Agricultural credit refers to financial services—loans, savings, insurance, and remittances—provided to the agricultural sector. Since a large portion of India’s population depends on agriculture, a strong and accessible credit system is essential for:

Increasing productivity
Ensuring food security
Supporting rural development

1. Classification of Agricultural Credit

Agricultural loans are classified based on their tenure and purpose.

Type of Credit	Tenure	Purpose
Short-Term Credit	Up to 15 months	Working capital for a single crop cycle—seeds, fertilizers, pesticides, labour payments
Medium-Term Credit	15 months to 5 years	Capital investments across crop seasons—machinery, livestock, minor land development
Long-Term Credit	More than 5 years	Large capital expenditure—buying land, major land development, long-term mechanization

2. Sources of Agricultural Credit

Agricultural credit comes from both informal and formal sources.

A. Non-Institutional (Informal) Sources

Traditional but often exploitative.

Moneylenders: Easily accessible but charge very high interest.
Traders/Commission Agents: Give advance credit but force farmers to sell produce through them.
Landlords: Provide credit to tenants; often exploitative.
Friends/Relatives: Small, interest-free informal loans.

B. Institutional (Formal) Sources

Government-regulated and safe.

1. Co-operative Credit Institutions

Three-tier structure for short-term loans:

PACS (Primary Agricultural Credit Societies) – Village level
DCCBs (District Central Co-operative Banks) – District level
StCBs (State Co-operative Banks) – State level

For long-term loans:

Land Development Banks / SCARDBs

2. Scheduled Commercial Banks (SCBs)

Largest providers of agri credit after bank nationalization in 1969.
Includes SBI, BOB, PNB, HDFC, ICICI, etc.

3. Regional Rural Banks (RRBs)

Established in 1975 to focus on small and marginal farmers, agricultural labourers, and rural artisans.

4. NABARD (Apex Institution)

NABARD does not lend directly to farmers. It supports agriculture by:

Refinancing loans to SCBs, RRBs, Cooperatives
Supervising RRBs and Cooperative Banks
Managing RIDF (Rural Infrastructure Development Fund)
Promoting rural development programs

3. Key Government Policies & Schemes

A. Priority Sector Lending (PSL)

RBI mandates banks to lend to agriculture.

18% of ANBC → Agriculture (for SCBs)
10% sub-target → Small & Marginal Farmers
RRBs/SFBs PSL target → 75% of ANBC
Shortfall penalty: Banks must deposit shortfall amount in RIDF (NABARD).

B. Kisan Credit Card (KCC) Scheme (1998)

A one-stop credit solution for farmers.

Key Features:

Revolving cash credit
Covers all needs: crop loans, post-harvest expenses, consumption, asset purchase
Valid for 5 years with yearly review
Comes with RuPay debit card
Extended to animal husbandry and fisheries
Limit based on landholding, scale of finance, allied activities

C. Interest Subvention Scheme

To make loans cheaper for farmers.

Short-term crop loans up to ₹3 lakh → 7% interest
Additional 3% discount for timely repayment (Prompt Repayment Incentive)
Effective interest = 4% per annum

4. Primary Agricultural Credit Societies (PACS)

PACS are village-level cooperative institutions providing affordable credit to farmers.

A. Structure of Rural Cooperative Credit

StCBs – Apex at State level
DCCBs – District-level intermediaries
PACS – Village-level outlets

B. Key Facts About PACS

First PACS started in 1904
Registered under State Co-operative Societies Acts
Regulated by State Government and supervised by NABARD

C. Functions of PACS

Provide short- and medium-term loans
Supply seeds, fertilizers, pesticides
Promote savings and accept deposits
Provide storage/marketing support
Run Fair Price Shops (ration distribution)

D. Recent Developments – PACS as Multi-Service Centers

Government aims to modernize PACS by enabling them to:

Operate dairy and fishery units
Have agri-processing facilities
Set up godowns and cold storages
Provide FPO services
Work as PMKSKs
Full computerization project underway

E. Challenges of PACS

Low resources and high dependence on DCCBs
High overdues and NPAs
Lack of professional management
Regional imbalances (strong in Maharashtra, Gujarat, Kerala; weak in others)

