#India- The Vanishing Crores- massive swindling in the Rs74,000-crore farm loan waiver


Finance

 

 

 

Devinder Sharma, March 7, 2013:

 

The financial outlay is not matching the outcome. If institutional credit is not reaching the farmers, where is it going?

 

 

Following the disclosure by the Comptroller & Auditor General (CAG) of the massive swindling in the Rs74,000-crore farm loan waiver, announced in the 2009 budget with a lot of fanfare, the entire provisioning of the farm credit allocations have come under a cloud.

Roughly 8-10 per cent of the beneficiary farmers, which means no less than 35.5 lakh farmers did not get any advantage of the loan waiver, and similarly a large number of undeserving farmers walked away with the exemption to repay.

This exposure comes at a time when questions are being asked about who benefits from the significant increases in farm credit being provided for in every budget. In 2012-13, a budgetary provision of Rs 5,75,000-crore for farm credit was made. A year earlier, in 2011-12, Rs 4,75,000-crore was provided. According to Reserve Bank of India, between 2000 and 2010, farm loans increased by 755 per cent. Certainly this is a mammoth growth, and it provides all the reasons to cheer.

This year, finance minister P Chidambaram further enhanced the budgetary allocation for farm credit to Rs 700,000-crore. This is certainly a quantum jump. It gives an impression as if such large availability of farm credit is serving the small and marginal farmers very well, and that all is well on the farm front.

But somehow the growth in the disbursement of farm loans does not match with the real performance on the ground. With over 2.90 lakh farmers committing suicide in the past 15 years, and with another 42 per cent farmers wanting to quit agriculture if given a choice, the continuing agrarian crisis on the farm front is a clear indication that the massive farm credit year after year is either not reaching the beneficiaries or being thoroughly misutilised.

The outlay is not matching the outcome. If institutional credit is not reaching the farmers, where is it going? Time and again we have heard that agricultural credit plays an important role in improving farm production, productivity and mitigating farmer’s distress. Such exuberance in loan disbursal comes at a time when in a recent study on ‘Farm Credit’, the industry association Assocham analysing the disbursement of credit over the last decade, has listed misdirection in farm loans, increase in proportion of indirect credit by banks, misuse of interest rate subvention for diverting credit to other sectors, imbalances in quantity of credit in relation to size of the farm and crops they raise, and virtual exclusion of small and marginal farmers from institutional credit as some of the major problems besetting this sector.

Mute spectator

If you have underlined the last point in Assocham report, it tells us very clearly where institutional credit has failed to deliver. By excluding small and marginal farmers, which forms nearly 80 per cent of the agricultural workforce, hasn’t the government actually failed to reach the benefits to those who need it more? How can the Reserve Bank of India be a mute spectator to the visible misdirection, which in reality should be more visible to them, all these years? Isn’t it a callous oversight or is it deliberate?

A damming news report in a Hindi daily brought out startling reality. According to the report, a confidential document available with the ministry of finance categorically states that despite the increase in farm credit by over 2.5 times in past five years, less than 6 per cent of the total institutional credit is made available to small and marginal farmers. Ironically, the prime minister, the finance minister, the agriculture minister and the ruling party along with its army of economists and planners never get tired of telling the nation of the remarkable strides taken in reaching credit to small and marginal farmers.

In other words, less than Rs 50,000-crore of the Rs 7 lakh crore provided for farm credit will actually benefit small farmers. Remaining amount of Rs 6.5 lakh crore at 4 per cent interest will be misappropriated by agribusiness companies, warehousing corporations and state electricity boards. Why can’t the finance minister therefore segregate the farm credit to tell us how much of it actually goes to farmers, and how much in the name of farmers to other allied activities?

