Among the reasons why farm loans become difficult to avail of for small and marginal farmers might be the difficulty banks face in distinguishing between wilful defaulters and those genuinely desperate.
At a panel meeting held here on Monday as part of the ‘Inclusive Finance India’ summit, representatives from the banking sector and academia agreed that to bring in almost 80 million unbanked small and marginal farmers, there was much that required to be done just on the question of identification of those requesting a loan among other points meriting debates.
“While we have almost 1,800 feet on the street, we have a lot of difficulty in identifying potential beneficiaries. Digitisation of standard appraisal records is also negligible,” said Sarat Yadav, Deputy General Manager (Rural & Inclusive Banking), ICICI.
Arindom Datta, the Senior Director and Head of Rural and Development Banking of Rabo Bank India, felt that domestic lenders did not have a clear idea of nurturing agricultural value-chains. This, he argued, led to good farmers being left out of the fold since banks inevitably became cautious when farm loan defaults rose.
“As bankers, we have no idea of how inputs are bought although it’s why most small farmers approach us for loans. We are now trying to create a credit bureau to identify good farmers,” he said, adding that the system needed to be weaned off subsidies since it gave farmers an incentive to not repay loans.
The bankers also believed that the loan waiver scheme for debt up to Rs. 50,000 announced recently by Andhra Pradesh and Telangana could adversely impact rural banking with less farm credit availability and furthering of a subsidy culture.
New central fund
IIM-Bangalore Professor Trilochan Sastry, who is also associated with the Association for Democratic Reforms (ADR) and Centre for Collective Development (CCD), believed that the “power of aggregation” was the way forward and advocated for the creation of a separate Central fund, like the one provided for Operation Flood in the 1970s, to make agricultural profitable.
“Unless farming becomes profitable, rural banking won’t succeed. Small farmers today can’t get equity so a separate social fund must be created and the Government needs to think agricultural in terms of a business model,” he said.
Sastry added that collectivisation of farmers would see the cost of services reduced and improved linkages. Banks, he said, did not want to lend to farmers due to a combination of low interest rates and abysmal repayment rates.
For 2013-14, crop loans up to Rs. 3 lakh were disbursed at 7 per cent with the Centre providing interest subvention of 3 per cent. The scheme was extended to farmers borrowing from private sector banks. No security was required for loans up to Rs. 1 lakh and banks would decide collateral for loans greater than that amount.
“Cooperatives can help improve this problem, all the ones under us are profitable today. We were ruthless with wilful defaulters but sympathetic with the genuine cases,” he explained, adding that a “middle path” needs to be found for setting interest rates.