PRINCIPLES OF

AGRICULTURAL CREDIT -3Cs

and 3Rs of Credit.
 PRINCIPLES OF SOUND
LENDING:
• 1. SAFETY
• 2. LIQUIDITY
• 3. PROFITABILITY
• SAFETY: Safety of Funds, borrower should
be in position to repay the loan plus
interest. Repayment by borrower
depends on :
• (a) Borrower’s capacity (Tangible
Assets)
• (b) Willingness to pay ( by honesty &
character of the borrower).
• 2. LIQUIDITY: It means security of
assets which are easily marketable
without much loss.
– Bank lend funds for Short-term i.e. for
Working Capital, payable on
demand. Borrower’s Assets should
be easily encashable such as –
Goods and Commodities are easily
saleable as against Land and
Building. So liquidity is easier in
goods as compared to Fixed Assets.
3. PROFITABILITY : Banks are giving


loans to public to earn profit.

– Loan given by Bank is Depositor’s
Money. It is to be repaid along with
interest on deposit.
– There are expenses on staff’s salary
etc.
– Bank should not grant advances or
loans to unsound parties with
doubtful repaying capacity.
• 3 R’s :--
– 1. Return
– 2. Repaying Capacity
– 3. Risk bearing ability.
 Lending Agency should lend only those
projects or activities within the
formate of 3R’s (i.e. Principl’s of
Lending ). The project should be
 - Technically Feasible and
 - Economically Viable.
 CREDITWORTHINESS OF
BORROWERS:
• 3 C’s :--
– 1. Character.
– 2. Capacity.
– 3. Capital.
 1.CHARACTER: First consideration for a
person is the Character of the person.
It means a person must have a
number of personal characteristics of
a person, e.g. :
 1. Honesty.
 2. Integrity.
 – 3. Regularity.
– 4. Promptness in fulfilling his
promises & repaying his dues.
– 5. Sense of Responsibilities,
– 6. Good habits.
– 7. Good reputation and Goodwill in
the eyes of others.
 Thus, Excellent character is considered
as CREDITWORTHINESS OF THE
BORROWER BY THE BANK.
• 2. CAPACITY :--
– The borrower should possesses the
quality of successful enterprise,
which depends upon :-
– (a) The ability of borrower.
– (b) The Competence & Experience of
the Entrepreneur
(knowledgeable person)
– (c) Possession of Technical Skill.
– (d) Managerial Ability.
– ( e) Experience to run industry or
 – Thus, the soundness of business
projects with all above qualities of
CAPACITY, a loan can be sanctioned
by Bank.
–
 3. CAPITAL:- Borrower must have
adequate funds of his own to put in
the Business along with the borrowing
from Bank. So, borrower’s own Capital
should also be sufficient to realize
bank’s money.
• Following Principles should also be
considered :-
• 1. Nature of Security (Tangible or
Non-tangible.
• 2. Loan sanctioned should be
Adequate.
• 3. Timely availability of Credit to
borrower.
• 4. Proper End-use of Credit (as per
plan)
• 5. Repayment Schedule must be
related to repayment capacity of
• 6. Flexibility in Credit Mechanism
due to price fluctuation.
• 7. Counselling services to Farmers.
• 8. Branches should operate in their
area of operation only.