Agriculture loan

An agriculture loan funds the business of farming. This is not just growing a crop. It also covers related work, such as horticulture (growing fruit and vegetables) and sericulture (silk farming).

One thing makes an agriculture loan different from an ordinary personal loan. The booklet ties it directly to crop insurance. A farmer who takes an institutional loan is put under the government's crop insurance scheme automatically. The farmer does not get a choice in the matter. Borrowing and insurance are linked by rule.

Chapter 8's definition: "Agriculture Loans are provided to farmers to fund agricultural operations or related activities like horticulture, sericulture, etc."

Chapter 9 supplies the linked mechanism, through the Pradhan Mantri Fasal Bima Yojana (crop insurance scheme): "The scheme is compulsory for farmers who have availed of institutional loans." So taking an agriculture loan from a bank automatically brings the farmer under this insurance.

Under that scheme, if a crop loss occurs, the farmer is compensated based on the difference between a threshold yield — calculated from the average yield of the last seven years — and the actual yield achieved, with the level of compensation set by the degree of risk for the notified crop. Cover extends to a wide range of risks: droughts, dry spells, floods, pests, diseases, landslides, fire, lightning, hailstorms, cyclones and more, and the scheme also covers post-harvest losses for up to 14 days.

Bhagwan Singh, a wheat farmer in Punjab, takes an institutional agriculture loan of Rs 3,00,000 from his bank to fund a season's sowing, fertiliser and irrigation costs.

Because the loan is institutional, he is automatically brought under the Pradhan Mantri Fasal Bima Yojana. His farm's threshold yield, based on the average of the last seven years, is 20 quintals per acre. A hailstorm damages his standing crop, and the actual yield comes to only 12 quintals per acre — a shortfall of 8 quintals per acre against the threshold.

Under the scheme, he is compensated for that shortfall according to the degree of risk set for wheat in his notified area. Separately, if the hailstorm had instead struck his already-harvested, stored grain within 14 days of harvest, that loss too would fall within the scheme's post-harvest cover — a loss after harvesting is not automatically excluded just because the crop was already cut.

Chapter 8 (Borrowing-Related Products) defines the agriculture loan itself; Chapter 9's Pradhan Mantri Fasal Bima Yojana section supplies the compulsory-insurance link and its numbers. Expect the exam to connect the two: why an agriculture loan borrower is automatically insured, the seven-year threshold-yield basis, and the 14-day post-harvest cover.

• Fasal Bima Yojana is compulsory only for farmers who have taken an institutional loan — a self-financed farmer is not automatically covered.
• The threshold yield is the seven-year average, not a fixed government-set number — it varies by area and crop history.
• Post-harvest cover is limited to 14 days, not indefinite — a loss well after that window falls outside the scheme.
• Do not confuse an agriculture loan with a gold loan taken by a farmer to raise the same money — the booklet treats them as entirely separate loan types, and only the agriculture loan carries the compulsory Fasal Bima Yojana link.