Loan waiver aimed at reviving farm economy

Loan waiver aimed at reviving farm economy
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First Published: Fri, Feb 29 2008. 11 20 PM IST
Updated: Fri, Feb 29 2008. 11 20 PM IST
The announcement of a proposal to waive loans to small and marginal farmers to the tune of Rs 60,000 crore in the Budget is intended to revive the agriculture economy of the country.
Scheduled commercial banks (SCBs), which the Indian Banks Association (IBA) represents, are only part of the proposal. The total package includes regional rural banks and cooperative banks as well, which lend more to the rural people than SCBs. Thus, the SCB share of the whole loans component to be waived will be much less than is believed to be the case.
The announcement has two components—one, waiver of unpaid loans to small and marginal farmers below 2ha (about 5 acres) of land holding; the other, a one-time settlement for farmers willing to clear 75% of their debt. Only 25% will be eligible for subsidy.
Usually, a budget announcement is an intent. The scheme of how the cost is shared will be announced later. I think the net loss to banks from this scheme will be very minimal. Besides, the finance minister has also set a new figure for fresh disbursement of farm credit for the fiscal at Rs2.8 trillion. Though higher than the previous figure, it is sustainable.
This is because the bad debts accumulated earlier made a part of the universe of farmers ineligible for new credit. Now, after the waiver, they too will be eligible for fresh loans. That is, the 40 million farmers the Budget has identified as beneficiaries will become eligible for such loans.
Thus, the proposal is intended to bring several farmers hitherto ineligible for bank loans into the mainstream of farming, which is expected to boost agriculture productivity, ultimately leading to higher production and giving a further boost to the economy.
As told to B.S. Srinivasalu Reddy
M.B.N. Rao is chairman, IBA, and chairman and managing director of Canara Bank.
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First Published: Fri, Feb 29 2008. 11 20 PM IST