Nervous banks roll out loan waiver

Tuesday, Dec 02, 2008

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BS Reporters / New Delhi July 1, 2008, 0:12 IST

List of beneficiary farmers ready.

Canara Bank Chairman & Managing Director MBN Rao spent his last day in office in Harohalli in Karnataka. His counterpart at Delhi-headquartered Punjab National Bank was in Sikar, Rajasthan, while State Bank of India Chairman Om Prakash Bhatt was busy in Dasna (Uttar Pradesh) for most part of Monday — the deadline set by the government to roll out its ambitious farm-loan waiver package.

All the chairmen were meeting farmers at some of these remote branches, distributing certificates under the Rs 71,600-crore farm debt-waiver and settlement scheme.

For most, the deadline has been met. It will, however, take a few days before banks issue certificates to four million farmers, who had not cleared their dues.

Farmers were generally a happy lot to see their names on the list and there were no major cases of missing names. Because of the loan waiver, Kailas Gaekwad, a farmer from Saswad near Pune, who received a letter from the Pune district credit cooperative society saying his loan worth Rs 70,000 has been waived, was happy that he had managed to evade the clutches of moneylenders.

OPEN SEASON
Bank	Amount (Rs cr)	Beneficiaries (No of farmers)
SBI	7,000	2.5 million
Canara Bank	1,400*	573,000
PNB	1,400	400,000
BoB	1,050	303,000
Union Bank	961	348,000
BoI	894	421,000
Uco Bank	637	NA
OBC	496	122,000
United Bank	220	152,007
Dena Bank	144	68,700
ICICI Bank	140	130,000
* Does not include amount under one-time settlement scheme (Source: Bank estimates)

"I was unable to repay the loan for many reasons and had approached a money lender. Now, I have got a letter from the bank saying my loan will be waived from July," he said. Bishan Singh, a 60-year-old farmer from village Raghunathpur near Dasna in Uttar Pradesh, too was thrilled having got a loan waiver of Rs 6,000.

Not everyone was so happy though. At a Punjab National Bank branch in Khera Pilkhuwa, around 40 km from Delhi, Amir Gulfam, who had availed of a tractor loan, said he had got relief of "only Rs 98,000" and will still have to pay the remaining Rs 3.36 lakh.

Then there were others who were ruing the fact that they repaid the loans on time. "Instead of giving debt waiver only to those who default, interest relief to all farmers would have benefited the farmers and saved the government from this financial burden," said Jayprakash Tyagi in Dasna, who had borrowed Rs 1.5 lakh last year. Tyagi had repaid his loan in nine months.

Under the scheme, the banks will waive the entire overdue short-term debt of small and marginal farmers, with land holdings of up to 2 hectares, up to March 31, 2007.

In addition, 25 per cent of short-term overdues of farmers holding more than 5 hectares as on December 31, 2007 will also be waived. However, such farmers will have to pay the remaining 75 per cent loan in three installments by Jun 2009.

Though farmers may soon have funds at their disposal, cooperative banks and regional rural banks (RRBs) – which account for over 60 per cent of the pre-poll package -- face a tight liquidity situation till the government releases funds. And, there is no clarity on when the government will release funds since banks have to first send details to the finance ministry.

"Compared to commercial banks, the rural cooperatives have limited room for raising resources through deposits. As a result, there may be liquidity crunch till the government release funds," said an executive at Nabard, which is still collating date for the rural lending set-up.

The refinance institution is now opening a special window to provide temporary liquidity support to rural cooperatives for which it may have to go for additional market borrowings. At present, the estimate of additional funds is Rs 7,000 crore, a part of which will be raised from the market at high interest rates.

Some farmers were found complaining of banks going slow on extending fresh loans. On their part, bankers said the go-slow approach was due to fears of higher defaults as farmers anticipate another such package in the future.

Nabard sources said that for RRBs, recovery rates have fallen in the last six months or so. "A year ago, the recovery rates were around 60-70 per cent. Now, they are down to 20-25 per cent. This is basically due to incorrect perception that all farmers are eligible for the waiver," an official said. The rise in defaults in recent months had prompted SBI to stop fresh loans for purchase of farm equipment, but it had to resume lending after North Block forced a review.

"Since the announcement of the debt relief package, a majority of the small and marginal farmers who have borrowed up to Rs. 50,000 under central government schemes have discontinued repaying," said a Punjab National Bank executive in Haryana.

Some bankers however, were still putting up a brave face. "We do not expect substantial deterioration in repayments. The bank has made it clear that this is a one-time scheme and they should be regular borrowers," Bank of Baroda Chairman and Managing Director MD Mallya said.

Dena Bank Chairman and Managing Director P L Gairola said that while providing loans, the bank is training farmers to change the repayment culture.

Shruti Srivastava in Lucknow, TE Narasimhan in Chennai, Vijay C Roy in Chandimandir (Haryana), Kaustubh Kulkarni in Pune, Mahesh Kulkarni in Harohalli (Karnataka), Prashant K Sahu in Dasna (UP), Niladri Bhattacharya in Kolkata and Shilpy Sinha & Abhijit Lele in Mumbai contributed to the story

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