Indian Farmers' Loan Repayment Capacity

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Questions and Answers

What is the primary cause of poor repayment capacity for farmers due to small land holdings?

High family consumption expenditure

Low production and productivity of crops (correct)

Lack of adoption of improved technology

Rapid fluctuations in prices of agricultural commodities

Which of the following factors does NOT contribute to the repayment capacity for crop loans?

Working expenses excluding the proposed crop loan

Gross income

Family living expenses

Annual installment due for term loans (correct)

Which measure could improve the repayment capacity of farmers?

Encouraging unproductive use of credit

Increasing family consumption expenditure

Reducing the adoption of new technology

Diversification of farm enterprises (correct)

What financial metric is often used to quantify risk?

Coefficient of variation Signup and view all the answers

Which aspect does NOT directly affect risk bearing ability?

Expansion of farm land Signup and view all the answers

How can farmers improve their risk management strategies?

By adopting crop insurance Signup and view all the answers

Which type of risk is NOT typically considered a source of risk for farmers?

Social risk Signup and view all the answers

What is a method for strengthening the repayment capacity of farmers?

Improving farm management Signup and view all the answers

What characterizes the repayment of term loans compared to short term loans?

They are recovered by a series of installments. Signup and view all the answers

Which repayment plan requires the entire loan amount to be cleared off at maturity?

Straight-end repayment plan Signup and view all the answers

In which repayment plan does the principal component remain constant while the interest decreases?

Amortized decreasing repayment plan Signup and view all the answers

What best describes the Balloon repayment plan?

Partial payments are made with a large final payment. Signup and view all the answers

What is the main feature of an Optional repayment plan?

Borrowers can choose when to make payments. Signup and view all the answers

Which of the following types of repayment plans is an extension of the partial repayment plan?

Amortized repayment plan Signup and view all the answers

How is interest treated in the amortized decreasing repayment plan?

It decreases as principal is repaid. Signup and view all the answers

Which repayment plan is characterized by a variable or quasi-variable structure?

Variable repayment plan Signup and view all the answers

What percentage of the target did the commercial banks achieve by the end of 2007?

49.68% Signup and view all the answers

Which bank group had the highest cumulative achievement since inception?

Cooperatives Signup and view all the answers

What is the concessional interest rate offered under the Differential Rate of Interest Scheme (DIR)?

4% Signup and view all the answers

What was the total number of cards sanctioned across all bank groups by the end of 2007?

313300 Signup and view all the answers

Which scheme was introduced following the recommendations of the RBI committee chaired by Dr.B.K.Hazare?

Differential Rate of Interest Scheme (DIR) Signup and view all the answers

Which bank group had the lowest percentage of achievement from 2007 to the end of 2006?

RRBs Signup and view all the answers

What is the main benefit of the Differential Rate of Interest Scheme (DIR)?

Loans provided without any collateral Signup and view all the answers

When was the Differential Rate of Interest Scheme (DIR) first implemented in selected bank branches?

1975 Signup and view all the answers

What is the main objective of the crop loan system?

To treat crops as collateral for loans Signup and view all the answers

How is the eligibility to receive a crop loan determined?

By confirming that the applicant is a real farmer in need of credit Signup and view all the answers

What is included in the crop loans as per the system?

Both cash and kind components Signup and view all the answers

How is the quantum of the crop loan determined?

Based on crop variety, season, and irrigation type Signup and view all the answers

What does the scale of finance represent in the context of crop loans?

An indicative cost based on actual farm expenditure Signup and view all the answers

What role does the District Level Technical Committee (DLTC) play in the crop loan system?

They fix the quantum of crop loans Signup and view all the answers

When was the crop loan system first introduced in Andhra Pradesh?

1966 Signup and view all the answers

What factor is NOT considered when determining the loan amount for crop loans?

Farmer's previous loan default history Signup and view all the answers

What is one of the main limitations of the Comprehensive Crop Insurance Scheme (CCIS)?

It only provided coverage for a limited number of crops. Signup and view all the answers

Which of the following suggestions was made for improving the CCIS?

