Financial Innovation in Indian Agricultural Credit Market: Progress and Performance of Kisan Credit Card

Abstract

Credit is one of the critical inputs in agriculture and an effective means of rural development in India. The institutional credit delivery system for agriculture was started in the country with the setting up of co-operative credit societies in 1904, but the coverage of these societies towards meeting the credit requirement of farmers was limited. Therefore, the farming community had to depend on informal money-lending sources for its entire credit requirement. The recommendations of All India Rural Credit Survey Committee in fact laid the foundations of institutional mechanism for establishing a sound credit delivery system in the country for financing agriculture and allied activities. A large number of agencies, including co-operative banks, Regional Rural Banks (RRBs), commercial banks, non-banking financial institutions, micro financial institutions and Self-Help Groups together constitute the Indian institutional rural credit delivery system. One of the objectives of the credit policy is to minimise the role of money lenders in the flow of agricultural credit. Several initiatives have been taken in this direction and the major milestones in rural credit flow are: acceptance of the Report of Rural Credit Survey Committee (1954), nationalisation of major commercial banks (1969 and 1980), opening of Regional Rural Banks (RRBs) in 1975, and establishment of National Bank for Agriculture and Rural Development (NABARD) in 1982 and introduction of the on-going reforms in the financial sector since 1991. Simultaneously, several other measures like launching of Lead Bank Scheme, directed lending for the priority sectors, linkage of banking sector with the government sponsored programmes targeted at the poor, Differential Rate of Interest Scheme, Service Area Approach, SHG-Bank linkage programme, etc. were also undertaken. In recent years, initiatives like Kisan Credit Card Scheme (KCCs), special Agricultural Credit Plans, and Rural Infrastructure Development Fund (RIDF)