In 2007, of the total credit of Rs 2,29,400-crore advanced by banks, small farmers share was a mere 3.77 per cent. In other words, 96.23 per cent of the farm credit disbursed in 2007 was actually cornered by big farmers or agribusiness companies. In 2011-12, while total farm credit had swelled to Rs 5,09,000-crore (against a target of 4,75,000-crore) small and marginal farmers got only 5.71 per cent. It is therefore obvious that despite knowing where the fault lies the government had deliberately supported agribusiness companies (an increase in indirect credit by banks by enlarging the definition of agriculture) in the name of small and marginal farmers.

It is primarily for this reason that small farmers have been left high and dry. They are left with no choice but to depend on the money lenders who charge exorbitant interests. No wonder, the serial death dance on the farms in the form of suicides show no signs of ending. It has a lot to do with the non-availability of institutional credit.
(The writer is a noted food and agricultural policy expert)

 

 

 

 

RBI to banks: Don’t deny education loans based on location #goodnews #mustshare


by  Nov 9, 2012
If you are a student, looking for an education loan, you have some good news. Well almost. The Reserve Bank of India (RBI) in it’s notification has warned banks to not reject education loans to students just because the student does not fall under the bank’s service area.

Why: Because RBI has been been receiving a number of complaints where students have been refused educational loan as the residence of the borrower does not fall under the bank’s service area.

RBI has asked banks to issue suitable instructions to all their branches for meticulous and strict compliance of these guidelines. Reuters

Exemption: However the central banks also clarified that the service area norms are to be followed by banks in case of Government sponsored schemes for education.

What: RBI has asked banks to issue suitable instructions to all their branches for meticulous and strict compliance of these guidelines.

In mid August, Finance Minister, P Chidambaram had said to various Public Sector Banks, that education loan is a right of every student.

And, if any PSU banker was found rejecting a large number of education loan application, they could be penalised for rejecting the application.

Looks like, education loans norms are becoming student friendly, one step at a time.

 

INDIA -How power, metal sectors are in quagmire of indebtedness


Banking District

Banking District (Photo credit: bsterling)

 

Most loans under stress are largely in the two sectors

Shishir Asthana / Mumbai Aug 06, 2012,  BS

Moneycontrol report says Essar Steel is under stress for servicing its Rs 23,000-crore loan from banks. The company is 30 days behind schedule to make its interest payment. The report says that around 18-20 banks have provided the amount to the company, with one state-owned bank having an exposure of Rs 9,000 crore.

With over Rs 2 lakh crore of loans up for restructuring, market has been either focusing on high debts of individual companies or the entire sector, which is causing a lot of stress on banks’ financials. However, a recent report by Credit Suisse points out to the rising risk in the banking circle on account of concentration of loans to business houses.

In a report titled House of Debt, Credit Suisse points out that over the past five years while bank loan growth has been 20%, loans to 10 business groups have increased by five times. Their loan currently is equivalent to 13% of bank loans and more importantly it is 98% of banking system’s collective net worth. In terms of concentration risk, Indian banks are more risky than their Asian and BRIC counterparts. Concentration of top 10 groups to bank loans in China is 1% as compared to 13% in India.

The table shows the exposure of banks to various corporate groups. While average group debt to operating profit (EBITDA – earnings before interest tax depreciation and amortization) is 7.6 times, four of the 10 groups have an interest coverage ratio of less than one. In other words four of these groups are barely making enough profit to meet their interest payment.

Worst is that loans which are under stress are in largely the same sector (power and metals) across groups and in some cases to various companies within the same group.

Recognising their high leverage and poor profitability, these groups are looking at bringing to at asset sales under pressure from their lenders. Unfortunately the assets are all from the same sectors (cement plants/infrastructure/power) which are finding fewer buyers. In power sector each of these groups has 2,000-4,500 MW of capacities being commissioned over the next three years. These account for 70% of power plant to be commissioned by the private players and all of them face the same issues of gas/coal supplies and power purchase agreements (PPA) signed at much lower tariffs.

While market has factored in most of the issues of individual company and sectoral debt issues, inter-dependence of companies within the group, pledging of group company shares and guarantees of group companies make the issue trickier.

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