The Kisan Credit Card (KCC) scheme, launched in 1998, was designed to provide farmers with easy access to credit for their agricultural needs. However, recent data highlights a sharp rise in non-performing assets (NPAs) under this scheme. By December 2024, bad loans in KCC accounts had surged to ₹97,543 crore, compared to ₹68,547 crore in March 2021, reflecting a 42% increase over nearly four years.
Factors Behind the Rise in NPAs
Several challenges have contributed to this growing trend:
Latest Update
- Agricultural Risks: Unpredictable weather patterns, pest infestations, and crop diseases frequently lead to losses, making loan repayment difficult for farmers.
- Market Instability: Fluctuations in commodity prices reduce farmers’ earnings, impacting their ability to clear debts.
- Rising Costs: Increasing expenses for seeds, fertilizers, and equipment add financial strain, making timely repayments harder.
- Limited Financial Awareness: Many farmers lack knowledge of effective financial management, leading to inefficient credit utilization and higher default rates.
- Insurance Delays: Slow processing of insurance claims after crop failures often leaves farmers without the necessary funds to repay loans.
- Debt Cycle and Over-Borrowing: Some farmers take multiple loans from different sources, leading to excessive debt that becomes unmanageable.
- Lack of Diversification: Many small farmers rely heavily on a single crop, increasing their financial vulnerability when market conditions or weather patterns shift unexpectedly.
Government Measures to Address the Issue
In response, the government has raised the loan limit under the KCC scheme from ₹3 lakh to ₹5 lakh, as announced in the Union Budget 2025-26. This move aims to better accommodate the growing financial requirements of farmers. Additionally, efforts are being made to simplify the loan restructuring process, allowing farmers more flexibility in repayment during periods of distress.
The government has also introduced financial literacy programs to educate farmers on managing their credit efficiently. Moreover, schemes like the Pradhan Mantri Fasal Bima Yojana (PMFBY) are being enhanced to ensure faster claim settlements, reducing the financial burden on farmers in case of crop failures.
Despite these challenges, the KCC scheme remains a crucial support system for farmers. By February 2025, the total operative KCC amount exceeded ₹10 lakh crore, benefiting approximately 7.72 crore farmers across the country.
The Way Forward
Tackling the rising NPAs requires a comprehensive approach, including:
- Strengthening risk assessment mechanisms
- Enhancing financial literacy among farmers
- Ensuring prompt insurance claim settlements
- Stabilizing input costs
- Encouraging crop diversification to reduce dependency on a single yield
- Implementing stricter monitoring of loan disbursement and utilization
- Introducing digital credit tracking to help farmers manage their repayment schedules more effectively
Implementing these measures can help secure the agricultural sector and reduce loan defaults, ensuring long-term sustainability for farmers and financial institutions alike.