Land can be auctioned if Kisan Credit Card loan is not repaid. What are the legal rights of farmers?

By Siddhi Jain | Updated: Oct 13, 2025, 13:53 IST

Defaulting on Kisan Credit Card Loan? Here's What Happens and How Farmers Can Legally Save Their Land

Kisan Credit Card Loan Default: Know Your Legal Rights Before Your Land Goes on Auction

The Kisan Credit Card (KCC) scheme was launched to provide farmers easy access to affordable credit, helping them avoid local moneylenders. Through this card, farmers can borrow at subsidized interest rates for essentials like seeds, fertilizers, pesticides, and equipment. But what happens if a farmer is unable to repay the loan on time? Can the bank really auction off the farmland? The answer is yes, but with several important legal safeguards that protect farmers’ rights.

What Is a Kisan Credit Card (KCC)?

Introduced in 1998, the Kisan Credit Card is a government-backed financial product designed to empower farmers by offering quick and low-interest loans for agricultural needs. Farmers can withdraw funds directly from their KCC account or make payments for farm-related expenses such as seeds, irrigation, or tools.

Under this scheme, farmers can generally avail of loans ranging from ₹50,000 to ₹3 lakh, depending on the size of their land and cultivation needs. The repayment period is aligned with the crop cycle—usually six months to one year. Those who repay the loan on time receive an interest subsidy of 2–3%, effectively reducing the rate to as low as 4% per annum.

What Happens If the Loan Is Not Repaid?

If a farmer fails to repay the KCC loan on time, the bank does not immediately seize the land. Initially, a few reminder notices are issued. However, if the borrower fails to make any payment for 90 days, the account is declared a Non-Performing Asset (NPA)—meaning the bank believes recovery is uncertain.

Once an account becomes an NPA, the bank begins recovery proceedings. This process typically includes:

Negotiation attempts between the farmer and the bank.
Legal notice for repayment.
If unresolved, land attachment and eventual auction.

How the Recovery and Auction Process Works

When repayment notices go unanswered, the bank forwards the case to the local administration or tehsildar. The outstanding loan amount is treated as revenue arrears, and the administration may temporarily seize the land as part of recovery efforts.

If the dues remain unpaid despite multiple attempts, the bank can proceed with a land auction under the SARFAESI Act, 2002. This law allows banks to sell mortgaged property without court approval.

The auction process involves:

Publishing the auction date and details in newspapers.
Giving the farmer a final chance to settle dues.
Conducting the auction if payment isn’t made.
Using the auction proceeds to clear the outstanding loan.
Returning any excess amount from the sale to the farmer.

When the Bank Cannot Auction the Land

Certain situations protect farmers from losing their land, even if they default on a KCC loan:

Natural calamities: If crops fail due to drought, flood, or disaster.
Government relief schemes: When loan waivers or moratoriums are announced.
Small or marginal farmers: If the farmer owns less than five acres of land.
Crop insurance coverage: When compensation from insurance is still pending.

In these cases, the government or bank may provide relief or extend the repayment timeline instead of initiating recovery.

Legal Rights and Remedies Available to Farmers

Even when auction proceedings start, farmers have multiple legal options to protect their property:

Loan restructuring: Requesting the bank to revise repayment terms.
One-time settlement: Negotiating a lump-sum payment to close the account.
Appeal to Debt Recovery Tribunal (DRT): If the bank violates procedures or acts unfairly.
Court stay order: Temporarily halting the auction.
Consumer court complaint: In cases where banks proceed without due notice or follow-up.

These legal routes ensure that farmers are not left powerless against aggressive recovery actions.

Auction Is Always the Last Resort

While the law allows banks to auction land, it is never the first step. Financial institutions usually prefer resolution and recovery through dialogue, settlement, or restructuring. If farmers proactively communicate financial difficulties, banks can extend loan periods or offer flexible repayment options.

The key takeaway: Never ignore repayment issues. If you face challenges, contact your bank immediately. Early communication and awareness of your legal rights can help prevent the worst-case scenario—losing your land.