5. Major Providers of Agricultural Credit in India

Commercial Banks (largest contributors)
Cooperative Credit Institutions
RRBs
NBFCs & Microfinance Institutions

6. Agricultural Loan Schemes by Major Public Sector Banks

Bank of Baroda (BoB)

A. Baroda Kisan Credit Card (BKCC)

Feature	Details
Purpose	Crop loans, post-harvest expenses, household needs, farm investments
Eligibility	Farmers, tenants, sharecroppers, SHGs/JLGs
Facility	Revolving cash credit + term loan
Validity	5 years, annual review
Interest	7% up to ₹3 lakh (4% with prompt repayment)
Security	Nil up to ₹1.60 lakh; mortgage required above this

B. Baroda Agri Gold Loan

Quick loan against gold
Loan amount: Up to ₹50 lakh
Tenure: 12 months
Nil processing fee up to ₹3 lakh

C. Baroda Tractor Loan

For tractor purchase
Tenure: Up to 9 years
Margin: 15–25%

7. Comparison of KCC Schemes (BoB vs SBI vs PNB)

Feature	Bank of Baroda	State Bank of India	Punjab National Bank
Primary Facility	Revolving CC	Revolving CC	Revolving CC
Validity	5 Years	5 Years	5 Years
Interest Subvention	Yes	Yes	Yes
Collateral-Free Limit	₹1.60 lakh	₹1.60 lakh	₹1.60 lakh
Special Feature	Digital renewal	SB interest on credit balance	Kisan Tatkal Rin

Conclusion

Agricultural credit is the backbone of India’s agricultural economy. With institutional support from:

Commercial Banks
RRBs
Cooperative Institutions
NABARD

and schemes like KCC, PSL, and Interest Subvention, India aims to provide affordable, timely, and inclusive financial support to farmers.

