Fix Banks for Farmer’s Woes

It’s banks’ responsibility in waiving farm sectoral loans and avoiding farmer’s suicide

By Prabhalar Kulkarni

Indian Political rulers have so far accorded priority to urbanization and industrialization thereby neglecting rural India which forms majority of voters in the country and has therefore the very basis of Indian democracy. Banks have also neglected the farm sector even though the central authority of the Reserve Bank of India (RBI) has allowed them the discretionary power to provide adequate credit to the farm sector as also waiving off the loans of the distressed farmers.

The truth has now come out that banks have denied both the adequate credit and waiver of loans to farmers with the result that more than three lakh farmers in the country have resorted to suicides and the condition has continued even today.

According to National Crime Records Bureau’s latest farmers’ suicides data, 80 percent farmers who killed themselves had taken loans from banks and finance companies (not by private money lenders) and they were under the debt-burden due to conditions beyond their control.

But the banks have not waived their loans even though farmers were distressed due to drought and other adverse conditions. These institutions have reportedly waived off loans of over Rs 2 lakh crores taken by industrialists and corporate units in their own discretionary power.

While industrialists and corporate giants did not demand for waiver to the Union or state governments, farmers are expected to demand for waiver and are still demanding with appeal to the Union government.

Why this discrepancy? Why banks have not waived loans of the distressed farmers and not prevented their suicides?

This writer asked the RBI as to why there is discrepancy in waiving off loans by banks to industrial and corporate sector and denying the same facility to the distressed farmers. The reply received is shocking and disclosing as to how banks can be said to be responsible for farmers’ suicide.

In its reply the RBI has sent a circular pointing out that Chairmen of all commercial banks are allowed to take policy decisions regarding credit and loan waiver and the farm sector is included in it. The section 2 of the circular No. BPBC 21/1/04095 Dt. 28th July 1995 states, that each bank should decide loan and recovery policy, manner of recovery of dues, targeted level of reduction, norms of permitted sacrifice/waiver of loans etc.

The circular’s section 3 (b) points out that proper distinction should be made between willful defaulters and borrowers defaulting in repayments beyond their control.

The circular has allowed all commercial banks to take decision regarding loan waiver. But is the farm sector included in the list for loan waiver? When asked again this specific question, the RBI replied, “It is advised that the circular (dated July 28, 1995) in reference is applicable to all the loans of banks, including those to farm sector.”

What about the co-operative banks? I requested the RBI by next mail –“Now please let me know whether similar policy discretion is given to District central co-operative and urban co-operative banks in the country.” The RBI has not yet replied this query. The reply is necessary because the RBI has control over co-operative banks also and has taken action in cases of some erring co-operative banks.  It is now clear that despite the circular banks have not considered the farm sector in their policy of loan waiver even though the RBI wants the farm sector to be included in the policy.

NABARD (National Bank for Agriculture and Rural Development )  which is established for protecting farmers’ interests and intervening by keeping liaison between banks and farmers has failed to question banks in this regard and to compel them to waive distressed farmers’ loans. This may be because farm sector is not represented in the NABARD’s board of directors, strangely enough when the bank is formed for the farm sector. 

According to the circular the authority to waive off loans of distressed borrowers was to be entrusted by boards to the banks’ regional managers who have however not used it in the cases of the distressed farmers but have used in the cases of industrialists and corporate borrowers. The ‘modus operandi’ is reported to be to restructure the loans under NPAs and later waive them.

The main question is why banks have kept cordial relations with corporate sector and the industry and avoiding the peasantry. The Mallya phenomenon is a glaring instance wherein the State Bank of India takes the lead and consortium of seven banks offer loans of Rs. over Six thousand crores which are now reached to the NPA of Rs 9000 crore. Without paying any amount Mallaya left the country. The way he was offered loans, the procedure was strictly followed or not, the recovery of the defaulting amount are other points which need to be disclosed in public interest. Mallay has reportedly stated that nothing can be done to him as banks and even the media is well maintained by him with all types of the entertaining strategy to maintain cordial relations.      

When asked about this situation, chief of the united action committee of bank officers and employees unions, Vishwas Utagi said that not one but there are seven thousand Mallyas and these willful defaulters are above 25 lakh and one crore of loan arrears and are defended by banks . For write offs to clear banks’ balance sheets the amount has now reached to 3 lakhs crores. The farm sector is neglected by banks by not offering 18 percent credit to the farm sector as per the budgetary allotment and not providing any relief to the distressed farmers. The nexus between the rich, the big and powerful borrowers and banks is now disclosed by the CBI’s charge sheet against the then chief of the Industrial Development Bank of India (IDBI) Yogesh Agrawal and other officers as also against Mallaya and Kingfisher’s officials. But will the case be further followed by arrests, prosecution and punishment? Questions, Vishwas Utagi.