Farm credit: not yet on bankers priority list

Updated: Oct 11 2004, 05:30am hrs
Farmers are not yet the beneficiaries of cheaper credit, despite repeated assurances from the government and understanding with the bankers. The flow of credit to the rural sector is also likely to fall short of the target in the current year.

The bankers too have failed to keep up their commitments to contain interest rates to +/-2% of the prime lending rate (PLR) on loans extended to the self-help groups (SHGs), under the rural self-employment scheme. This has prompted the Union rural development minister, Dr Raghuvansh Prasad Singh, who recently wrote a letter to the finance minister, P Chidambaram. The number of pending applications for loans under rural self-employment scheme, has accumulated to 1,25,044 in the current year, till August.

In the latter part of the previous year, an understanding was reached between the Indian Bank Association (IBA) and the government, in the presence of the Reserve Bank of India (RBI), that the crop loans extended to farmers will carry interest rates of not more than a single digit level.

Mr Chidambaram, on June 18, 2004, assured doubling of the flow of credit to the farm sector in three years and suggested several measures for farmers-in-distress, farmers-in-arrears and one-time settlement for small and marginal farmers.

Speaking about the plight of farmers receiving crop loans with heavy interest burden, Krishan Bir Chaudhary, executive chairman of Bharat Krishak Samaj says : The commercial banks are still charging interest rate of an average of 12%. The cooperative banks in Madhya Pradesh and Uttar Pradesh are charging interest rates of 14% and more. The recovery of total interest amount is more than the principal amount at certain places.

Mr Chaudhary says that when banks can extend loans for purchase of cars at reduced interest rates of 7% to 8%, and for house construction or purchase, at interest rate of 7.25% with a recovery period of 20 years, why cant it charge cheaper interest on crop loans.

He suggests that all loans for farming operations, including the purchase of tractors, should carry interest rates ranging between 4% to 6%. Farmers are the backbone of the nations food security and they deserve cheap credit, he pleads.

The executive director of Punjab National Bank Dr KC Chakrabarty, however, defends the situation. He says: The most important thing is easier delivery of adequate credit to farmers in time. Our endeavour is to meet this challenge. Our bank has exceeded the target of 18% lending to the farm sector.

However, Dr Chakrabarty admitted that crop loans up to Rs 25 lakh has at times and places, carried double-digit interest rates. He says, Our interest rates vary between 8.5% to 10.75% on crop loans of Rs 50,000 to Rs 25 lakh.

Dr Chakrabarty shifts the onus to the crop insurance scheme. He says that the crop insurance scheme needs to be strengthened to prevent suicides by farmers. The strong crop insurance scheme can protect the farmer in the event of a crop failure and also help him repay his loans, he says.

The banks have also failed in their commitment to extend cheaper credit to beneficiaries, under the governments rural self-employment scheme for SHGs, Swarnajayanti Gram Swarozgar Yojana (SGSY).

During the conference of chief ministers and state ministers, for rural development between June 29-30, 2004 and in the meeting of the central level coordination committee of SGSY held on June 18, 2004, it was brought to the notice that interest rates charged from SGSY beneficiaries, were high and ranged between 10% to 12%.

Accordingly, the IBA issued a circular to all banks asking them to charge interest rates ranging between +/-2% of the PLR. In this context, Dr Singh says : The feedback received by us from SGSY implementing agencies, reflects that the banks are still applying varying interest rates and no reduction in interest rates has taken place. The state governments have requested that a uniform interest rate, charged within a slab of 4% to 6%, should be applied on loans under SGSY. On this basis, I have recently written to the finance minister, P Chidambaram to consider the issue of reducing interest rates.

As per the RBI directives, the scheduled commercial banks are expected to enlarge credit to the priority sector and ensure that priority sector advances constitute 40% of the net bank credit and that a substantial portion is directed to the weaker sections. Within the overall main lending target of 40% of the net bank credit, 18% is slated for agriculture and 10%, to weaker sections, which includes beneficiaries under SGSY. In this context, Dr Singh says : As the beneficiaries under SGSY belong to families living below the poverty line (BPL), it is necessary to earmark a specific percentage for them, within the earmarked 10%.

Dr Singh also points out to the delay in banks sanctioning loans to SGSY beneficiaries. Giving out figures, he says : In 2003-04, banks received 7,46,696 applications and sanctioned 4,51,458 applications, out of which loans were disbursed to 4,19,995 applicants. The remaining 2,56,951 applications are still pending. Similarly in 2004-05 till August, banks received 1,72,517 applications and sanctioned only 45,355, out of which loans were disbursed to 29,550 applicants. The remaining 1,25,044 applications are pending. He says banks should try to dispose of the applications within a month.

K Sivadasan Nair, chairman of the National Cooperative Agriculture & Rural Development Banks Federation (NCA&RDBF) reacting to the recent announcement of the finance minister to double the flow of credit to the farm sector, alleges that the government has gone one step forward and two steps backwards.

He says : The erstwhile NDA government had approved a Rs 15,000 crore recapitalisation package for ailing cooperative banks, subject to reforms, to be undertaken by the states in the cooperative sector. The present government, instead of taking this initiative further, referred the case of recapitalisation of cooperative banks to a taskforce headed by Prof A Vaidyanathan. The Vaidyanathan panel is now not considering the case of agriculture and rural development banks, which are specialised term-lending institutions in the farm sector.