MCQs — Agricultural Credit

Agricultural credit classified by tenure: which of the following is correct?
A. Short-term up to 1 year; Medium-term 1–3 years; Long-term more than 3 years
B. Short-term up to 15 months; Medium-term 15 months–5 years; Long-term more than 5 years
C. Short-term up to 6 months; Medium-term 6–24 months; Long-term beyond 24 months
D. Short-term up to 12 months; Medium-term 12–36 months; Long-term more than 36 months
Answer: B. (Standard classification: up to 15 months = short-term; 15 months–5 years = medium; >5 years = long-term.)
Which of the following is the main purpose of short-term agricultural credit?
A. Buying additional land
B. Purchasing tractors for farm mechanization
C. Working capital for a crop cycle (seeds, fertilisers, labour)
D. Long-term irrigation projects
Answer: C. (Short-term covers inputs and working capital for a single crop cycle.)
Which institution is the apex development financial institution for agriculture in India?
A. NABARD
B. SIDBI
C. RBI
D. NABL
Answer: A. (NABARD is the apex rural/agri development bank, provides refinance & development support.)
Which of the following is NOT a non-institutional source of agricultural credit?
A. Moneylenders
B. Commission agents/traders
C. Scheduled Commercial Banks
D. Relatives and friends
Answer: C. (SCBs are institutional/formal sources.)
Primary Agricultural Credit Societies (PACS) typically operate at which level?
A. National level
B. State capital level
C. District level
D. Village / cluster of villages level
Answer: D. (PACS are village-level cooperative credit societies.)
Which tier correctly lists cooperative credit system from top to bottom?
A. PACS → DCCB → StCB
B. StCB → DCCB → PACS
C. DCCB → StCB → PACS
D. NABARD → StCB → PACS
Answer: B. (State Cooperative Banks → District Central Cooperative Banks → PACS.)
Which year saw the formation of the first Primary Agricultural Credit Society (PACS)?
A. 1889
B. 1904
C. 1920
D. 1947
Answer: B. (First PACS formed in 1904.)
Which of the following is the main function of NABARD?
A. Accepting retail deposits from farmers
B. Supervising and refinancing banks and cooperatives for rural credit
C. Issuing currency notes for rural areas
D. Providing direct short-term loans to farmers
Answer: B. (NABARD refinances and supervises RRBs/cooperatives and manages RIDF.)
Under RBI Priority Sector Lending norms, the target for agriculture (for Scheduled Commercial Banks) is:
A. 10% of ANBC
B. 18% of ANBC
C. 25% of ANBC
D. 40% of ANBC
Answer: B. (Overall target for agriculture is 18% of ANBC.) Reserve Bank of India
Within the agriculture PSL target, the sub-target for small and marginal farmers is:
A. 5%
B. 10%
C. 15%
D. 20%
Answer: B. (10% sub-target for small & marginal farmers.) Reserve Bank of India
Which of the following is TRUE about Kisan Credit Card (KCC)?
A. It is only for crop loans and cannot be used for allied activities
B. It is a revolving cash credit facility with validity generally for 5 years
C. KCC does not provide any ATM/debit facility
D. KCC is issued only by cooperative societies, not by commercial banks
Answer: B. (KCC is a revolving facility, usually valid for 5 years and covers allied activities.) Reserve Bank of India+1
As per standard KCC features, prompt repayment incentive reduces effective interest rate to (for eligible short-term loans up to ₹3 lakh):
A. 6% p.a.
B. 5% p.a.
C. 4% p.a.
D. Nil (no subvention)
Answer: C. (Interest subvention + prompt repayment incentive can bring effective rate down to ~4% p.a.) Reserve Bank of India+1
Which of the following institutions was established in 1975 specifically to serve rural areas and small farmers?
A. Regional Rural Banks (RRBs)
B. State Bank of India
C. Small Finance Banks
D. Cooperative Credit Societies
Answer: A. (RRBs were established in 1975 to provide rural credit.)
Which body must banks deposit funds into if they fail to meet their PSL shortfall?
A. NABARD Grant Fund
B. District Cooperative Fund
C. Rural Infrastructure Development Fund (RIDF) managed by NABARD
D. Ministry of Agriculture Relief Fund
Answer: C. (Shortfall contributions go to RIDF managed by NABARD.) Reserve Bank of India+1
Which credit instrument is described as “revolving cash credit” for farmers?
A. Tractor loan
B. Kisan Credit Card (KCC)
C. Long-term mortgage loan
D. Gold loan for business
Answer: B.
Which of the following is NOT a function of PACS?
A. Disbursal of KCC loans at village level
B. Supply of agricultural inputs on credit
C. Issuance of currency notes
D. Running fair price shops / marketing support
Answer: C. (PACS do not issue currency.)
Which of the following is a key challenge faced by PACS?
A. Excess capital and idle funds
B. High overdues & NPAs, limited owned funds, weak professional management
C. Too many branches in urban centers
D. No regulatory supervision at all
Answer: B. (Common challenges: inadequate resources, NPAs, lack of professional management.)
