How does CIBIL matter for agriculture loans?

Some terms used in this article:

• credit institutions: any registered company which let you borrow money like banks and credit card company.
• defaulting on loan: when someone stops paying back the money they have borrowed.
• One Time Settlement (OTS): when credit institutions realize that borrower will not/can not return the entire amount, they settle for a lesser amount.

Back in the days when I was working in a bank. One day we were asked to attach a CIBIL report of borrowers in the files of all agricultural loan. That is when I realized the relevance of CIBIL for agricultural loans.

So, how does CIBIL matter for farmers? Most of the credit institutions have made CIBIL mandatory for any type of loan. In the case of agriculture loans, the absence of credit history is not given much importance by banks. But, other information like the history of defaulting on loans. Loans which were closed after One Time Settlement. Current liabilities which might not leave much cash with the farmer. A low CIBIL score, these factors can seriously reduce the chances of you getting a loan.

What is a CIBIL score?

CIBIL score is a score given to an individual based on his/her credit history. The score ranges from 300 to 900, where 900 being the best score. CIBIL score plays a very important role as it is used by various financial institutions to judge your creditworthiness.

TransUnion CIBIL Lmt is the company behind CIBIL score and CIR (popularly known as CIBIL report). This company collect, store and maintain data credit-related activities of individuals and companies. Credit activity includes loans and credit cards. This data is submitted by the member institutions, like banks and credit company, to CIBIL. CIBIL is the oldest such company, due to this most of the credit institutions use CIBIL.

Apart from the 3 digit CIBIL score, CIBIL also provides CIR (Credit Information Report). The CIR is like a report card of your credit history. It provides details of all outstanding loans on your name. Details of any borrowing you have defaulted on or settled through OTS is also in the CIR.

A CIBIL score of -1 or 0 indicates that no credit history of that individual is available. This means that either the individual has never taken a loan or credit card or these were not properly reported to CIBIL.

What are agriculture loans?

Loans provided to farmers, to fund agricultural or allied activities. Allied activities include dairy, fishery, poultry, bee-keeping, etc. Agriculture loans are also given for the purchase of farmland and/or agricultural tools and machines. The cost incurred by farmers in pre and post-harvest activities like seeds, fertilizers, labor, transport, storage, etc are also considered for agriculture loans.

Apart from the intended purpose of the loan, there are other features which distinguish agriculture loans form others. These features are usually added to benefit the farmers.

• Agriculture loans come under the priority sector lending. Banks have to lend a certain percentage of their total lending to sectors declared as a priority sector by the Indian government.
• Agriculture loans also have simplified documentation. This includes simplified forms and less number of supporting documents.
• The interest rates on agriculture loan are also very low. Added to this these loans comes under subsidy schemes of the government.
• The repayment schedule and tenure of agriculture loan is also unlike other loans. The repayment schedule or tenure of agriculture loans is planned keeping in mind the harvest cycle and term of crops.

All types of farmers are eligible for agriculture loans. Small and marginal farmer, sharecroppers, tenant farmers all are eligible for agriculture loans.

Why do banks consider CIBIL for agriculture loans?

From my personal experience, I can tell you that the majority of CIBIL reports show no credit history for farmers. Or, at least this was the case up to 2017 when I last handled agriculture loan. Including this, I have heard many reasons from both banker and farmers for no need of CIBIL in agriculture loans. The agriculture loans are subsidized by the government. There have been incidents where the government has waived the loans for farmers. These are usually only 2 to 3 branches in a single rural area, and verification can be done quite easily

Then why have banks started to take CIBIL score and CIR into consideration for agriculture loans?

Well for one CIBIL score and CIR are one of the most reliable sources of verification. CIR can tell you about each and every loan taken by a person in any corner of India. Agriculture loans cover vast types of loans. A farmer might be running a poultry farm in one village and has farmlands in another village. In such cases, CIBIL can prevent overborrowing by the farmer.

There have been cases where tractor agencies helped the farmer to get forged land documents. So that the loan can get sanctioned and they can sell one more tractor. Frauds like this and others may be in a minority but they are not entirely absent either. CIBIL can help reduce instants like these.

To overcome these problems and to help bankers and worthy applicants get a hassle-free and quick loan, CIBIL is an effective tool.

Including CIBIL in the process of sanctioning agriculture loan motivate the farmers to maintain high score by making sound financial decisions. But, the need is there to educate farmers about CIBIL score and CIR. Most of the farmers are clueless that their bad financial decisions can ruin their chances of getting any loan in the future. Farmers should be made aware of the importance of CIR and CIBIL score. They should be educated about how to achieve and maintain a high score.

How to maintain a good CIBIL score?

CIBIL score takes into consideration all the loans and credit cards you have. The loans include all type of loans demand loans, term loans, cash credit and overdrafts. Though it is still very rare to find a farmer having and using a credit card. But, for the sake of information, I will also include details related to credit cards in this section.

Let’s discuss the ways of having a good CIBIL score:

• Be prompt with your payments: Whether it s the EMI of a loan or the monthly bill of your credit card. Late payments will bring down your score.
• Limit utilization: Be it credit cards, cash credit like Kisan Credit Card (KCC) or overdraft, each has a pre-defined limit. Utilizing as less as possible of this limit improves your score.
• Avoid settlement of outstanding: Sometimes the borrowers settle their outstanding by One Time Settlement (OTS). This type of arrangement really messes up your score and CIR. Even settlement with credit card companies impacts your CIBIL score and CIR. Avoid settlement as much as you can and pay the full amount which is due.

It is advisable to check your CIBIL score and CIR at the website of CIBIL only. It cost around Rs 550/- for an individual to get his CIR which include your CIBIL score.

Any correction requested by you, or, steps taken by you to improve the score take 6 to 8 months to be reflected in the CIR.

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