The Hindu Business Line : Banks may offer fresh loans to defaulting farmers

WITH the Government trying to create a human face for reforms and the Ministry for rural industries pushing for more farm-finance, bankers under the aegis of the Indian Banks' Association on Thursday met to draw up a scheme for distressed farmers. This is an attempt to prevent the situation that drives farmers to commit suicide as is seen widely in Karnataka and Andhra Pradesh where crop failures have been chronic, said a bank official.

"IBA met today to work out the details of a scheme whereby banks can offer fresh loans to defaulters who have come up for settlement. Banks typically shy away from farmers if they have defaulted once even if the situation that led to the default was not within his control," said one of the participants at the meeting.

Another issue was that of systemic rigidity. If the farmer defaults for more than three times (i.e. typically over three years) the Reserve Bank of India stipulates that he becomes ineligible for further loan sanctions, the new scheme envisages that he be given more chances say up to six to seven times provided he is not a wilful defaulter, he said.

The scheme worked out today will be presented to the Management Committee of the Indian Banks' Association (IBA) and if approved will be sent to the Finance Ministry and the RBI. With the regulators' nod in place, banks will be able to implement the same.

Meanwhile, the Chairman of Indian Banks' Association and the Chairperson of Nabard are likely to meet the Finance Minister to discuss a rural finance package, which may find a mention in the upcoming Budget.

"Borrowers who have not repaid due to natural calamities need to be given another chance. Banks should uniformly take this up and sanction loans, hence the need for IBA to design a scheme to suit the need," said a PSU banker, who was also present at the meeting. "We plan to give kisan credit cards to these farmers who have come up for the one-time settlement with us," he added.

At present, the Oriental Bank of Commerce is already known to finance distressed farmers. Apart from this, banks inevitably take part in the loan relief packages that are announced by the Union Government.

The default rate on agricultural loans across the industry is about 17 per cent in terms of volumes, while the corporate lending default rate would be about 20 per cent.

The State Bank of India had written off as much as Rs 620 crore in the financial year 2004 out of its agri-finance portfolio and Rs 600 crore in the financial year 2003.

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Banks may offer fresh loans to defaulting farmers