Include all farmers and crops under the scheme. Signup and view all the answers

What is a characteristic of the National Agricultural Insurance Scheme (NAIS)?

It covers all farmers irrespective of their holding size. Signup and view all the answers

When was the National Agricultural Insurance Scheme (NAIS) launched?

23-06-1999 Signup and view all the answers

What was one of the premium rates under the National Agricultural Insurance Scheme for kharif crops?

3.5 percent for bajra and oilseeds. Signup and view all the answers

Which of the following is NOT covered under the CCIS?

Sugarcane Signup and view all the answers

What would be the threshold yield calculation period suggested for improvements to CCIS?

Ten years Signup and view all the answers

Which states were notably affected by the limitations of the CCIS scheme?

Punjab, Haryana, and Western U.P. Signup and view all the answers

Study Notes

Repayment Capacity for Loans

Crop Loans: Calculated as Gross Income minus working expenses (excluding the proposed loan), family living expenses, other dues, and miscellaneous expenditure.
Term Loans: Computed using Gross Income minus total working expenses, family living costs, other loans, miscellaneous expenditure, and annual term installment dues.

Causes of Poor Repayment Capacity Among Farmers

Fragmentation of land leading to small farm sizes.
Low crop production and productivity.
High family consumption expenses.
Price volatility and low pricing of agricultural products.
Credit often used for unproductive purposes.
Insufficient net worth or equity among farmers.
Limited adoption of advanced farming technologies.
Ineffective management of farm resources.

Measures to Enhance Repayment Capacity

Increase net income through better farm management and organization.
Implement advanced technologies to boost production and cut costs.
Address resource availability imbalances.
Align loan repayment schedules with income flow.
Increase farm household net worth.
Diversify farm enterprises for additional income.
Employ risk management strategies, including crop and livestock insurance.

Risk Bearing Ability

Defined as farmers' capacity to handle financial risks.
Measurement tools include the coefficient of variation (CV) and standard deviation (SD).
Types of risks faced by farmers include production, technological, personal, institutional, and weather-related uncertainties.

Repayment Plans for Term Loans

Lumpsum Repayment: Full amount due at the end of the loan term, with annual interest payments.
Balloon Repayment: Smaller payments are made until a large final payment at maturity.
Amortized Repayment Plans: Loans paid back in installments, which can be:
- Amortized Decreasing: Constant principal, decreasing interest, reducing annual payments over time.
- Amortized Even: Equal annual installments combining principal and interest.
Variable Repayment Plans: Payments may vary, adapting to cash flow.
Optional Repayment Plans: Borrowers may choose repayment terms based on income fluctuations.

Crop Loan System

Introduced post-1954 recommendations, originating in 1965.
Aims to treat crops as collateral rather than land.
Loan amounts based on actual farm expenditure and cost of cultivation rather than ownership.
Loans hypothecated against crop production.
Loans include both cash and kind components and vary by crop type and season.

Scale of Finance

Defined as an indicative cost base for determining finance amounts.
Specific target metrics exist for different bank groups with their corresponding achievements and disbursement rates.

Financial Schemes for Weaker Sections

Differential Interest Rate Scheme (DIR): Allows loans at a reduced rate (4% per annum) for weaker sections lacking tangible assets for collateral.
Integrated Rural Development Programme (IRDP) and Self Help Groups (SHGs): Designed to support and uplift weaker economic sections.

Agricultural Insurance Schemes

National Agricultural Insurance Scheme (NAIS): Launched in 1999, provides coverage for a wide range of crops without a cap on the sum insured.
Premium rates are set at varying percentages depending on crop types.
Aim to include all farmers regardless of farm size and simplify access to insurance.

Recommendations for Agricultural Insurance Improvements

Expand coverage to include all farmers and crops.
Tailor premium rates and indemnity units to local conditions.
Extend the assessment of yields to longer periods for accuracy.

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Description

This quiz explores the factors affecting the repayment capacity of Indian farmers regarding liquidating and term loans. It delves into the calculation of gross income and expenses that impact loan repayment. Understand the causes of poor repayment capacity and their implications on farmers' financial health.