 "RBI begins probe into diversion of agriculture loans")
Concerned over diversion of agricultural lending for unintended purposes Reserve Bank of India has begun probe to get to the bottom of problem and take steps for curbing malpractices.
Banks have often discussed cases of borrwers using money for purpose other than farming. However, the information is sketchy. There is a need for further systematic assessment of it, a top RBI executive said.
"The Central bank has already done preliminary work on flow of loans to agrculture and intends to carry out detailed examination," he said.
According to RBI data, the credit to farming and allied areas grew by 11 per cent to Rs 7,77,900 crore in 12 months ended May 2015.
The growth rate in agriculture credit was higher at 16.8 per cent in previous 12 months with outstanding amount of credit at Rs 7, 01, 100 crore in May 2014 and Rs 6, 66, 600 crore in May 2013.
Public sector bank executives said prima facie the high overall subsidy, repayment to money lenders and weak monitoring of credit usage at ground level seem to contribute to such diversions. The gold loans, which are categorised under farm loans is also one grey area.
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Interest subsidy diverted to bank deposits
The crop loans get central govt' subsidy (interest subvention) of two per cent and some state governments provide upto four per cent subsidy over and above the central govt subsidy.
The interest subsidy on farm loans is intended to reduce the financial burden on the farmer. In many instances, instead of using that for agriculture work, the borrower puts that money in fixed deposits.
"It is win-win situation for borrower and branch. Borrower gets cheap money which is parked for interest income and branch gets to book loan and also raise liabilities. This is a business done without serving the purpose and that too at cost to exchequer- - public money from budget of governments", said a senior official working with the National Bank for Agriculture and Rural Development (NABARD).
Top executives of a public sector bank said there are also instances where banks have given loans to buy tractors to be used for farm activity. But the tractors gets deployed for construction activity (renting for transportation).
Money lender's obligations
A senior manager with the State Bank of India said many a times farm loans (from banks) are inadequate to meet requirements. So farmers are forced to avail loans from informal sources (money lenders) at very high rates and on stiff terms.
When it comes to repaymets, money lenders often apply pressure to clear their dues first. The farmers often uses part of the funds from bank loans to payback the money lender, the SBI executive said.
Weak monitoring- a big challenge
Agriculture lending is essentially being done through branches in rural areas. With large number of customers spread over a vast geographical area, the branch staff also is pressed for time to do detailed scrutiny, PSB exexutives pointed out.
All commercial banks are now on Core Banking System (CBS) platform which captures information on transaction. A analytic software could be used for tracking nature of disbursements of farm loans. This could throw up clues on usage, said a NABARD executive.
Gold loans- a surrogate for consumption credit
Bank executives said loans extended against gold and gold jewellery by banks are categorised as farm credit and forms about 30 per cent of agriculture and allied sector credit.
RBI sources say gold loans are prominent in the Southern states. As a thumb rule, about 50 per cent of gold loans are presumed to used for consumption needs.