Digital farm loans speeding up credit delivery

A quiet revolution is sweeping across India’s agriculture credit landscape which has the potential to be a game-changer in loans to farmers, 85 per cent of whom are categorised as small or marginal. Surprisingly, the productivity of these farmers is higher than that of the bigger farmers, the reason why Covid-hit India is reporting growth in agriculture GDP even as other sectors are down in the doldrums.

Experts like Ashok Dalwai, Chief Executive Officer of National Rainfed Area Authority, support this thesis of higher productivity from fragmented holdings because of the better oversight or focus that small farms receive from the tillers. The phrase “giving credit where it is due” is meant for this segment which is a growth area now. “When it is due” is equally important, a function of the speed of credit delivery. Of late, lakhs of farmers have been able to avail themselves of loans through apps on their mobile phones. And the time for disbursal is down drastically. Gone are the multiple physical visits of farmers to village and revenue offices and banks.

These apps use satellite imagery reports which capture the extent of land owned by farmers in States where land records are digitised and crop grown on that plot (like soyabean, chana dal , wheat, etc) to extend the popular Kisan Credit Card (KCC) loans digitally.

KCC loans

Of the agriculture loans of about ₹11.60 lakh crore in India, KCC loans make up about ₹7 lakh crore or nearly 65 per cent. In numbers, agri loans are more than 50 per cent of the total loans of large banks like SBI, Bank of Baroda and Punjab National Bank. That is, if the total number of borrowers for a big bank is say, three crore, farmer loanees would be 1.5 crore with the rest distributed among home, vehicle/personal loans, MSME and corporate borrowers. The last category would be the least in number at a mere 25,000 or so.

This makes it operationally daunting to cater manually to the agri portfolio leading to delays at the last-mile level despite the efforts of the frontline credit officers. Digitising the loan journey is the only solution to ease the process hence. And banks have made good progress.

SBI, for instance, has already given 1.5 million loans through its YONO app which loads full banking operations on to a smartphone. Yono Krishi, a part of this app, enables farmers to open savings accounts, access farm loans fast, check commodity prices/weather data in real time and even do online transactions for buying inputs like fertilisers, seeds and pesticides. On average, about 22,000 farm loans are reportedly disbursed daily, pan-India, by SBI digitally. Others like BOB and ICICI Bank are in various stages of such a solution.

Leading micro-financiers like Satin Credit Care, Spandana Sphoorthy and Muthoot Microfin have already digitised their loan journeys. Commercial banks taking up farm loan journeys for digitisation will herald a new chapter in rural credit. It is also possible to sanction and review/renew KCC loans entirely digitally. Here, digitisation of land records — technically called Record of Rights (RoR ) — by the State Governments is a must.

Land records

While farmers’ identity are already Aadhaar-digitised, the other key for a loan is a digitised land record which lenders can access. If satellite images of these plots of land evidencing the crop being grown, provided by agro/weather start-ups like Skymet Weather Services Pvt Ltd, are interlinked, desktop sanction of crop loans is possible in a jiffy.

The rule engine of banks for KCC loans is fairly simple. The extent of land holding (acreage) needs to be multiplied by the scale of finance (which is the per acre loan amount which can be given as fixed by the State/District level bankers committee) and then about 20 per cent is added towards consumption, insurance costs, etc; that’s all. The rule engine may also access data from the credit information companies for looking up the default history of farmers, if that is available.

In fact, based on my experience, we could even do away with physical documentation for loans up to, say, ₹1.6 lakh or ₹3 lakh substituting that with an SMS acknowledgement of terms and conditions (in the regional language). Under the Information Technology Act and the Evidence Act, SMS is acceptable evidence. Moreover, it is the SB accounts of farmers which are credited normally.

The paper documents practically serve no purpose and it is time we rationalised and simplified the use of paper for micro loans. And very rarely do banks file a suit/initiate legal proceedings for these small loans as the cost for doing so is higher than the amount to be recovered.

Clearly, in this app-based farm loan process, States with digitised land records have an advantage. Computerisation of Record of Rights has been completed in 23 States. The accompanying table gives the extent of State-wide digitisation of land records. In Karnataka and Gujarat, banks have further been given access to portals to verify land titles and register their charge for farm loans. Repeated visits of farmers to Patwari or Tehsildar offices have been eliminated for getting nil-encumbrance certificates.

A tie-up with a tech agency will provides satellite image evidence of crops grown on that plot. This verification is better than a field visit as it is impossible to physically verify what crop is grown on which plot of land as farms are contiguous.

Against the RBI norm that loans up to ₹1.60 lakh to farmers be collateral-free, banks can offer collateral-free KCC loans up to ₹3 lakh in States where they can notify their “charge” or “interest” on the State portal as this is as good as mortgage.

The loan requirement of most farmers being below ₹3 lakh ($4,000), digital farm loans will break further the stranglehold of private money-lenders in rural India and also help the KCC Saturation Drive of the Modi government.

The author is a commentator on banking and finance

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