separate term-loan agreement with repayment linked to the commissioning date, not the application date, plus a 6-month post-disbursement inspection of the borewell yield.
- Charge over the borewell and drip assets where the state permits a charge on fixtures; otherwise a hypothecation of movable farm equipment and a personal guarantee.
- Record the NBFC gold loan (LTV is capped at 75% for such gold loans) in the appraisal; it is not a bar but affects debt-service capacity.
- Route the KCC and term loan through the same account with crop sale proceeds first applied to the crop loan.