For the past three months, none of the employees of Orissa State Cooperative Agricultural & Rural Development Bank Ltd (Oscard Bank) or its 47 associate banks have received their salaries. The reason? The banks have a cash flow problem as farmers have stopped repaying their debts thanks to the Rs 60,000-crore loan waiver announced by finance minister P Chidambaram in his Budget speech. For these banks, which were set up to boost agriculture credit, that announce-ment spelled immediate trouble.
The affected 300 bank employees hail from the same socio-economic background as many of the farmers whose loans have been waived. ?The farmers have simply stopped repayments since February, anticipating the loan waiver. As we do not have any other financial products to offer, we have no cash left to pay for salaries,? says Bijay Das, deputy general manager, Oscard Bank.
The Orissa banks are part of a nationwide network of 31 two-tiered, state-level cooperative agricultural & rural development banks and their 730 associate entities at the district level. These banks notionally fall under their respective state governments, but receive refinancing from Nabard. This week, Nabard has called for a meeting to sort out a bailout package for the affected banks.
The situation is similar in neighbouring West Bengal. The state cooperative bank?s gross non-performing assets have increased from 5.01% on March 31, 2007 to 5.89% on March 31, 2008, with the bulk coming from the agriculture sector. Rajendra Kumar Sahu, an employee of the bank at Khurda, said staff had simply stopped going to the field for loan recovery, as farmers were unwilling to pay anything back. Around 500 employees of these banks have opted for voluntary retirement schemes in the last six months due to the irregular payment of salaries.
That situation is unlikely to change, despite the possible bailout package as the very existence of these banks is now under a cloud. In 2006-07, the Orissa state government offered a Rs 220-crore bailout as a one-time settlement to clean up their balance sheets. The cumulative refinance disbursement to commercial banks, state cooperative banks, state cooperative agriculture & rural development banks, regional rural banks and other financial institutions by Nabard is pegged at Rs 8,622.37 crore.