Kisan Credit Cards and Money Laundering

KCC or otherwise called Kisan Credit Cards have become a tool in the hands of dishonest persons, which requires immediate control.

1. 1998 was the year when KCC was launched in India with an intention to provide immediate credits to Farmers.
2. Under this scheme, a Farmer is sanctioned Credit Limits for a period ranging from 3 to 5 years, with a onetime documentation and depending upon the Farmer’s requirements the same is renewed every year.
3. This obviously avoided the repeated screening process of papers by the banks and the Farmer had some relief through timely availment.
4. Not only the Farmers had the convenience of rescheduling the term loan repayment cycles, but also the rate of interest charged was reasonably low.

Misuse of KCC:

• Though KCC was a timely assistance for a needy Farmer, this was being misused by the Farmers, including those who were rich.
• Funds granted under KCC are often diverted to non-agricultural activities like Real Estates Investments, Purchase of Cars, Purchase of Jewellery, Children’s higher education abroad and other purposes.
• The quantum of land under cultivation is inflated to obtain the higher loan from the banks. They do this in two days:
  • When a land is owned by the borrower, they resort to DOUBLE DIPPING and avail multiple loans for the same land from different banks/financial institutions. Though this is required to be checked by banks/financial institutions, normally they do not resort to timely checks to identify such cases.
  • In case of leased lands, the oral lease agreement is allowed by banks and regulators. This facilitates the borrowers in inflating the quantum of loan, by disclosing fictitious lease agreements, which contain the only acreage with no identifiable details.
• Another point of concern for the borrowers is the source of cash that is being deposited in banks, in the form of repayment of KCC loan.
• In our country, most of the Agricultural transactions are done in cash which is permitted and banks do not question the source of income when deposited in an Agriculture Loan and is believed to have been generated from Agricultural activities only.
• Here comes the KCC a handy tool, to exploit the banking channel for layering and placement of black money generated through Real Estates, Indigenous money lending, and bullion traders, and converts the same into white in the form of KCC Loan repayment. Thus, it is strongly felt that KCC route is being used for money laundering.
• More vulnerability is through Revolving Cash Facility. Here, withdrawals and repayments happen within the prescribed limits, and thus facilitates the customer churn out small money in and out, for Terrorist activities.
• Terrorists’ activities are often missed out since it does not demand money in large scale but only in small level as and when required.
• KCC could also be used for NESTING. This is due to lack of adequate documentation requirements.  Deposits or payments could be initiated on behalf of someone which could be crime proceeds.

Conclusion:

• Banks should ensure to strengthen KYC norms.
• They should ensure to monitor end utilization of funds
• KYC policies and procedures should be tightened and extend KCC facilities only to the needy.
• Other tools that could be used to bring discipline could be – use of field intelligence, mystery shopping and Extensive data analytics.

Non-timely action and measures to curb the KCC menace may end up in another serious money laundering mess.