Debt relief, subvention push farm loans by co-op banks

The trend of farm credit disbursal by cooperative banks, which had dipped below the target in 2007-08 and 2008-09, has reversed in the last two years.

This is largely due to the government’s debt relief and rehabilitation package, which has encouraged sanctioning of fresh loans, and concessional loans to farmers without the lenders incurring additional costs.

According to an estimate of the agriculture ministry, in 2007-08, the credit disbursal target for cooperative banks was fixed at Rs 52,000 crore, but the actual achievement was Rs 48,258 crore, a shortfall of 7.7 per cent. In 2008-09, the banks fell short of the target by 19 per cent to Rs 46,192 crore.
 

MONEY MATTERS

2008-09

 Target ActualA/C Co-op Banks 55,00046,1921.78 Comm Banks195,000228,9512.02 RRBs30,00026,7650.76 Total280,000301,9084.56

2009-10

 Target ActualA/C Co-op Banks 45,00063,4972.04 Comm Banks250,000285,8002.05 RRBs30,00035,2170.73 Total325,000384,5144.82

2010-11

 Target ActualA/C Co-op Banks 45,00063,4972.04 Comm Banks250,000285,8002.05 RRBs30,00035,2170.73 Total325,000384,5144.82 NOTE: Figures of target credit flow, actual achievement is in Rs crore and the number of bank accounts opened are in crores
*Source: Ministry of Agriculture

The situation, however, changed when in 2008, the agricultural debt waiver and debt relief scheme started and there was a rise in the applications for fresh loans.

“The debt relief scheme enabled farmers to re-apply for fresh loans leading to surge in credit flow,” said B Subrahmanyam, managing director, National Federation of State Cooperative Banks.

In 2009-10, the target was Rs 45,000, and the actual achievement was Rs 63,497 crore, a rise of around 42 per cent. The number of new accounts rose from 1.78 crore in 2008-09 to 2.04 crore. In 2010-2011, the actual credit flow through cooperative banks exceeded the target by 26 per cent to Rs 69,076 crore.

According to the provisional figures, a total of 3.01 crore small and marginal farmers, and 0.67 core other farmers benefited from the scheme, which involved debt waiver and debt relief of Rs 65,318.3 crore.

“The interest subvention announced by the government for banks has also helped in reducing the gap between cost of loans and cost of deposits, and made them healthier,” he said.

He said before the interest subvention, farm credit flow through cooperative banks did not rise by much because the interest on farm loans was around seven per cent, while the cost of mobilising deposits was around 9-10 per cent.

“It was not affordable for banks to aggressively pitch for raising credit flow. But, now after the two per cent interest subvention was announced by the government, this gap has come down,” Subrahmanyam said.

Crop loans up to a principal amount of Rs 300,000 is made available to the farmers at a lower rate of interest of seven per cent per annum.

In order to incentivise the prompt repayers, the government first provided an additional one per cent interest subvention from 2009-10 to those farmers who repay their short-term crop loans as per schedule. This subvention was raised to two per cent in 2010-11, and by another one percent in 2011-2012. Thus, bringing down the effective rate of interest for such farmers to four per cent per annum from the year 2011-12.

Though scheduled commercial banks disburse the bulk of the farm credit, the role of cooperative banks has also been steadily increasing. In 2010-2011, of the total Rs 4,26,531 crore farm loans disbursed, the share of scheduled commercial banks was more than 70 per cent. But, the role of cooperative banks is also steadily rising.

“The health of state cooperative banks is improving, but much more is needed to be done. We have requested the finance ministry to constitute a separate organisation for cooperative banks as the current set-up has failed to meet its objective in entirety,” he said.