Credit Management (Assignment I) - NIBM 2026 Solved case study and assignments

 

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Course: Credit Management (Assignment I)

NIBM, Pune

Assignment

Farm Credit to Mr. Nijalingapa – A Case Study

                                               Basic information about the borrower

Mr Hari, the head of Haveli village branch of Surya Bank, has received a request from Mr Nijalingappa, a resident of one of the financially included villages within the branch’s jurisdiction. Nijalingappa is a big farmer owning 35 acres of irrigable land at one place (25 acres inherited from his parents and 10 acrespurchased out of his farm income @ Rs. 10 lakhs).The guideline value of the land in the village is Rs. 100,000 per acre. The soil type of his farm is red loam and he normally cultivates Paddy followed by Groundnut and then Pulses. The other members of his family are his wife and a son. His son is an engineering graduate working for a software company.

There are four bore wells on his land each fitted with 7.5 HP pump. The other investments in his farm are two dieselpumps and underground pipeline system worth Rs.10 lakhs.

Five years back, he purchased a Tractor (50 HP) for his on and off farm use at a total cost of Rs.10 lakhs along with a Trailer, Cage Wheel, Plough and a Harrow.

To supplement his income, he is rearing four crossbred milch cows of which two cows are in first lactation and the remaining two cows are in second lactation. The cost of establishing the dairy farm including the cows (two years back)was around Rs.4 lakhs. He is a member of local Milk Producers Cooperative Society and selling the milk to the Society.

For his dwelling, he has purchased a 5000 sq.ft plot and constructed a house on the land10 years back. The cost of construction of the house was Rs.10lakhs. The remaining life of the house is expected to be 30 years. Presently the market value of the plot is Rs.200 per sq.ft. His family owns few financial assets including LIC Policies and Public Provident Fund (PPF) valued at Rs.5 lakhs.

Mr Nijalingappa is a member of local Agricultural Cooperative Bank. Three years back he availed a Crop loan of Rs.5 lakhs from theCooperative Bank and has repaid a sum of Rs.3 lakhs including interest, so far. The amount outstanding in the account is Rs. 2.5 lakhs.

Nijalingappa’s farm land is situated in a semi critical block as regards ground water availability. Hence the recharge of the wells is not adequate for his cultivation. Also during summer the wells become dry. Therefore, he is able to grow only two crops in a year. To improve the irrigation sources, he intends to deepen the existing bore wells. Also he wishes to buy six more milch cows.

Loan request by the intending borrower

Nijalingappa is one of the most valuable customers of the branch. Now, he has approached the Bank for loans for the following:

1. Term Loan for deepening the existing bore wells at a cost of Rs.4 lakhs.

2. Replacement of 2 pump sets at a cost of Rs.50000.

3. Dairy loan for purchase of 6 milch cows, cow shed andnecessary amenities at a cost of Rs.5 lakhs. 4. Tractor Loan for purchasing a Tractor(35HP) in order to replace the existing Tractor (50HP) at a cost of Rs.5 lakhs.

5. Crop loan for cultivating Paddy, Groundnut and Pulse crops on 30 acres of land.The prevailing scale of finance per acre for cultivation of paddy, groundnut and pulses is Rs.12,000, Rs.10,000and Rs.8,000 respectively.

According to Surya Bank’s Credit Policy equity margin to be stipulated for bore wells, tractors, pumpsets, and milch animals are 15%, 10%, 15% and 15% respectively.Similarly for extending Kisan Credit Card (KCC) limit the guidelines adopted by Surya Bank is as under:

 For farmers raising single crop in a year, the short term credit limit is calculated as follows:

a) For the first year:

Credit Limit = Scale of finance for the crop (as decided by District Level Technical Committee) x Extent of area cultivated + 10% of limit towards post-harvest / household / consumption requirements + 20% of limit towards repairs and maintenance expenses of farm assets + premium for crop insurance, personal accident insurance scheme (PAIS) and asset insurance.

b) For second & subsequent years:

Credit Limit = First year limit for crop cultivation purpose arrived at as above plus 10% of the limit towards cost escalation / increase in scale of finance for every successive year ( 2nd , 3rd, 4th and 5th year) and estimated Term loan component for the tenure of KCC, i.e., five years.The concerns of Mr. Hari are as follows:

· The major issues involved in sanctioning loans to Mr. Nijalingappa

· Whether Mr. Nijalingappa’s requests can be considered for crop loans under KCC? If yes, how much loan may be sanctioned?

· Limits to be extended for the second year, third year and so on?

· Investment credit to be sanctioned for the abovementioned purposes

· Margin for the loans

· Security for the loans

· Documents to be obtained

· Terms and conditions to be stipulated

Question.1. The major issues involved in sanctioning loans to Mr. Nijalingappa

In agricultural credit appraisal, banks follow a multi-dimensional risk assessment framework that includes technical feasibility, economic viability, financial stability, and risk mitigation capacity. Unlike corporate lending, farm credit is highly sensitive to natural uncertainties (rainfall, groundwater availability), price fluctuations, and biological risks, making appraisal more complex.

 

Question.2. Whether Mr. Nijalingappa’s requests can be considered for crop loans under KCC? If yes, how much loan may be sanctioned?

The Kisan Credit Card (KCC) is based on the principle of “composite credit limit”, which integrates:

• Crop production cost
• Consumption needs
• Farm maintenance expenses
• Risk coverage (
•  

Question.3. Limits to be extended for the second year, third year and so on?

KCC follows a progressive credit enhancement model, where:

• Each year = 10% increase
• Accounts for inflation + cost escalation

Year 1 = ₹3,

 

 

Question.4.  Investment credit to be sanctioned for the abovementioned purposes

Investment credit is guided by:

• Capital Formation in Agriculture
• Income Multiplication Principle
• Asset

 

Question.5. Margin for the loans

Margin represents:

• Borrower’s equity participation
• Ensures risk sharing
• Prevents moral hazard

Total project cost = ₹14.5 lakhs
Bank

 

 

Question.6.  Security for the loans

Agricultural lending uses:

• Primary Security (asset financed)

 

 

Question.7.  Documents to be obtained

Documentation ensures:

• Legal enforceability
• Priority charge
• Recovery rights

Includes:

 

 

 

Question.8. Terms and conditions to be stipulated

• Loans must align with cash flow cycle
• Crop loan → seasonal repayment
• Dairy → monthly cash flow repayment

 

 

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