Cost of Crop Loan Waivers
SBI Chairman Arundhati
Bhattacharya’s impromptu remarks on loan waiver promises of the States to the farmers
have attracted the politicians’ ire. Equity and discipline are two sides of the
coin of farm lending. If the Banks maintain equity, and care for lending
discipline more, borrower discipline would not take a toll.
Loan waivers announced by the
State Governments should be met by the state exchequer and not the centre,
Venkayya Naidu, the Union Minister said. But when the BJP announced it,
decrying the earlier moves of AP and Telangana Governments, it gained political
traction and the states demanded a cake in the bargain from the centre with several
like Maharashtra, Tamilnadu, Karnataka joining the chorus. Have farm loans
become unviable and farmers untrustworthy borrowers? Are there no alternatives
to rescue the farmers’ woes?
Unfortunately, lending discipline
is lax. Roll over of crop loan with interest as a new loan (this we call book
adjustment) and a small incremental credit for crops that take more loan
component than that is actually grown on the field has become the order of the
day. In South India, it is jewel loans that get accounted for as crop loans.
Otherwise one cannot find an explanation for only 20.9% of crop loans getting
insurance cover against the mandatory debit of premium for all the crop loans
disbursed.
Some grameen banks are debiting
processing fee and inspection charges for crop loans and that too without the
borrowers knowing it. On top, they charge interest on those debits if not able
to recover them.
Arm chair lending even for farm
sector has become the order of the day due to inadequate or lack of field staff.
Earlier, controlling authorities and even top management used to visit the
adopted villages as a semblance of identifying with rural credit activity. One
is hard put to find such visits. These are not wild allegations, but facts that
came out during the crop loan waiver evaluation done in Telangana by the
Development and Research services private limited.
Farmers did not fail the nation
in spite of failure of the monsoons, failure of governments not releasing the
promised incentives in time, insurance failing them year after year and markets
ditching them on the price front. But bankers failed the farmer and the nation
with absolute impunity. Any crop loan target set for them by the government is
shown to be achieved.
Earlier Loan write offs of 1990
for Rs.10000cr and Rs.70000cr of 2008 were a political stroke and were
criticised for lax implementation by the CAG Audits placed before the
Parliament.
Telangana Government
waiver scheme covers only institutional crop loan including jewel loans
outstanding as on 31st March 2014 up to Rs.1,00,000 per farmer family, spouse and dependent
children. It defined eligible short term production loan as loans given for
raising crops that are to be repaid within 18months and includes working
capital loan for traditional and non-traditional plantation and horticulture. Claims
are reimbursed by the Government on the basis of a certificate from the bank
that the waived amount has been actually credited into the farmer’s account.
Every lending
institution is mandatorily responsible for the correctness and integrity of the
list of eligible farmers under the scheme and the particulars of loan waiver in
respect of each farmer. All the bankers are expected to provide fresh loans as
the existing liability up to Rs.1lakh per farmer family has been picked up by
the state government under the scheme.
Evaluation exercise
revealed that the farmers to the extent of 70% are happy with the reprieve
given to them particularly because they were affected by severe drought for two
years in a row although they were unhappy that the waiver instalments were
released late leading to delay in release of fresh crop loans by the banks. Fresh
crop loans were inordinately delayed in 60 to 70 percent cases during 2014.They
wished that the state government would have released in one single go the
announced benefit.
55.5% was the share of the
crop sector in the total agriculture loans. Government of Telangana agreed for
writing off crop loans to an extent of Rs. 16,160crores constituting 76.19% and
gave detailed instructions to the banks after consulting the SLBC.
The State having more
than 80 percent of small and marginal farmers with loans from multiple
institutions and also from private lenders and traders faced problems in
addressing the competing demands on the claims for waiver.
Banks’ loan books and farmers’
land record passbooks proved equally non-transparent. Borrowers as well as
their parents with identical names figuring in different banks posed
impregnable identification issues requiring over six months for resolution at
the sub-district level before the first instalment was released.
Average loan amount
subject to waiver was a little less than Rs.55000 per farmer family against the
announced Rs.1lakh.
Major Public Sector
Banks had gross NPAs in Short term crop loans of the order of 2.4% in 2016 as
against nearly 8% in 2015.
DRS study came to the
conclusion that loan waivers are not a permanent solution to the recurring
problems of the farmers either due to man-made or natural calamities.
Solution lies in
appropriate insurance mechanisms with individual farmers and income insurance
as focus and not the crop insurance that takes threshold limits of crop yields
based on area affected historically.
South Korea that
supports agriculture sector ranking top among the world’s highest subsidy
providers, offers excellent example in this direction.
Korean farmers also get the
benefit of a comprehensive agricultural insurance scheme managed by the
National Agricultural Cooperative Federation (NACF) with reinsurance support on
a quota share basis from a group of domestic reinsurers. The government
supports the scheme in four different ways i) provides 50 percent premium
subsidies for crops and livestock; ii) acts as a reinsurer of last resort for
the liability in excess of 180 percent local market loss ratio;(iii) 100
percent of the NACF’s crop insurance operational expenses and 50 percent of
livestock insurance operational expenses are subsidized by federal government
budget; and (iv) It participates in product research and development. The
insurance coverage in Korea is voluntary.
It will be worthwhile
investment on the part of government both in terms of time and resources to
provide sustainable income insurance to the farmers on a pan India platform on
similar lines, so that the recurring demand for the loan write offs can be
warded off.
*The author is an economist
and risk management specialist and part
of the DRS Study Team.
http://telanganatoday.news/cost-of-crop-loan-waiver/250317
