Agricultural Finance, Credit and Rural Banking
What the domain covers
This domain tests sources of agricultural credit, institutional versus non-institutional finance, Kisan Credit Cards, priority-sector lending, NABARD and rural banking problems. It tests both credit need and credit cost.
Core rules and concepts
- Institutional sources: cooperatives, regional rural banks, commercial banks, NABARD and microfinance.
- Non-institutional sources: moneylenders, traders and landlords, often costly and informal.
- Credit types: short-term crop loans, medium-term and long-term investment credit.
- KCC provides a revolving crop loan limit based on scale of finance and area.
- Priority-sector lending requires banks to allocate a share of credit to agriculture.
Worked example
A farmer grows wheat on 2 ha with a scale of finance of ₹30,000/ha. Crop loan = 2 × ₹30,000 = ₹60,000. Add a 10% contingency, giving a KCC limit of ₹66,000. At 7% interest with a 3% prompt-repayment subvention, the effective rate is 4%; one year’s interest on ₹66,000 is ₹2,640 if fully drawn. Reasoning: the limit is not a subsidy; it is a loan that must be repaid.
Traps that cost marks
Confusing credit with subsidy; ignoring transaction costs and timeliness; assuming all rural credit is production credit; forgetting that KCC limits depend on scale of finance and area.