Kisan Credit Card Accounts Dip 1.8%; Outstanding Loan Rises to ₹41,300 Cr in FY25

India's rural lending landscape is witnessing significant structural changes as Kisan Credit Card accounts in public sector banks experienced a notable decline in FY25.

KCC Account Numbers Drop 1.8% Despite Rising Outstanding Amounts

Kisan Credit Card accounts in public sector banks declined 1.8% year on year to 22.5 million in FY25, while the outstanding loan amount rose marginally by 2.2% to ₹41,300 crore during the same period. This paradoxical situation indicates that while fewer farmers maintain active KCC accounts, the average loan size per active account appears to be increasing.

The decline represents a significant shift in rural lending patterns, with traditional KCC mechanisms facing reduced demand despite their continued importance in agricultural financing. The data suggests structural changes in how farmers access and utilise credit for agricultural activities.

Improved Farmer Incomes Drive Reduced Credit Dependency

A senior government official highlighted that farmers' incomes have improved over the years, leading to reduced dependency on traditional credit mechanisms. This income improvement has resulted in many farmers transitioning away from farming altogether, contributing to the decline in active KCC accounts. Better financial stability among rural populations has decreased reliance on institutional credit for agricultural operations.

The shift reflects broader economic changes in rural India, where diversified income sources and improved agricultural productivity have enhanced farmers' financial resilience and reduced their dependency on formal credit channels.

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Alternative Credit Sources Gain Market Share

Rural borrowers are increasingly diversifying their credit sources, with many preferring alternative financial institutions over traditional public sector banks. The preferred alternatives include cooperative banks, Non-Banking Financial Companies, and input-linked credit options like fertiliser cards. This shift toward alternative lending channels is reducing drawdowns from traditional KCC accounts in public sector banks.

Cooperative banks, in particular, have gained favour due to their localised approach and understanding of rural credit needs. NBFCs have also expanded their rural presence, offering more flexible terms and faster processing compared to traditional banking channels.

Structural Shifts in Rural Lending Ecosystem

The decline in active KCC accounts indicates multiple structural shifts occurring in rural lending practices. Financial inclusion initiatives have created more diverse credit options for rural populations, while digital lending platforms have simplified access to alternative financing sources. Technology adoption in rural areas has enabled farmers to explore non-traditional credit mechanisms.

Government initiatives promoting financial literacy and digital payments have empowered farmers to make informed choices about credit sources, leading to more competitive dynamics in rural lending markets.

Average Loan Size Implications and Market Concentration

The combination of declining account numbers with rising outstanding amounts suggests that remaining KCC users are borrowing larger amounts per account. This concentration could indicate that smaller farmers are moving away from formal credit channels while larger agricultural operations continue to rely on institutional financing for expanded activities.

The trend may also reflect consolidation in agricultural holdings, where fewer but larger farming units require higher credit limits for mechanisation and technology adoption.

Policy Implications for Agricultural Finance

The evolving rural credit landscape presents both challenges and opportunities for policymakers. While reduced dependency on formal credit indicates improved rural prosperity, it also requires reassessing traditional agricultural finance mechanisms. Banks need to adapt their rural strategies to remain relevant in changing market conditions.

Conclusion

The 1.8% decline in KCC accounts to 22.5 million in public sector banks during FY25, alongside a 2.2% rise in outstanding amounts to ₹41,300 crore, reflects fundamental changes in India's rural lending ecosystem. 

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