The Punjab government has written to the Union ministry of finance to investigate how private banks gave excess agricultural loans amounting Rs 17,000 crore to farmers in the state. As per a report in The Tribune, while Rs 42,000 crore worth of produce is sold in the state every year, the total crop loan advanced last year was over Rs 59,000 crore. Worse, this wasn’t a one-off showing—in 2014-15 and 2015-16, against the Nabard estimate of Rs 48,000 crore maximum loan that the entire Punjab farmer community can avail—given the acreage under cropping in the state and the Rs 40,000 per acre cap for crop loans—loans totalling over Rs 74,000 crore and Rs 63,000 crore, respectively, had been advanced. Going by land-holding and the per acre loan cap, the maximum loan that a marginal farmer can get is Rs 1 lakh. As per data from the state-level bankers’ committee, 30% of marginal farmers in Punjab got loans of over Rs 2 lakh each.
Most of the dubious advances have been given by private banks—the Punjab government has identified three leading private banks that have lent the most in this manner. Icrier researchers Anwarul Hoda, Ashok Gulati and Prerna Terway totalled the cost of agricultural inputs, including labour, in various years and found that while short-term bank credit funded 16.8% of the cost in FY98, it had risen to 84% in FY12 and to a whopping 100% in FY13. If all needs are taken care of by banks, they ask in their study, why is 44% of all credit to agriculture coming from non-institutional financers?
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Economists R Ramakumar and Pallavi Chavan found that 46% of the annual short-term credit extended to farmers in FY09 was made after the rabi sowing had ended, clearly hinting at leakages, a case made by the Punjab instance and the Icrier study. While the loan waiver Punjab has just announced, in a sense, rewards such leakages, the interest subvention scheme that the Centre has announced for farm loans does too.