Which institution supervises cooperative banks and plays a developmental role for rural credit?
A. SEBI
B. NABARD
C. IRDAI
D. NHB
Answer: B. (NABARD supervises and promotes cooperatives and rural finance.)
Which of the following statements about collateral-free limits for agricultural loans is true (latest official change cited)?
A. Collateral-free limit remained ₹1 lakh since 2000
B. RBI increased collateral-free agricultural loan limit from ₹1.6 lakh to ₹2 lakh (announced Dec 2024)
C. Collateral-free loans are not allowed in agriculture
D. Collateral-free limit is ₹10 lakh for all farmers
Answer: B. (RBI raised the collateral-free limit from ₹1.6 lakh to ₹2 lakh per borrower — official press release Dec 14, 2024). Press Information Bureau
Which of the following bodies issues guidelines and master circulars on KCC and other agricultural lending matters?
A. Ministry of Home Affairs
B. RBI (Reserve Bank of India)
C. Ministry of External Affairs
D. TRAI
Answer: B. (RBI issues master circulars; KCC rules/guidelines referenced through RBI communications.) Reserve Bank of India
Which one of the following is NOT typically financed under medium-term agricultural credit?
A. Purchase of pump sets
B. Purchase of seed for one crop season
C. Purchase of small farm implements
D. Livestock purchase for dairy activity
Answer: B. (Seed for one crop is short-term need; medium-term funds purchase durable assets.)
Which statement is correct about KCC security/collateral as per RBI guidance?
A. Banks must always insist on mortgage even for small KCC limits
B. Banks may sanction hypothecation of crops up to card limit of ₹3.00 lakh without insisting on collateral in tie-up cases
C. Collateral is never allowed for any KCC loan
D. KCC security rules are the same for all banks with no discretion
Answer: B. (RBI allows hypothecation of crops up to ₹3 lakh in tie-up cases without collateral; collateral rules vary with limit & tie-up.) Reserve Bank of India
Which of the following is a development objective of NABARD?
A. Printing currency
B. Refinance support for rural financial institutions and development of rural infrastructure
C. Regulating stock exchanges
D. Managing postal savings only
Answer: B. (NABARD provides refinance support and promotes rural development.)
The “interest subvention scheme” for short-term crop loans primarily aims to:
A. Increase interest rates on farm loans
B. Provide subsidy on interest to reduce cost of borrowing for farmers
C. Remove KCC facility entirely
D. Convert all agricultural loans into non-priority loans
Answer: B. (Interest subvention lowers interest cost for farmers on eligible short-term loans.) Press Information Bureau+1
As per recent government releases (Feb 2025), the Government discussed enhancing the KCC limit to:
A. ₹1 lakh
B. ₹2 lakh
C. ₹5 lakh
D. ₹10 lakh
Answer: C. (Government statement Feb 4, 2025 mentioned enhancing the KCC limit to ₹5 lakh—see PIB release.) Press Information Bureau
Which of the following is a common feature of Regional Rural Banks (RRBs)?
A. Target urban corporate clients only
B. Focus on small and marginal farmers, rural artisans, agricultural labourers
C. Function only outside India
D. Do not accept deposits
Answer: B. (RRBs are set up to serve rural clientele including small & marginal farmers.)
Which of the following is NOT an institutional source of rural credit?
A. NABARD
B. Moneylenders
C. Cooperative Banks
D. Commercial Banks
Answer: B. (Moneylenders are non-institutional/informal.)
Which instrument helps banks meet their PSL targets by trading the target shortfall?
A. Treasury Bills
B. Priority Sector Lending Certificates (PSLCs)
C. NSC certificates
D. Kisan Vikas Patra
Answer: B. (PSLCs allow banks to buy/sell priority sector achievement.) FIDC+1
Which of the following activities may be included under agricultural credit for allied activities?
A. Fisheries and animal husbandry
B. Purchase of commercial office buildings
C. Purchase of personal consumer electronics unrelated to farm
D. Investment in a non-agriculture hotel chain
Answer: A. (Allied activities include fisheries, animal husbandry, etc.)
Which of the following is a feature of KCC issued by commercial banks (e.g., SBI, BoB)?
A. No annual review required
B. Validity of 5 years with annual review and limit adjustments
C. Card cannot be used for post-harvest expenses
D. No facility for debit/ATM access
Answer: B. (KCC generally valid for 5 years with annual review; comes with a RuPay debit card in many banks.) Bank of Baroda+1
PNB’s Kisan Tatkal Rin scheme is primarily intended to provide:
A. Long-term mortgages for land purchase
B. Instant/emergency credit to eligible existing KCC holders
C. Foreign currency loans to farmers
D. Scholarships to farmers’ children
Answer: B. (PNB Kisan Tatkal Rin provides emergency credit to existing KCC borrowers.) PNB Bank
