Repayment Plan

Self-liquidating loans: Loans get directly

liquidated (repayment gets made) due to income
generation or rise in cash flow from the assets that
were acquired using the loans.
Loans utilized for purchasing/ producing assets
Assets inturn liquidate loans in the same
production period.
E.g. Crop loan acquired from bank was
used to raise yield which inturn
increased income / cash flow and
thereby was utilized in repaying
(liquidating) the loan.
 Partial-liquidating loans: Loans get directly
or indirectly liquidated (repayment is made)
due to income generation or rise in cash flow
from the assets that were purchased using
the loans over several time periods.
Cash flow or income is spread over several
years or successive production periods.
E.g. Tractor loan raised from bank may
directly or indirectly improve income
levels or cash flow over different
production periods.
 Non-self liquidating loans: Loans DO NOT
get directly or indirectly liquidated (repayment
is made) due to income generation or rise in
cash flow from the assets that were purchased
using the loans in any time period.
Cash flow or income has to realized from some
other sources to liquidate the obtained debt.
E.g. Loan obtained by a farmer to
construct a house or to travel abroad.
Thereby
Self-liquidating loans: Debt is
liquidated by how the debt gets
originated in the same production period.
Partially-liquidating loans: Debt is
liquidated only partially by how the debt
gets originated over several different
production periods.
Non-self liquidating loans: Debt is
never liquidated by how the debt gets
originated in any production period.
Question Time:
1. If the farmer takes up a crop loan, it is_______.
2. Loan taken for purchasing tractor, it is_______.
3. Education loan is __________________.
4. If a farmer gets loan to travel abroad, then it
is____________.
5. Loan obtained to travel abroad for improving skills is
____.
6. If a farmer acquires loan for purchasing land, it is _____.
7. If the farmer uses loan to construct a storage godown,
then it is__________.
8. If the loan is acquired for buying a house, then it is_____.
 Agricultural Term Loans
Loans are also available to farmers for the
activities other than seasonal agricultural
operations.
They are defined as loans with more than 18
months repayment period.
These loans are termed as Term Loan or
Investment Credit which are extended for up to 15
years.
Purpose: Dairy, plantation & horticulture, farm
mechanisation, Minor Irrigation, Lift Irrigation
schemes, land development activities, Sheep/
Goat Piggery development, Poultry development,
Inland fisheries, Sericulture, Rural Godowns, Farm
forestry plantations and other activities.
 Loans are provided from a period of 3
years up to 15 years.
The limit of collateral free term loan
has been increased from Rs.50,000 to
Rs.1,00,000.
Collateral ?
Pledge ?
Mortgage?
Hypothecation?
Repayment Plan

Types of Repayment Plans

Single Repayment Plan
The entire loan amount is to be cleared
off after the expiry of stipulated time
period. The principal component is
repaid by the borrower at a time in
lumpsum when the loan matures, while
interest is paid each year.
Also called as Straight-end Repayment
Plan (or) Lumpsum Repayment Plan
 Partial repayment plan or
Balloon repayment plan
Here the repayment of the loan will be
done partially over the years.
Under this repayment plan, the
installment amount will be decreasing as
the years pass by except in the maturity
year (final year), during which the
investment generates sufficient revenue.
Installment amount will include both
principal payment and interest payment
over the years.
 Balloon repayment plan
Partial repayment
plan is also called
as balloon
repayment plan, as
the large final
payment is made at
the end of the loan
period (i.e. in the
final year) after a
series of smaller
partial payments.
Example: Partial
Repayment Plan
 Amortized repayment
plan
Amortization means repayment of the entire
loan amount in a series of installments.
Spreading loan repayment over multiple
time periods.
This method is an extension of partial
repayment plan.
Amortized repayment plans are of two
types: a) Amortized decreasing
repayment plan
b) Amortized even repayment plan
Amortized decreasing
repayment plan
 Amortized decreasing
repayment plan
The principal payments remain constant over
the entire repayment period
The interest payments part decrease
continuously.
As the principal amount remains fixed and the
interest amount decreases, the annual
installment amount decreases over the years.
Loans advanced for machinery and equipment will
fall under this category.
As the assets do not require much repairs during
the initial years of loan repayment, a farmer can
able to repay larger installments.
Amortized decreasing
repayment plan
Amortized even
repayment plan
 Amortized even
repayment plan
The annual installment over the entire
loan period remains the same.
The principal portion of the installment
increases continuously
The interest component declines gradually.
This method is adopted for loans granted
for farm development, digging of wells,
deepening of old wells, construction of
godowns, dairy, poultry units, orchards etc.
Amortized even repayment
plan formula
Amortized even
repayment plan
Variable repayment plan or
Quasi-variable repayment
plan
As the name indicates that, various levels of
installments are paid by the borrower over
the loan period.
At times of good harvest a larger installment
is paid and at times of poor harvest smaller
installment is paid by the borrower.
Hence, according to the convenience of the
borrower the amount of the installment
varies.
This method is not found in the lending of
institutional financial agencies.
Reserve repayment plan or
Future repayment plan
This type of repayment is seen with borrowers in
areas where there is variability in farm income.
In such areas the farmers are haunted by the
fear of not paying regular loan installments.
To avoid such situations, the farmers make
advance payments of loan from the
savings of previous year.
This type of repayment is advantageous to
both the banker and borrower.
The bankers need not worry regarding loan
recovery even at times of crop failure and on the
other hand borrower also gains, as he keeps up
his integrity and credibility.
 Currently, what is the most
preferred repayment plan among
farmers in India???