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-Live Mint
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<em>In the two years to March 2012, the number of kisan credit cards grew by 28%, while the outstanding amount grew by 76% </em>
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So far, the rural job-guarantee scheme, other social programmes by state governments and the raising of minimum support prices to farmers have been cited as reasons for the continued buoyancy in rural consumption and also for inflation in food items. But there could be another insidious factor at work-kisan credit cards (KCCs).
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Credit exposure of commercial banks to Indian farmers through KCCs has reached about `2 trillion. This money comes at a cheap interest rate of 7% to the farmer, which encourages many to use a sizeable portion for consumption and not necessarily for crop production. Bankers know about such diversion of funds but conveniently ignore it because they are under immense pressure to achieve the so-called priority sector lending target every year. Most banks do not have the tools to monitor the end use of farm loans or are reluctant to seek recovery from them, considering the political sensitivity associated with the segment.
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More importantly, since this is mandated lending, the flow of money does not stop. It's immune to monetary tightening by the central bank. Bankers point out that there are many instances of evergreening of such loans, as the farmer merely has to repay the loan for a day for the credit limit to be reinstated. In the two years to March 2012, the number of KCCs grew by 28%, while the outstanding amount grew by 76%, implying that much of the money has gone to existing cardholders and not fresh borrowers. There are many experts who say KCC exposure of banks could be a bad loan bubble waiting to burst if left unchecked.
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Interestingly, total credit growth to agriculture and allied activities as on 22 February was up 18.4% from a year ago, much higher than the 14.4% growth in overall non-food credit.
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