Which of the following is TRUE about PACS being promoted as Multi-Service Centres (MSCs)?
A. PACS will only give loans and nothing else
B. PACS are being encouraged to offer diversified services like dairy, agro-processing, storage, FPO services
C. PACS will be closed down nationwide
D. PACS will operate like commercial stock exchanges
Answer: B. (Government promotes PACS as MSCs to expand services.)
Which of the following is a correct statement about the role of commercial banks in agricultural credit since nationalisation (1969)?
A. Their rural branch network shrank drastically
B. They became the largest purveyors of agricultural credit and expanded rural outreach
C. They stopped lending to agriculture entirely
D. They only lend via PACS now
Answer: B. (Post-nationalisation, commercial banks greatly expanded rural branches and agri lending.)
Which of the following is a reason farmers may still borrow from non-institutional sources?
A. Lower interest rates than banks always
B. Ease of access, lack of nearby institutional branches, urgent cash needs despite higher interest
C. Institutional lenders never disburse loans
D. Non-institutional loans are completely regulated by RBI
Answer: B. (Moneylenders/traders are easily accessible and can provide quick funds, albeit expensive.)
Which of the following statements about NABARD refinancing is correct?
A. NABARD lends directly to farmers for short-term crop loans
B. NABARD provides refinance to banks and cooperatives for on-lending to farmers
C. NABARD issues KCC cards directly to farmers
D. NABARD has no role in rural finance
Answer: B. (NABARD provides refinance support to lending institutions.)
Which is the typical maximum collateral-free KCC limit (as discussed in various government communications around 2024–2025)?
A. ₹50,000 for all farmers
B. ₹1.6 lakh per borrower (historical) but official changes raised certain limits to ₹2 lakh and government discussed enhancing KCC to higher amounts in 2025
C. ₹10 lakh for all KCC accounts
D. No limit—always fully collateralised
Answer: B. (Historically ₹1.6 lakh; RBI raised certain collateral-free limits to ₹2 lakh in Dec 2024; government discussed further enhancements.) Press Information Bureau+1
Which of the following is NOT a product typically offered by banks specifically targeted at agricultural borrowers?
A. Tractor loans
B. Gold-backed Agri loans
C. Kisan Credit Card (KCC)
D. Convertible corporate bonds for MNC expansion
Answer: D. (Convertible corporate bonds are not targeted agri products.)
Which of the following is the main reason for high NPAs in cooperative credit institutions?
A. Excessive profitability
B. Poor recovery practices, weak management, dependence on DCCBs and limited own funds
C. Complete automation of processes
D. No lending at all
Answer: B. (High NPAs due to weak management, inadequate resources, poor recoveries.)
Which of the following bank schemes allows borrowing against gold for agricultural purpose?
A. Baroda Agri Gold Loan
B. PMJDY
C. MUDRA Shishu only
D. Jan Dhan Yojana deposit
Answer: A. (Baroda Agri Gold Loan allows farmers to pledge gold for agri credit.) Bank of Baroda
Which of the following best describes Priority Sector Lending Certificates (PSLCs)?
A. Government bonds for agriculture only
B. Tradable certificates that allow banks to meet PSL targets by buying/selling achievements
C. Insurance policies for farmers
D. KCC replacement cards
Answer: B. (PSLCs are tradable instruments for PSL compliance.) FIDC
Which of the following statements about RBI’s PSL classification is correct?
A. Indirect agricultural lending in excess of a specified limit may not be reckoned for the agriculture sub-target but counts under overall PSL category
B. All indirect agriculture lending is always counted under the 18% agriculture sub-target
C. PSL norms do not differentiate between direct and indirect lending
D. There is no overall agriculture target under PSL
Answer: A. (RBI’s PSL rules place limits on indirect lending recognition for the sub-target, though it may count under broader PSL.) Reserve Bank of India
Which of the following is a common eligibility criterion for KCC?
A. Only large corporate farmers are eligible
B. All farmers including tenants, sharecroppers, JLGs/SHGs are eligible subject to bank norms
C. KCC is exclusive to urban traders
D. Only government employees can apply
Answer: B. (KCC is available to a broad farmer base including tenants and JLGs/SHGs.) Bank of Baroda
Which of the following statements is TRUE about the validity of KCC?
A. KCC validity is lifetime with no reviews
B. KCC is generally valid for 5 years subject to annual review
C. KCC must be renewed every month
D. KCC is valid only for one crop season
Answer: B. (KCC standard validity is five years with annual review.)
Which of the following is an objective behind computerization of PACS?
A. To increase opaqueness in operations
