KCCs and Banks and Fintech - Clarifications

 

KCCs and Banks and Fintech - Clarifications

Dinesh K Kapila

I had received a few months ago some research and views on Crop Loans and the mode and the fixation off limits. The basic point was farmers had to pay out high charges for KCCs from Banks  and hence fintech companies in tie up with banks would be better. Some informal costs were also stated which I have ignored. After some base work of my own, I had responded as follows - .

The Projects are good. KCCs plus reaching out to Farmers undertaking Organic Farming and primarily engaged in farming / agriculture for exports is a sound conceptual idea.

My loud thoughts are as follows –

1.      2 lakh plus  farmers over 2.00 lakh hectares over 20 states. This is a huge spread. Logistics is the key as it cannot be monitored digitally only. There have to be physical touch points and this huge spread would enhance costs. Farmers do not normally accept a purely digital mode and have to be guided through to the process by physical outreach programmes. Maybe focusing on a few states only would be the key.

2.      As regards the KKCCs, the spread again is the issue. Now coming to the costing, I do not know in which states you plan the initiatives but from Punjab I could gather the following as regards the charges for KCCs.

Commercial Bank, PNB KCC.

Rs 2 lakh KCC Registered mortgage Rs 1100/-

Legal / NEC Charges Rs 3000/- to Rs 4000/-.

 Term Loan Rs 2 lakh.

Registered Mortgage Rs 1100/-

Legal / NEC Rs 3000/- to Rs 4000/-

Documentation or Processing fees Rs 700/- to Rs 1000/-

Insurance Rs 3000/-

PACS Rs 2 lakh KCC. PACS. 

Land Record Details Rs 25/-

8 snaps Rs 20/-

Stationery Charges Rs 50/-.

RRB.

LSR Rs 3500.

Stamp duty nil

Evaluation charges Rs 500/- plus Rs 590/-

Stationery charges Nil.

Insurance Nil

Patwari fees not known, snaps etc are minor in nature.

Term loan Rs 2 lakh.

LSR Rs 3500/-

Stamp duty nil

Evaluation charges Rs 500/- plus Rs 590/-

Stationery charges nil

Insurance Rs 3000/-

Other charges are nominal.

Haryana.

Largely similar. Stamp Duty is waived. Or Nominal if the amount drawn is high.

No evaluation charges. No insurance with KCCs.

HP I understand is the same. In Punjab as per feedback, there could be some increase but nominal if the amount exceeds Rs 1.60 lakh. But not much of a change.

3.      So we can assess that the KCC is a well accepted product and actually at least in Pb and Hy the KCCs issued exceed the number of estimated farmers. HP has say 55 % coverage but there the small holdings are impacting the quantum of the loan under KCC and hence the farmers are reluctant. Incidentally, I have never come across a KCC of Rs 3000/- to Rs 5000/-. Such micro holdings are better for JLGs, as also for tenant farmers.

4.      Which states do you plan to cover. The logistics has to be assessed as the costs of spreading out operations would be high. Tax payers are not really relevant here as referred to in the note.

5.      The Banks have to be involved as the farmers would normally draw or be serviced by a Bank which has its operational area there. Unless the idea is that the institution through which the card would be issued is going to issue through the bank the KCC digitally, the farmer draws digitally, the loan is set off digitally at the time of sales and the balance credited to the farmer. But how does he draw it unless the Bank is physically located there.

6.      A KCC is intrinsically linked to the SOF – Scale of Finance – which varies state to state. Normally Coop banks adhere to it while Commercial Banks do add on the small components such as for term loan etc. this needs to be checked.

7.      How will the Banks claim interest subvention on KCCs from the GOI, in case the intermediary institution is taking care of the entire product pipeline. How will the farmer be advised of the same.

8.      This will require tripartite agreements with the institution, the Bank   and the Farmer,, maybe even the agency actually implementing the project. The physical outreach would have to be there.

9.      The Banks paying Rs 1250/- as costs is not clear and requires a relook. The accounts are mostly connected with Adhaar unlike as stated in the note as this was by an extensive campaign a few years back.    

10.   A THOUGHT – The idea is sound but the assumption that Banks would rather not issue KCCs requires a reassessment as the GOI has monitored this actively as have RBI / NABARD.

11.   ACTION - Build a close relationship with the Banks in the area a and the Agriculture Development Officers or Horticulture Development Officers as the case may be.  You will require the services of retired bankers, retired and settled in your operational areas, to take up the project, preferably a Scale V or Scale IV to plan and evaluate and a Scale II or III to implement. With retired Agri Dept or Hort Dept officers. The size of the area and number of farmers would determine the outreach and number of staff. They would require extensive training so as to be onboard with the central data centre and to coordinate with the institutions. And kindly do check the availability of broadband / adequate internet services in the areas you plan to work.

 

These are some thoughts as of now.

Dinesh K Kapila