New Delhi: For the drought-prone districts of Sonbhadra and Mirzapur in Uttar Pradesh, this monsoon may snap a four-year dry spell and help banks speed the recovery of agricultural loans, says an upbeat rural banker.
Triveni Kshetriya Gramin Bank chairman Vibhas Kumar Srivastava’s optimism stems from forecasts of a bountiful monsoon in a region where drought is synonymous with defaults by farmers.
Good times: Customers at Triveni Kshetriya Gramin Bank, which has lent Rs850 crore to farmers
“We expect farm incomes to grow this year which will help them pay back their loans,” says Srivastava, whose bank has advanced Rs850 crore of loans to at least 200,000 farmers and artisans in the drought-hit areas of Sonbhadra, Mirzapur and Bundelkhand.
The rural banker spoke ahead of the expiry of Monday’s deadline for banks nationwide to display lists of the beneficiaries of a massive Rs71,680 crore farm-loan write-off announced by the Union government. Around 43 million small and marginal farmers are expected to benefit from the waiver, which some critics say penalises farmers who have been paying up their loans on time.
Triveni Kshetriya, which has one of the largest rural banking operations in the region, wrote off Rs170 crore of bad debt on its books under the scheme.
Drought may have caused them to default, but farmers in the area are progressive, ready to accept technology and willing to repay loans when the weather is kind, says Srivastava. Banks like his may be at the vanguard of the debt waiver, but aren’t the main source of financing in a credit market that’s been in a transitional phase.
The aggregate outstanding value of all loans taken by working-age Indians with incomes in 2006-07 was an estimated Rs195,000 crore, according to a study by research firm IIMS Dataworks.
“Nearly two-thirds of all loans were taken by rural borrowers, with the largest single share (one-third of all loans) availed through relatives and friends, followed by moneylender loans in rural India and banks in urban India,” said the study that analysed the indebtedness of Indians.
Retail lending is a relatively new phenomenon in the nation of 1.1 billion people where the middle-class has been traditionally wary of getting into debt and banks have focused on corporate customers.
In the cities, consumer borrowing took off in the late 1990s with banks offering loans to finance the purchases of houses and apartments, cars and other durables to beat a slowdown in corporate credit growth. When confronted by unforeseen financial needs or emergencies, Indians traditionally have turned to families or friends or to professional moneylenders rather than formal financial institutions, according to IIMS Dataworks.
“The incidence of loans from relations and friends and moneylenders however decreased as the income of borrowers rose, with banks becoming the major loan source for individuals with annual incomes above Rs1 lakh,” the IIMS study said. But moneylenders remain a significant force at all income levels and “obviously are still competitive within formal loan sources in urban as well as rural areas,” it added.
The report cited data showing that 24% of individuals borrowing from moneylenders in 2006-2007 also had bank accounts. These bank customers represented 20% of the moneylender customer base nationally and had outstanding debts to moneylenders of an estimated Rs14,000 crore, the report said.