Agriculture Loans: The Definition and Overview 

Agriculture loans in India are offered to farmers for various purposes, like farming and irrigation equipment purchases, crops for cultivation, and other agriculture-associated activities. Besides farmers, these loans are also available to individuals engaged in other agri-related sectors like animal husbandry, horticulture, apiculture, aquaculture, silk farming, and floriculture. 

Agriculture loans are offered at lower interest rates compared to other loans available to individuals. The main objective of these loans is to provide a helping hand to farmers to meet their various cash needs.

Here, in this guide, let’s take a closer look at the types of agriculture loans in India, how to apply, benefits, FAQs, and more. 

Benefits of Agriculture Loans 

  • Competitive Interest Rates – One of the biggest benefits of agriculture loans is that the interest rates are low and start at just 8.80% per annum. 

  • Quick Processing – Most lenders process agriculture loan applications within a couple of working days. Once the loan is approved, the amount is disbursed to the borrower’s account within a few working days. 

  • Minimal Paperwork – Agriculture loans require minimum documentation. The borrower has to submit only a few primary documents like photo id proof, address proof, land ownership deed, etc.  

  • Flexible Repayment Tenure – Borrowers can repay the loan as per their convenience. There are both short-term and long-term loans for farmers. 

  • No Hidden Charges – Agriculture loans are highly transparent, and all the related fees are mentioned upfront. There are no other hidden charges.  

Types of Agriculture Loans in India

  1. Kisan Credit Card (KCC) /Crop Loans 

When it comes to agricultural activities, there are multiple short-term processes like the purchase of seeds, sowing, raising crops, weeding, etc. Generally, farmers don't have enough cash to meet these overheads. Hence, they approach banks frequently for short-term loans.

To simplify the process, banks came up with an innovative lending scheme known as Kisan Credit Card or a crop loan. This scheme is used to finance seasonal and recurring short-term requirements. 

Instead of applying for several short term loans, farmers can use their Kisan Credit Cards to borrow small amounts regularly. 

Notable Features of the KCC Scheme:

  • All nationalised banks and some private banks offer the Kisan Credit Card. 

  • The loan can be availed by small farmers, sharecroppers, tenant farmers, SHGs, and others involved in agricultural activities. 

  • The amount of finance sanctioned for a farmer depends on several factors like – credit history of the farmer, farm assets, size of cultivated area, etc. 

  • The KCC card also offers personal accident insurance cover to the farmer and is valid for 5 years.

  • Today, several banks offer the KCC card as a smart card that the farmer can also use to meet other expenses.

  • The interest rate charged on the amount borrowed ranges from 3% to 7%. Farmers can enjoy lower interest rates when they repay the borrowed amount quickly. 

  • The documentation required for this scheme is minimal. It includes the duly-filled application form, ID proof, address proof, declaration of the crops raised, etc.

  • No collateral is required for the KCC. 

 

  1. Agriculture Term Loan 

The term loan has a longer tenure than the crop loan. It's provided for larger agriculture-related expenditures like the purchase of machinery, pump-sets, upgrading the farm facilities, installation of solar power motors, etc.

Notable Features of Agriculture Term Loans:

  • The eligibility criteria vary from one bank to another. The RBI has notified banks to offer agriculture term loans to Rs. 1 lakh without any collateral. Term loans are provided to individual farmers, sharecroppers, groups of farmers, SHGs, etc.

  • Banks have created various subcategories of agriculture term loans like horticulture loans, beekeeping loans, dairy farming loans, etc. to cater to niche sectors.

  • The loan amount ranges from a few thousand rupees to tens of lakhs of rupees, depending on the lender, the creditworthiness and repayment capacity of the farmer. 

  • The tenure of agriculture term loans ranges from 3 to 15 years. 

  • The interest rates of agriculture term loans are competitive and less when compared to other loans in the market. 

 

  1. Agriculture Working Capital Loans 

As the name implies, these loans are offered to farmers and other individuals engaged in agri-related activities to meet their various working capital requirements. These loans are used to meet expenses that are not covered by the Kisan Credit Card scheme. 

Notable Features of Agriculture Working Capital Loans:

  • Objective – To meet the working capital requirements of farmers.

  • Loan Quantum – Higher than the amount offered in the KCC and lesser than term loans. 

