Interest rates for Agriculture Loans: Schemes and Qualifications

According to the economic survey for 2020-2021, Indian agriculture contributes 19.9% of the GDP and employs over 50% of the nation’s workforce. It is necessary to understand that competent monetary resources must bring off such agricultural processes. Agriculture loans are the means of financial assistance for farm activities, including allied ventures such as the dairy industry and fishery. Many choices for agricultural loans are available to the farmers today, differing in the type, tenure and interest rates. This article will take you through the multiple options of agriculture loans available in the market and the interest rates offered by prominent banks and agencies.

Did you know?

For the 2022-23 fiscal year, the Indian government has decided to raise the agricultural credit target to ₹18 lakh crores. In the Union Budget of the year 2021-22, the Finance minister of India, Nirmala Sitharaman, promised to raise the allocation of financial assistance to the Rural Infrastructure Development Fund (RIDF) to  ₹40,000 crores from  ₹30,000 crores.

Also Read: How To Get Dairy Farm Loan & What To Look Before Getting It?

What is an Agriculture Loan?

Agricultural loan refers to the financial assistance offered by banks, micro-finance institutions and government-funded agencies for farmers, self-help groups, tenant farmers and joint cultivators to execute and support the agricultural activities. It includes purchasing land, requisite machinery and other resources. One can benefit from agricultural loans to compass exercises like animal husbandry, horticulture, dairy farming, etc.

Rates of Interest on Agricultural Loans

Agricultural loans can be used by an Indian farmer beginning from an interest rate of 7.00% per annum and a processing fee lying between 0% to 4% of the amount loaned.

As one may wonder, what exactly is a processing fee? It is described as a one-time fee to be deducted from the sanctioned loan amount before being disbursed.

Interest Rates offered by various Banks in India

Several banks in India facilitate the farmers with various agriculture loans at varying interest rates and processing fees.

Types of Agricultural Loans

Loans Based on the Tenure

Kisan Credit Card (KCC)/Crop Loan

These are the ideal type of loans to help meet a farmer’s short term agricultural financing requirements. Often called Retail Agri Loans, they can be availed through the Kisan Credit Card, and the farmers can use this electronic RuPay card to withdraw money from ATMs as per their requirements. Such farm loans aid in buying seeds, sowing, post-harvest actions and maintenance of machinery and equipment.

• Agriculture Term Loans

The government provides these long-term agricultural loans for greater agriculture-based expenditures like the upgradation of machinery, purchasing equipment and installing some novel technology like solar power or windmills. The borrowed amount can be paid back monthly/bi-annually/annually through instalments over up to 4 years.

Loans Based On the End-Use of Financial Resources

• Farm Mechanisation Loan

The government offers this loan to farmers to purchase, repair or upgrade their farm equipment and machinery. Depending upon the agency, these are either general mechanised loans or are further sub-categorised as tractor loans, irrigation equipment loans etc.

• Solar Pump Set Loan

This loan is perfect for farmers willing to buy a photovoltaic pumping system for irrigation purposes. With a payment tenure of up to 10 years, this is a long term loan.

• Loan for Allied Agricultural Activities

As the name suggests, these loans are proposed to help individuals engulfed in agriculture-related activities with their working capital requirements.

Also Read: Overview Of Agricultural Income And Its Taxability

Other Types of Loans

• Horticulture Loans

This farm loan aims to assist farmers in setting up, maintaining and managing orchards and vegetable farms. It also covers the expenses for clearing undergrowths, development of land, fencing etc.

• Forestry Loan

These loans are presented to agricultural individuals to grow crops grown on trees. It is also provided for the conversion of barren land into cultivable land.

• Agricultural Gold Loan

This loan works similar to any other gold loan scheme, and the only difference is that it is offered only to farmers, and the farmer can pledge their gold as security and avail of the loan.

Banks That Provide Agricultural Loans in India

Numerous banks in India extend good agricultural loans to the farmers. Some of them are listed below:

How to Apply for an Agriculture Loan?

Several government organisations and private and corporate banks provide scads of agriculture loans. The loans are available for various categories with different interests rates and repayment tenures. To avail of the best deal, one must research the available options properly. The internet tool is quite handy these days, and you can sort it out easily.

Next comes the application procedure. Based on their policies, your lender or bank may hand you the choice of applying online, offline or both.

• In case of online mode, visit the official website and duly fill out the application form. After uploading the requisite documents, click on the 'Apply Now' option.
• In case of offline mode, visit the nearest bank branch and carry the required documents along with you. After filling out the application form provided to you, complete the process as directed by the bank employees.

After the application process, the verification process will be carried out. Once your application gets approved, the bank will transfer the loan amount to your account.

Agricultural Loan: What's the Need?

The most important aspect to discuss is what all farm activities might require one to acquire a loan? To begin with, we have the following:

• Purchase of land.
• Purchase of machinery, equipment and resources.
• Transportation facilities.
• Post-harvest expenditure.
• Better infrastructure for increased production
• Irrigation activities.
• To implement the latest agricultural techniques and technologies.
• Development of land.
• Construction of sheds, poultry farms, stores, etc.
• Payment to employees like supervisors, labourers etc.
• Allied activities like dairy, fishery, beekeeping and others.
• Seasonal farming requirements.

Features and Benefits of Agricultural Loans

• Available for direct agricultural purposes and other allied activities such as animal husbandry, forestry, etc.
• Available with minimal and simplified paperwork.
• Available with flexible tenure of repayment as per the convenience of the farmer.
• Available for both long and short term agricultural purposes.
• No charges are hidden from the borrower.
• Special loans for the purchase of farm machinery and equipment.
• Faster processing and simple procedure.
• Loans are often subsidised government supported and funded schemes.
• Interest rates often drop low due to competitive rates of interest.
• Kisan Credit Cards prove to be a great convenience for the farmers.

Documents Required for Agricultural Loans

The documental requirements may differ depending upon the organisation you are applying to, but a basic list of essential documents includes

• Passport size photographs.
• Filled in the application form.
• KYC documents
• Identity proof (like Aadhar Card, Voter ID etc.)
• Proof of ownership (for land or assets)
• Security PDC
• Address proof
• Kisan Credit Card

Some banks or agencies may ask for additional documents based on their policies. For detailed information on this aspect, one can refer to the official websites of the loaning banks and agencies.

Conclusion

Agriculture loans aid the farmers in multiple farm activities, from purchasing seeds and basic equipment to constructing large-scale infrastructure. Several organisations offer to finance varying agricultural activities at fluctuating interest rates and repayment tenures. For procurement of the best deal, one must research the type of loan one is interested in, then compare the options available at hand and, in the end, apply for the desired scheme. While applying, the farmer must take notice of the eligibility criteria and documents required. Also, it is worthwhile to note the fact that some of the banks may charge an additional processing fee or such. So it becomes quite important to carefully read the policies of the bank and the terms & conditions of the loan agreement.
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