Yavatmal: The Vidarbha region in Maharashtra has been in the news for a few years because of a spate of farmer suicides. To understand the impact of the government’s populist farm loan waiver scheme in this region, Mint has partnered with Dilasa, a non-governmental organization that works in rural Maharashtra. Dilasa’s volunteers, in the run-up to the deadline of 30 June, visited farmers, banks and local administrators in Vidarbha’s Yavatmal district and filed daily reports on the waiver scheme.
As the cut-off date for the debt waiver package draws near, small rural banks in Maharashtra’s Vidarbha region are overcome by a new fear — that the massive loan write-off will only encourage good debtors to turn bad.
Outstanding concerns: Farmers at Bank of India’s Thanegaon branch in Vidarbha. Banks fear it will now become difficult to recover loans. Photograph: Mehak Kasbekar / Mint
Bank officials say that farmers who have been prompt in paying back their loans may now start defaulting on them in the hope of benefiting from a similar scheme in the future, And bad debtors will remain bad.
The scheme is skewed towards defaulters. Banks have been instructed not only to write off their outstanding dues, but also provide them new loans.
A surging default rate could lead to a cash crunch at banks, clog the credit delivery system and eventually push several small banks near the brink.
“I have no clue as to how the outstandings will be returned to the bank,” said Shalik Burde, manager of Central Bank of India in Maregaon taluka, or a subdivision of a district comprising several villages.
The Rs71,680 crore debt write-off announced as part of the Budget for fiscal 2008-09 will benefit 43 million farmers nationwide.
“Farmers are queueing up at the banks every day to know more about the waiver. It will become more difficult to recover outstanding loans from farmers. This could trigger huge losses for banks,” said Kishor Pawar, an employee of Yavatmal Central Cooperative Bank in Maregaon taluka.
Agrees Vasant Chatte, at Yavatmal District Cooperative Bank in Maregaon. “Ninety five per cent of those who were promptly paying instalments have defaulted hoping to be covered by the waiver package. There are some 1,500 farmers who owe Rs1.5 crore to the bank. The outstanding dues have put us in a tight spot.”
Many farmers who were making timely repayments have bitterly criticized the debt waiver, saying it would have been better if the government had raised the minimum support price that state agencies pay for farm output or offered subsidies on seeds, fertilizers and pesticides. Such measures would have been easy to implement and would have ensured uniform benefits, unlike the complex waiver package, which has excluded farmers who were in most distress. “I did not repay my loan in anticipation of the waiver. Now, I am told that I do not qualify,” said Vitthal Shamrao Matthe. “I married off my daughter this year. Now, I have to arrange for the wedding of my two other daughters. My land is rain-fed and there has been no rain so far. What should I do?” Like Matthe, many other farmers are groping for answers.
The president of District Yavatmal Central Cooperative Bank — the biggest lender to farmers in Yavatmal — is a strong backer of the farm package. Manish Uttamrao Patil says the package is a “win-win” deal for both banks and farmers. While banks will get to clean up their balance sheets of bad loans, farmers will be debt-free and able to borrow again to invest in production.
But Patil cannot say for sure when his bank would be able to advance new loans.
“We will be able to give new loans when we get funds from Nabard (National Bank for Agriculture and Rural Development) and Maharashtra State Cooperative Bank. But as of now, there is no sign of the funds,” he says.
It would take at least a month to process the new loan applications, Patil adds.
Meanwhile, local politicians are threatening an agitation against banks if the fresh loans are delayed beyond 1 July.
Bankers say they are only too happy to give fresh loans, but they ought to have the money first to advance. Recovery of past loans has dropped to about 5% for cooperative banks since the announcement of the waiver. This has resulted in liquidity problems, especially for cooperative banks.
Some banks say they are yet to be reimbursed for the Rs10,000 across-the-board agricultural loan waiver doled out by the Central government headed by then prime minister V.P.Singh in 1990.
“The latest waiver is an attempt to bring down the cooperative banks. This is a political stunt,” says a farmer in Yavatmal, who did not wish to be identified. He says only the politicians clamoured for the waiver, and no farmer in Maharashtra ever demanded it. “This scheme will make farmers addicted to frittering away agricultural loans.”
But Patil of Yavatmal Central Cooperative Bank says the package is aimed at small and marginal farmers. He says he does not expect another waiver in the next 5-10 years.
Patil’s bank has been carrying advertisements in local newspapers, advising farmers to be prompt with their loan repayments. “Defaults hurt farmers the most,” he adds.