B. Improve efficiency, transparency, account keeping, and loan disbursal at village level
C. To close PACS entirely and replace them with NBFCs
D. To prevent farmers from accessing banking services
Answer: B. (Computerization aims to improve transparency and efficiency.)
Which of the following is a correct outcome of interest subvention for timely repayment?
A. Farmers pay higher interest if they repay on time
B. Farmers get an additional subvention (e.g., 3%) for prompt repayment reducing effective rate
C. Interest subvention increases bank’s lending rates uniformly
D. Timely repayment leads to loan cancellation only
Answer: B. (Prompt Repayment Incentive reduces effective interest for timely payers.) Press Information Bureau
Which of the following is TRUE about the KCC facilities for allied activities?
A. KCC cannot be used for fisheries or animal husbandry
B. KCC has been extended to include animal husbandry and fisheries
C. KCC is strictly restricted to cereal crops only
D. KCC cannot finance post-harvest operations
Answer: B. (KCC schemes have been extended to allied activities including fisheries & animal husbandry.) Bank of Baroda
Which of the following is a direct role played by District Central Cooperative Banks (DCCBs)?
A. Regulating RBI monetary policy
B. Supervising and providing funds to PACS
C. Issuing sovereign bonds internationally
D. Running national stock exchanges
Answer: B. (DCCBs operate at district level to support PACS.)
Which bank product typically offers a “prompt repayment incentive” as part of the Government’s scheme?
A. Kisan Credit Card (KCC) short-term crop loans up to ₹3 lakh
B. Home loans for urban buyers
C. Corporate term loans over ₹10 crore
D. Vehicle loans for luxury cars
Answer: A. (Interest subvention + PRI specifically targets short-term KCC crop loans up to limit.)
Which of the following best explains why cooperative credit institutions remain important?
A. They focus exclusively on metro customers
B. They provide last-mile delivery of credit at village level and promote financial inclusion
C. They lend only to large industrial houses
D. They provide no services beyond issuing identity cards
Answer: B. (Cooperative banks/PACS provide last-mile credit and inclusion.)
Which of the following is TRUE regarding the number of KCC accounts (as of recent government data cited in 2024)?
A. India had zero KCC accounts in 2024
B. Around 7.75 crore operational KCC accounts with outstanding of ~₹9.81 lakh crore (as of March 2024) — per government statement
C. Only 1,000 KCC accounts exist in India
D. KCC accounts are only for fisheries and none for crops
Answer: B. (Government data: approx. 7.75 crore operational KCCs & ~₹9.81 lakh crore outstanding as of March 2024.) Press Information Bureau
Which of the following is the best remedy governments/banks follow to reduce farmers’ dependence on informal moneylenders?
A. Eliminate all formal credit options
B. Strengthen institutional credit (PACS, RRBs, SCBs), interest subvention, KCC coverage and digital delivery channels
C. Ban crop cultivation altogether
D. Replace cooperative banks with moneylenders
Answer: B. (Policy focuses on strengthening institutions & affordable credit to reduce informal borrowing.)
Which of the following is NOT usually covered under bank refinance from NABARD?
A. Refinance for short-term crop loans extended by cooperatives
B. Refinance for rural infrastructure projects via RIDF
C. Refinance for corporate overseas acquisitions
D. Support for development of PACS and DCCBs
Answer: C. (NABARD focuses on rural & agricultural finance, not corporate overseas acquisitions.) NABARD
Which of the following groups is the KCC NOT explicitly designed for (per typical scheme descriptions)?
A. Tenant farmers and sharecroppers
B. Self-Help Groups (SHGs) and JLGs engaged in agriculture
C. Urban non-farming corporate executives with no farm activity
D. Individual farmers cultivating crops and allied activities
Answer: C. (KCC is for those engaged in farming/farm allied activities.)
Which of the following has been a recent government action regarding KCC to improve coverage (2024–25)?
A. Phasing out KCC completely
B. Discussing enhancement of KCC limits and digital onboarding, and large-scale issuance to allied sectors (fisheries/animal husbandry) — per official releases
C. Making KCC valid only for one month
D. Restricting KCC exclusively to big commercial farmers
Answer: B. (Government announced steps to raise limits/discussed enhancements and digitalization per PIB releases.) Press Information Bureau+1
Which of the following is a correct classification of lenders by formality?
A. Institutional = Moneylenders; Non-institutional = Scheduled Banks
B. Institutional = Banks/Cooperatives/RRBs; Non-institutional = Moneylenders, traders, landlords, relatives
C. Institutional = Friends and relatives; Non-institutional = RBI
D. Institutional = Traders; Non-institutional = NABARD
Answer: B.