Farm loan moratorium hits ryots' credit worthiness

The moratorium on private farm loans declared by the state government, instead of helping farmers, has undermined their credit worthiness and sown seeds of mistrust and ill will between them and traditional private lenders in the villages of Krishna and Guntur districts.

The policy makers seem to have not considered the agricultural loan scenario prevailing in villages. Most of the private lenders are locals and relations between them and the farmers date back to two to three generations.

Now with a moratorium in force, the lenders refuse to give fresh loans to farmers. They are organising themselves and pondering over ways and means to recover loans from farmers. They fear that the small lenders among them, who have loaned all their hard-earned savings to farmers, may resort to suicides.

But the farmers have taken the stand that if the moneylenders put pressure on them for loan repayment, they would complain to the authorities, who are instructed by the government to stringently act against forceful loan recoveries.

Narrating to Business Standard on what was happening in the countryside, Rayapudi sarpanch M Seshagiri Rao said, "The government has not studied the sequence and timing when a farmer goes for private loans. He somehow gets a loan from a cooperative bank of which he is a member or from a commercial bank. He completes sowing of seeds or transplantation. The banks give Rs 6,600 an acre for paddy, Rs 9,500 an acre for cotton and Rs 12,500 an acre for mirchi. When the crop's growth is halfway through, the saga of his private borrowing begins. He borrows from private lenders, borrows for fertilisers and pesticides from dealers, and he borrows big amounts for weeding, harvesting and threshing. The private lenders and dealers collect 24 per cent interest per annum from him."

"With the borrowed money, the farmer funds his kids' education in corporate institutions and professional colleges, marriages, other functions, and other household exigencies, hoping that he would be able to clear off the piling-up debt immediately after selling the crop. When the crop fails, as has been the case in the Krishna delta during the last three years due to drought, he would default. And if he fails to get remunerative price, he takes to the streets. The desperate among them would resort to suicides," Rao pointed out.

A commercial bank officer, on the condition of anonymity, said genuine and total farm loans disbursed by the banks in the state amounted to only 4-6 per cent of the total target fixed for them by the Reserve Bank of India.

"To show target achievement on paper, banks show a number of industrial loans as farm loans. Grameena banks serve farmers better than commercial banks or co-op banks. The value of loans advanced by them is higher than that of the loans given by commercial and co-op banks put together. But Grameena banks do not have powers to waive loans or reduce interest rates and they cannot reschedule loans. If they are given these powers, it would be a solace to farmers. And 99.5 per cent of farm loans are always recovered," he said.

He cited the instance of gold loans also. "Gold loans are meant for agriculture sector only. But banks sanctioned majority of the gold loans to non-agriculturists, showing them as farmers on paper. These non-farmers, who should pay 18 per cent interest, are paying only 9.5 per cent as pseudo-farmers," the bank official said.

A progressive farmer, G Krishna Rao, said that not all farmers were fortunate enough to get bank loans.

"Banks are somehow averse to giving farm loans. The bank officials grudgingly sanction and while rescheduling loans, collect old loans with compound interest, which ultimately works out to 18 per cent. If a farmer fails to repay loan to the co-operative bank, his share capital is not entitled for profit."

Moreover, the banks through the farmers' passbooks take possession of their total land as security for a small sum. The farmer cannot approach other banks for additional loans.

"The banks also decide how much he should spend on each farm input. This is the most irritating part of the farm loans. When a farmer fails to repay the gold loan, the bank officials would auction away his jewellery without giving him enough time for mobilising funds and repaying the loan amount," Rao pointed out.