UBI, Dena offer soft loans to distressed farmers

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The finance minister, P Chidambaram urged banks to devise a loan product to free marginal farmers from the clutches of moneylenders. In his recent meeting with government bank chiefs, wanted banks to come out with soft loans so that farmers could be saved from the exorbitant rates charged by money lenders, rates of which go as high as 40% a month.

A few banks have already kicked off such schemes though many are yet to launch such a product. Union Bank of India, for example, has launched a pilot programme five months ago and is all set to launch the scheme across the country. “The idea is to provide a debt swap to those distressed marginal farmers that have taken loans from the money lenders at unrealistic rates,” said MV Nair, chairman & managing director of Union Bank.

“We have structured the product that was launched in Andhra Pradesh on a pilot basis. We will extend the reach, two phases, so as to cover 17,000 villages by the year-end,” Nair said.

Under the scheme christened ‘Union Sahay’, the bank has given loans up to Rs 10,000 to self-help groups, which in turn will distribute to needy farmers at a nominal rate of 10%. The loan will have a repayment period of five years. According to D Khole, deputy general manager of the bank, the unique feature of the product is that there are no collaterals. “So far we have identified 50 branches of our bank in the state of Andhra for implementation and we have disbursed Rs 45 lakhs loans under the scheme," Khole said.

Canara Bank, however, has earmarked a larger sum of up to Rs 50,000 each at 7% per annum for deserving farmers when compared with Union Bank. However the bank is still in the initial phase and it could take a while before implementing the same. According to MBN Rao, chairman & managing director, Canara Bank: “The RBI guidelines states disbursements could be as high as Rs 50,000 each for the distressed farmer and we will soon come out with a new scheme in that direction.”