Former finance minister Yashwant Sinha wrote in his memoir about one of his major achievements as a member of the Vajpayee government. It was not about the initial dissolution of the administered interest rate regime that opened the way for freeing up interest rates or other reforms. This was a policy change, and one very unwelcome to the financial press, markets and analysts of the time. This was the introduction of the Kisan Credit Card (KCC) scheme in the first budget of the Vajpayee government in 1998.
In subsequent decades, following changes by successive governments, the scheme has been recognized as transforming rural credit delivery in India with a revolving credit offering for farmers. It eliminated uncertainty over loan approvals to farmers from banks and other institutions and enabled them to borrow for seeds, fertilizers, pesticides and allied agricultural activities against the sanctioned loan limit at low interest rates.
By 2004, banks had issued about 4.5 crore cards. Since then that number has grown significantly, as has credit disbursements.
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As Sinha pointed out, with RuPay card, crop insurance and personal insurance, it has now emerged as a social security scheme for farmers. But India’s fintech revolution may not have touched the hinterland at all. This appears to have prompted the Reserve Bank of India (RBI) to launch a pilot project on digitization of farmer loan loans in some districts of Tamil Nadu and Madhya Pradesh.
Digital Lending for KCC, developed by the innovation hub of RBI, aims to cut down the turnaround time, which can be up to four weeks in the form of branch visits and approvals, and to make the process more efficient. There is much to be gained from this move. For the banks that issue these cards, the new smart cards promise cost savings over physical cards as they are cheaper to roll out. For farmers and others, given the reach of mobile phones, a feature phone may also come in handy for authenticating transactions through messaging services.
But the broader objective of the proposed digitization of these cards may be to eliminate duplication and potential fraud. Direct cash transfers and many other benefits are increasingly being passed on to the farmers, making it easier to identify beneficiaries and monitoring and monitoring of subsidies and credits. It would also be easier to make possible course corrections for institutional credit delivery. As incomes rise, there is also the potential for rural areas to offer financial services or products and help bridge the digital divide.
It makes sense to start digitization on an experimental basis. Still, the RBI and the government need to be wary of the increasing number of online frauds. Given the low level of financial literacy and customer protection against online fraud, both the central bank and the government must address it to protect a more vulnerable section of borrowers and savers—not just the fraud on the bank’s central fraud registry. by reporting. Most of the complaints being dealt with by the Banking Ombudsman in the country now pertain to digital transactions.
The government has a lot of skin in the game, not only politically but financially as well. RBI itself believes that even half of India’s small and marginal farmers are not covered by formal credit. It’s a shame. If the automation and digitization of the process of lending to farmers and allied sectors gives a boost to rural banking with its knock-on effect and affects many more farmers, including those with land holdings, then the wait could not be longer. Banks are also big stakeholders in this. So far he has done very well. Now for the final frontier.
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