Loan waiver worries Tamil Nadu co-op banks

Waiver of crop loans by the new government in Tamil Nadu has landed the cooperative banks in a fix.

Speaking to Business Standard here, S Raj Mohan, general secretary of the Trichy District Central Co-op Bank Employees Union, said that the state's decision to waive crop loans to the tune of Rs 6,866 crore would adversely affect the cooperative banking sector in the state. This might even lead to the closure of several cash-starved banks, he added.

Of the 4,436 primary agriculture cooperative banks (PACB), 1,150 are already in the red. Similarly, 11 of the 22 district central cooperative banks are in doldrums.

Highlighting the sad state of affairs in the sector, Raja Mohan said around 500 PACBs did not have a telephone connection as they were not able to pay the bills, while around 100 branches were deprived of power connection due to non-settlement of electricity bills.

In 2004, Finance Minister P Chidambaram announced the conversion of the short-term loans (crop loans meant for 10 months) into long-term loans of five-year period.

The FM had further directed the cooperative banks not to recover loans for a period of two years.

These decisions resulted in a blockage of loans to the tune of Rs 1,866 crore and as a result, the banks suffered a financial crunch, he said. Moreover, the Centre had not released any compensatory fund to the banks in Tamil Nadu, he added.

V Duraimanikam, general secretary of the Tamil Nadu Vivasayigal Sangam (TN farmers association), added that it was time to revitalise the banks as they were finding it difficult to give fresh loans to farmers.

The Rs 1,000- crore compensation announced by the state government for the waiver of crop loans was inadequate as the total amount due to the banks stood at Rs 6,866 crore, he said.

Earlier, the Vaidiyanathan Committee had recommended the release of Rs 15,000 crore as a rehabilitation package for the co-op banks. On the basis of the recommendation, the Centre announced the allocation of Rs 13,596 crore but the local government did not release its share of funds, he added.

In the three districts of Trichy, Permabalur and Karur, there are 341 PACBs. Duraimanikam said as many as 60 branches were facing closure as the total outstanding loan mounted to Rs 387 crore.