The Hindu Business Line : Banks may have to bear part of crop insurance premium

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Mumbai Feb. 2 Banks and financial institutions lending to farmers may have to bear a portion of the premium on crop insurance, if the Government accepts the recommendations of a working group.

A working group on risk management in agriculture has suggested that at least 25 per cent of the crop insurance premium, subject to a maximum of one per cent of the sum insured, will have to be borne by banks and financial institutions.

"Considering the overall benefits of crop insurance and its direct and indirect protection to lending activities, it is felt that the burden of high premium rates of crop insurance may be partly shared by the financial institutions," said the report.

An expert panel is expected to consider the recommendations this month.

Under the National Agriculture Insurance Scheme (NAIS), the crop insurance claim that is paid during an adverse season is automatically adjusted against the outstanding crop loan, leading to the recovery of dues for banks and financial institutions. Currently, more than 85 per cent of the farmers covered under NAIS are borrowers.

The Working Group has also recommended that the insurance cover should be provided on the basis of maximum borrowing limit, instead of actual loan amount availed. The maximum borrowing limit would be estimated based on the size of the farm, the crop and cultivation cost.

NAIS, the largest crop insurance scheme in the world in terms of farmers covered, was introduced during the Rabi season of 1999-2000. Until 2005-06, it covered 7.9 crore farmers for a premium of Rs 2, 332.50 crore and finalised claims of Rs 7, 255.75 crore.

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