Strengthening Rural Credit for Inclusive Growth in India
What happened
Rural credit in India is channelled through cooperative banks, RRBs, and commercial banks, with NABARD as the apex refinancing body. The Kisan Credit Card (KCC) scheme covers over 7.5 crore active borrowers. The Union Budget 2024-25 enhanced the collateral-free agricultural loan limit from ₹1.6 lakh to ₹2 lakh. Priority Sector Lending mandates 18% of ANBC for agriculture, with 10% earmarked for small and marginal farmers. Credit flow to agriculture crossed ₹20 lakh crore in 2023-24.
Why it matters
Rural credit is the backbone of India's agricultural economy, yet structural gaps persist — informal moneylenders still account for nearly 25% of farm credit in poorer states, interest rates on informal loans often exceed 24%, and institutional credit remains skewed toward landed, male farmers in irrigated regions.
NABARD occupies a unique position: it refinances cooperative banks, RRBs, and commercial banks, and also supervises cooperative credit societies. Its annual credit plan (Potential Linked Credit Plan or PLP) guides district-level lending. However, cooperative credit societies face twin problems of high NPAs (over 10% in several states) and weak capital bases, limiting their outreach.
The KCC scheme, revamped in 2018-19, now covers fisheries and animal husbandry beyond crop loans, with a short-term credit limit up to ₹3 lakh at a concessional 7% interest rate (with a 3% interest subvention under the Interest Subvention Scheme). Saturation of KCC coverage is a stated government goal.
Digital credit delivery via the Jan Samarth portal and the Agriculture Infrastructure Fund (AIF) represent newer channels. However, last-mile delivery is constrained by weak digital literacy, sparse rural banking infrastructure, and limited credit history for small farmers. Effective rural credit requires interlinking credit with crop insurance (PMFBY), digital land records, and cooperative strengthening — making it a multi-dimensional policy challenge rather than a purely monetary one.
NABARD occupies a unique position: it refinances cooperative banks, RRBs, and commercial banks, and also supervises cooperative credit societies. Its annual credit plan (Potential Linked Credit Plan or PLP) guides district-level lending. However, cooperative credit societies face twin problems of high NPAs (over 10% in several states) and weak capital bases, limiting their outreach.
The KCC scheme, revamped in 2018-19, now covers fisheries and animal husbandry beyond crop loans, with a short-term credit limit up to ₹3 lakh at a concessional 7% interest rate (with a 3% interest subvention under the Interest Subvention Scheme). Saturation of KCC coverage is a stated government goal.
Digital credit delivery via the Jan Samarth portal and the Agriculture Infrastructure Fund (AIF) represent newer channels. However, last-mile delivery is constrained by weak digital literacy, sparse rural banking infrastructure, and limited credit history for small farmers. Effective rural credit requires interlinking credit with crop insurance (PMFBY), digital land records, and cooperative strengthening — making it a multi-dimensional policy challenge rather than a purely monetary one.
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