  • Eligibility – Offered to farmers and others engaged in agri-related activities like seed sellers, fertiliser dealers, mechanised machinery sellers, etc. 

Note that some banks offer the facility to increase the amount provided in the KCC scheme, so that farmers can use it, instead of going for a working capital loan.

  1. Agriculture Gold Loans 

Gold loans are one of the most availed loans in India, as Indian families own considerable gold ornaments, compared to other assets. Agriculture gold loans work the same way as regular gold loans. The only difference is that it’s offered only to farmers. 

Notable Features of Agriculture Gold Loans:

  • Since it’s a secured loan, the interest rates are as low as 4% per annum. 

  • The loan tenure ranges from 1 month to 12/24 months, depending on the lender. 

  • Minimal documentation and hassle-free application process. 

  • Eligibility – Farmers and other individuals engaged in agriculture and agri-related activities. 

  • Banks offer loans up to 75 - 80% of the market value of the gold ornaments. 

 

  1. Farm Mechanisation Loan

Farm mechanisation loans are offered to farmers to purchase/repair/upgrade farm machinery. Some banks provide general farm mechanisation loans, while others offer sub-category loans like drip irrigation loans, tractor loans, combine harvester loans, etc.

Notable Features of Farm Mechanisation Loans:

  • Eligibility – Offers to farmers who own land. Different banks have various eligibility clauses like Canara Bank offers tractor loans only to farmers who own at least 6 acres of perennially irrigated land or 12 acres of dry land. 

  • The loan amount ranges from Rs. 30,000 to Rs. 30 lakhs and varies from lender to lender. 

  • It can be either secured or unsecured, depending on the lender.

  • The rate of interest starts from 10.5%. 

Besides these five major types of agriculture loans, there are several other categories like horticulture loans, forestry loans, etc. 

Agriculture Loans FAQs

  1. What are the eligibility criteria for agriculture loans in India?

Agriculture loans are offered to individual farmers, groups of farmers, tenant farmers, sharecroppers, oral lessees, and other individuals engaged in agri-related activities. The actual eligibility criteria depend on the type of loan and the lender.

  1. What are the documents required for agriculture loans in India? 

The list of documentation required for agriculture loans is minimal. Most schemes need only the essential paperwork, to make the entire process hassle-free and convenient for farmers.

The basic list of documentation include:

  • Duly filled application form

  • Photo identity proof

  • Address proof 

  • Proof of land ownership, purchase receipts, etc

  1. Can agriculture loans be used to purchase land? 

Yes. The purchased plot should be agricultural and located within a radius of 5 km of the farmer's house/village.

  1. Is the collateral required for agricultural loans?

To reduce the burden of farmers, the government of India has relaxed the norms for agricultural loans. As per RBI norms, agrarian loans up to Rs. 1 lakh do not require any collateral or security. For loans above Rs. 1 lakh, the security requirements are set by individual lenders.

  1. Can women apply for agricultural loans? 

Yes. The government of India encourages women to lead agricultural activities. As a result, some banks offer special discounts on interest rates and other benefits for women borrowers.

  1. How to apply for an agricultural loan in India? 

Applying for an agricultural loan is quite easy, and the entire process is seamless and hassle-free. Lenders have a simple application method to make it easy for farmers so that they don't fall into the trap of informal moneylenders. Some banks even offer an online application process.

The first step is to compare the features, eligibility requirements, and interest rates of different lenders, to pick the right one. Next, visit the nearest branch of your preferred lender. Make sure to carry the required documentation with you to quicken the application process.

Once you submit the application form and the required documentation, the lender approves the loan. Once sanctioned, the loan amount is sent to the farmer's bank account or issued via a cheque.

  1. Can I pre-close an agriculture loan? 

Yes, most lenders allow borrowers to foreclose the loan before the completion of the tenure. However, there may be pre-closure penalties. So, make sure to check the foreclosure terms and conditions before pre-closing the loan. 

EndNote

Agriculture is one of the biggest industries in India. To encourage farmers to increase the output from their lands, the government of India supports national and private banks to offer various loans to benefit individuals engaged in agriculture and related activities.

Make sure to check around and compare the types of loans, features, benefits, and interest rates and pick the right one that suits your financial needs.