Agriculture Finance

Under the Interest Subvention Scheme, farmers with Kisan Credit Card (KCC) loans up to ₹3 lakh for short-term crop loans receive: (1) 2% interest subvention from the Government of India to lending institutions; (2) an additional 3% incentive for prompt repayment (within one year). Net result: farmers who repay on time pay only 4% per annum (nominal rate 9% − 2% subvention − 3% prompt repayment incentive = 4%). This figure is heavily tested in IBPS AFO.

RBI's Priority Sector Lending (PSL) targets: Domestic Scheduled Commercial Banks (SCBs) and Foreign Banks with 20+ branches must direct 40% of Adjusted Net Bank Credit (ANBC) to priority sectors. Of this, 18% must go to agriculture (8% to small and marginal farmers). Regional Rural Banks (RRBs): 75% PSL target (of which 18% agriculture). Small Finance Banks: 75% PSL target.

India's short-term cooperative credit structure has 3 tiers: (1) Primary Agricultural Credit Societies (PACS) at village level — provide direct credit to farmers; (2) District Central Cooperative Banks (DCCBs) at district level — refinance PACS; (3) State Cooperative Banks (SCBs) at state level — apex bodies, refinanced by NABARD. NABARD refinances SCBs, which lend to DCCBs, which lend to PACS, which lend to farmers. This pyramidal flow is tested frequently.

Under Pradhan Mantri Fasal Bima Yojana (PMFBY, 2016): farmers pay maximum 2% of sum insured for kharif crops, 1.5% for rabi crops, and 5% for annual commercial/horticultural crops. The balance premium is shared equally by central and state governments. This makes PMFBY one of the most subsidised crop insurance schemes globally. The scheme is implemented through empanelled insurance companies.

NABARD (National Bank for Agriculture and Rural Development, established 1982) performs three main functions: (1) Refinance — provides long-term and short-term refinance to cooperative banks, RRBs, and commercial banks for agricultural and rural lending; (2) Development — funds watershed, FPO development, rural infrastructure (RIDF), and SHG bank linkage; (3) Supervision — supervises cooperative banks and RRBs in coordination with RBI. NABARD's authorised capital is ₹30,000 crore.

Agricultural Finance is a core topic for IBPS AFO (Section B: Agricultural Finance — 20–25 questions), NABARD Grade A/B (Agriculture + Economics paper), FCI AGM (Agriculture), SBI PO (General Awareness — banking agriculture schemes), and all state PSC Agriculture Officer exams. KCC rates, PSL targets, cooperative structure, and PMFBY premium rates are the most tested figures.