The Hindu Business Line : What's good for stock players is good for farmers too

When the Sensex tanked after the new government came to power, the RBI did keep credit channels open to stock operators and the same principle needs to be applied to farmers.

BANKERS are quite unhappy over the Government relief scheme for farmers to non-institutional lenders as it amounts to banks paying off dues run up by the farming community in the books of money-lenders.

The scheme as framed by the Government and bankers seems a bit loony as banks will provide funds to farmers at interest rates between 10 per cent and 13 per cent per annum to prune their outstandings with money-lenders.

Usually, informal lending is priced at two per cent to three per cent per month and only sizable bank loans can bring down outstandings of farmers with the baniyas.

With banking channels still to be sensitive to their needs, the farmers will not like to snap links with informal channels, who promptly come up with the moolah at critical times; also, the baniya, generally, is interested more in the interest and less in the principal.

The relief measures, as circulated to bankers by the Indian Banks' Association (IBA), are intended to cover: a) existing farmer borrowers of the bank who have been regular in repaying loan with interest in the past except on occasions when they could not do so on account of factors beyond their control; b) non-borrower farmers in the service area of the branch.

The "indebtedness intended to be taken over from non-institutional lenders may be included as part of assessment of limits under the Kisan Credit Card Scheme" and for tenant farmers, "banks should adopt a group approach (SHGs or Joint Liability Groups) for granting relief against indebtedness due to borrowings from non-institutional borrower," says the IBA circular.

It is hard to believe that the scheme will work, as the better way to wean away farmers from the baniya is for banks to assure permanent and prompt credit lines at 10 per cent per annum, with or without collateral.

If the rains do fail this year, as it threatens to, it will be the best assurance to farmers till the 2005 monsoon.

There is no such mechanism in place and Nabard, which has done precious little, could help by getting the banks in a district to open emergency counters.

Farmers in most States, having lived through two to three droughts, do not have any collateral to offer except their famished selves and bankers should realise this point or else they should not be in the business of lending.

Rural and semi-urban deposits form the stable base for the operations of any bank; if banks have parked at least Rs 60,000 crore in repo to earn 4.5 per cent they could as well double their earnings by shifting funds to the farm counters.

It is coeval to keeping alive the cash flow lines to corporates when they are stuck in bad times.

When the Sensex tanked after the new government came to power, the RBI did keep credit channels open to stock operators and the same principle needs to be applied to farmers, who find the best relief in death.

The Special Scheme of restructuring past loans (no write-offs) for farmers will be helpful with the RBI telling banks that fresh loans granted to farmers post-relief, can be treated as standard assets.

Banks at the village level should by now be having the credit records of their clients as they have been in the business for well over 30 years. Regional rural banks, priority sector lending, rural branches of commercial banks and the co-operative credit structure should be having links in the countryside, making the job that much less hard.

But the question is have the various schemes started working and who is monitoring them? Again, can not Nabard step in?

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