Why no ‘CDR’ for farm loans?

Farmers are more ethically committed to debt repayment than corporates.

If corporates can have their debts restructured, surely the same can be done for farmers.



Bowed by the weight of centuries he leans,

Upon his hoe and gazes on the ground,

The emptiness of ages in his face,

And on his back the burden of the world.

Edwin Markham



More than a century after American poet Edwin Markham so expressively painted the plight of the farmer, not much has changed for the “Man with the Hoe”, at least in India.

More than 2,50,000 farmers are reported to have committed suicide between 1995 and 2010, mainly on account of indebtedness. What is striking about these deaths — based on data from the National Crime Records Bureau — is that they have often arisen from the inability to repay sums as small as Rs 60,000 to Rs 5 lakh.

Moreover, the suicides have been reported from across the country. No State or region seems to have been immune to these recurrent tragedies.

Consider this:

November 21, Palakkad, Kerala: Peruvampu Chandran, 55, an award-winning dairy and rice farmer, consumes poison, unable to repay a Rs 5-lakh loan taken from the local agriculture cooperative bank.

December 6, Jalpaiguri, West Bengal: Robin Barman, 55, a potato farmer, hangs himself unable to repay debts, as his realisations from the crop, at Re 1 per kg, plunge far below the estimated production cost of Rs 5. His loan amount: Rs 2.5 lakh.

December 25, Keonjhar, Orissa: Dilip Kumar Nayak, a 27-year-old graduate who took up farming, consumes pesticide, unable to repay a loan of Rs 60,000.

It does not require a Friedrich Nietzsche to tell us that “the value of any life is inestimable,” definitely worth much more than the Rs 60,000 to Rs 5 lakh that these ill-fated victims owed.

But as our public policy discourse and chat-shows are predominantly urban and corporate-oriented, these suicides have neither shocked nor shamed the policy-making establishment. That includes even the banking sector. Anybody with anything to do with this sector ought to feel vicariously culpable in the withering away of so many lives on this issue.

CORPORATES FAVOURED

This casual indifference is in marked contrast to the way corporate indebtedness is grabbing all the attention and focus, what with the travails of sectors such as aviation being played up in the media. The humdrum farm sector does not have the same glamour quotient and is, therefore, condemned to be the poor country-cousin in any national-level discussion.

The media, including the financial dailies, is no less guilty here, as there is little attempt on its part to go into the details of individual farmer suicides or see it as a reflection of the state of our agriculture.

The lopsidedness of our policy priorities comes out clearly when one looks at the kind of efforts being made at addressing financial distress in the corporate sector.

According to reports, the first half of the current fiscal alone (April to September) has seen restructuring of corporate loans totalling some Rs 34,560 crore under the Corporate Debt Restructuring (CDR) mechanism. And this does not include the mega liabilities owed by the big airline companies.

The important thing here is that there is an established Reserve Bank of India-approved mechanism when it comes to dealing with issues of corporate loan delinquencies.

These involve extended moratoriums (during which no repayments at all need to be made), elongation of the repayment period itself up to 10 years, reduced rates of interest, provision of ‘funded' interest term loans to those unable to service even the interest component, conversion of cash losses on working capital into term loans, additional finance, and even conversion of debt to equity.

It is quite the opposite in respect of agricultural debt relief. Although there are serious systemic issues plaguing the farm sector, problems of indebtedness meet with sporadic or knee-jerk response at best. And whenever a relief package is announced, it tends to go to the other extreme of fostering or encouraging a culture of non-repayment, that too, among people with a credit morality much higher than those in the corporate sector. We have seen this happen even in the course of the Agriculture Debt Waiver and Debt Relief Scheme of 2008.

What the agriculture sector actually requires is not one-time waivers and write-offs as much as an institutionalised structure similar to the CDR mechanism, so that lenders have a regulator-approved route map ready when they deal with the problem of a farmer unable to service debt. Currently, in practice, neither the borrower nor the lender has the ability, expertise or experience to think of solutions through a process of restructuring of debt.

But what bankers fail to realise is that these borrowers are just the right and deserving candidates for assistance through restructuring of debt. Right, because they are sons of the soil, permanent residents near the lending branches (unlike corporates and other borrowers who shift their bases often), own land (even though small/marginal) and, most important, have ethical commitment to repayment (again unlike corporates, which tend to take a non-sentimental, impersonal approach to issues of indebtedness).

Though macabre, the question that arises while making such comparisons is, why do we not see any reports of corporate suicides taking place?

After all, there ought to be distress on account of debt in this sector, too. Instead, there are instances galore of corporate honchos of sick companies jet-setting by business class, while the top executives of the banks that lent them the money travel cattle-class in the same flight!

FARM DEBT RESTRUCTURING

India went in for a CDR mechanism as early as 2001 to address the issue of corporate indebtedness.

It provides a voluntary and non-statutory but institutionalised platform for corporates with borrowings of above Rs 10 crore to sort out their finances.

There is even a provision that if 75 per cent of the creditors by value agree to a debt restructuring package, the same would be binding on the remaining creditors.

The CDR mechanism has served corporates and banks well, as any stressed asset can be brought under restructuring, subject to certain norms.

There are no such arrangements for agriculture, where different lenders (commercial banks, primary agricultural cooperative societies, etc.) can come together on an institutionalised platform, to deal with debt issues specific to a particular crop or region.

Similar codified debt restructuring procedures need to be worked out at the individual-farmer level.

An Agricultural Debt Restructuring (ADR) mechanism on the lines of the CDR is an idea whose time has come. If policymakers frame an ADR to deal with agricultural indebtedness, then one could at least say that farmer Chandran and others have not died in vain. That is the least we owe the “Men with the Hoe”.

(The author is with State Bank of Mysore. The views are personal.)

Published on January 10, 2012

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