Loan waivers have made banks wary of them; beneficiaries are farm infra/services firms
BL RESEARCH BUREAU
Every year the Centre announces an increase in the agri credit limit, but not even half of this reaches small farmers.
Small farmers typically take small loans — of less than ₹2 lakh. RBI data show that in FY17, the share of loans of ₹2 lakh or less was just 40 per cent of the total agri credit of ₹10.78-lakh crore.
In contrast, loans between ₹2 lakh and ₹1 crore accounted for 47 per cent of the disbursals, and around 13 per cent of the total agri credit was accounted for by loans of ₹1 crore or more. Loans of over ₹100 crore were sanctioned to just 210 accounts (individuals/entities).
Speaking to bankers and market veterans revealed that the bulk of these subsidised loans — at 4 per cent interest rate — are taken by owners of warehouses/cold storages, manufacturers of fertiliser/farm-equipment, and food processors.
The share of loans of ₹2 lakh or less in the total agri credit has gradually decreased from 45 per cent 10 years ago to 40 per cent in FY17.
Banks have been wary of lending to small farmers mainly because of the spate of loan waivers in recent years. The waivers have destroyed the credit culture in rural India, said a banker who spoke on condition of anonymity.
For Union Bank of India, which allots 60 per cent of its agri loans to small and marginal farmers, NPAs formed 7.62 per cent of the agri book in the September 2018 quarter.
The other reason why banks avoid lending to small farmers is that they are unable to price the loan as per the profile of the farmer or the commodity, observed Arindom Datta, Asia Head, Sustainability Banking, Rabobank Group. “Internationally, loans against riskier commodities are given at higher rates of interest compared to safer commodities. Further, banks make a distinction between a good and a bad farmer based on the repayment track record and tweak the interest rate accordingly.
“But banks in India cannot apply such differentiated pricing to farmers in the same region as it is a sensitive issue. So they keep away from small farmers,” said Datta.
Lending rule change
It’s only since March 2015 that banks have been set specific targets on lending to small and marginal farmers. There was no such requirement earlier.
A loose definition of agri credit has led to the leakage of loans under Priority Sector Lending (PSL) at subsidised rates to many large companies. Though the RBI had set a cap of 4.5 per cent (under the overall 18 per cent target for agri in PSL) for indirect loans, bank advances through indirect loans routinely breach the limit. Such indirect loans were made to dealers/sellers of fertilisers, pesticides, seeds and agricultural implements, and companies that maintain a fleet of tractors, threshers, etc., and undertake work for farmers.
Therefore, in 2015, the RBI dispensed with the distinction between direct and indirect loans and redefined agri credit to cover three categories: (i) Farm Credit, which includes short-term crop loans and medium/long-term credit to farmers, (ii) Agriculture Infrastructure, and (iii) Ancillary Activities. For lending to small and marginal farmers, a target of 8 per cent was also set within the overall target of 18 per cent, to be achieved by FY17.
This, however, is not seen as a happy situation. A farmer-activist who spoke to BusinessLine said: “Should we take comfort that at least 8 per cent will now go to small farmers or be upset that what started as 18 per cent is now effectively only 8 per cent?”
Data reveal that in FY17, private banks fell short of even this 8 per cent target — the proportion of advances made to small and marginal farmers was 5.5 per cent against the total agriculture advance of 16.5 per cent of all advances.
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