Tag Archive Loan Waiver


Punjab: Why Short-Term Measures Like Farm Loan Waiver Will Not Solve Farmers’ Distress

The Logical Indian CrewPunjab


March 8th, 2019 / 6:35 PM

Farmers Suicide Punjab
Image Credit: Jagran (Representational)
Punjab is a northern state in India, comfortably nestled with five rivers flowing through the state. With a history of having several of its regions a part of the great Indus Valley Civilization, the state always boasted of its extremely fertile soil making agriculture a significant part of its economy. Rice, sugarcane, and cotton are grown in the state with wheat being the largest grown crop. Fruits and vegetables are also widely grown in the state. Punjab is considered the “Wheat bowl of India” since it produces up to 164.720 lakh net tons of wheat.

Heaven screaming for help

The state that paved way for the Green Revolution in the 1960s, has witnessed a drastic fall in the agricultural output over the years, with the farmers drowning in debt.  The cost of inputs like labour, fuel, and fertilizers have increased over the years with the price of output remaining stagnant. The once fertile soil has turned to be running out of water-retention capacity due to increased use of chemicals and pesticides. Inadequate rainfall adding to the woes of the farmers. The groundwater is being used to irrigate 73% of the land in the state which has led to a sharp decline in the groundwater levels. In addition, there are no regulations on the digging of tubewells.
Wheat and Paddy come under the category of crops with a guaranteed minimum support price (MSP). However, growing paddy is stripping the land of water that affects the fertility of the soil in the long term. The prices of other crop are uneven and unregulated. When the farmers try growing other crops, marketing and earning from them becomes tricky. With farming becoming increasingly impracticable, the small farmers are leasing their land instead of farming it to avoid losses. For all the reasons mentioned, the farmers resort to debt from the financial institutions or private moneylenders. These debt-ridden farmers when unable to repay the loans succumb to the pressures and commit suicide.

There are around 10.93 lakh farmers across Punjab, of which 2.04 lakh (18.7%) are marginal farmers (those having less than 2.5 acres of land), 1.83 lakh (16.7%) small farmers (those having 2.5 acres or up to 5 acres), and 7.06 lakh (64.6%) farmers have more than two hectares.
Captain Amarinder Singh, the Congress candidate, before 2017 Assembly Polls promised that his government would eradicate the instances of farmer suicide with a complete loan waiver scheme however with coming to power the scheme came with a catch.
The loan waiver scheme covered only those loans that were taken from banks and cooperative societies. It provided relief to marginal and small farmers for loans up to Rs 2 lakh availed from the lending institutions.

Debt-ridden farmers take their own lives

Source:  Tribune India

An astounding 900 farmers and labourers have reportedly committed suicide in the last two years.

The reports of several farmers committing suicide over a period of two years hint at the government’s failure to provide a safety financial cushion to them. The farmers who resorted to extreme steps of taking their lives have either not been covered under the waiver-scheme or had taken loans from private moneylenders. The Tribune reported that a 40-year-old debt-ridden farmer Gurmel Singh committed suicide after he was unable to repay the farm loans. In his suicide note, the victim cited mounting debts as the reason and stated that the state government did not provide any relief.

State Government’s reaction

Chief Minister Captain Amrainder Singh indulging in political blame- game, said states alone cannot do everything and they need assistance from the Centre as well. He was speaking during the launch of the third phase of his government’s loan waiver scheme at Anandpur Sahib on 24 January.

A permanent fix from the Experts

Senior Agricultural Economist, Professor Gian Singh says that loan waiver was not a permanent solution to farmers’ miseries. According to him, a permanent solution would be when the farmers do not need to take loans in the first place or if, at all they do, they are able to repay it with ease.
Director, Institute for Development and Communication, Professor Pramod Kumar said, “The answer does not lie in debt waiver, it lies in increasing the MSP [Minimum Support price] to increase the productivity. Therefore, the need is to rethink over the agriculture policy. The basic question is how to double the income of farmers that is the fundamental question which all these governments have started addressing now. The need is to involve policies which can increase the farmer’s income or double it so that farming as a venture becomes profitable or liveable.”

“If this is not done they [farmers] will never be able to emancipate themselves from the vicious debt cycle. The governments will come and waive-off loans but the farmers will continue to live under a debt trap till their income is not doubled.”


Telangana is Proof Farm Loan Waivers Aren’t a Long-Term Solution

The government has to evolve policies suitable to a particular state and fine-tune them according to local needs.

‘Nothing succeeds like success,’ first written by Sir Arthur Helps in Realmah in 1868, is going to guide political parties while they draft manifestos for the next parliamentary election. It seems that the Rythu Bandhu (RB) scheme – also known as the Telangana model of direct investment support (DIS) to farmers – has caught the imagination of our politicians. Odisha and Jharkhand have already announced a modified and improved version of this scheme while teams from various states have been visiting Telangana to study the RB model – a welfare programme to support farmer’s investment for two crops a year.
But did the RB model alone help the Telangana Rashtriya Samiti (TRS) sweep the recent assembly elections?
Farm loan waiver
In its manifesto, the TRS promised to waive farm loans of up to Rs 1 lakh. In fact, in the 2014 assembly elections also, the party had made a similar promise. The outstanding crop loans in 2013-14 were about Rs 14,897 crore. Initially, the government did not want to include loans taken against gold or gold jewellery, post-harvest loans and the ones to tobacco and sugarcane farmers.

However, due to widespread protest by farmers, all these were included in the write-offs and finally, the government paid Rs 16,124 crore to fulfil its promise. This is estimated to have benefitted nearly 36 lakh farmers. But due to budgetary constraints, the loan waiver was done in four instalments spread over 2017-18.

A question thus arises: why could the Rs 16,124-crore waiver not achieve its objective of making farmers debt free? Also, how will a waiver of another Rs 24,000 crore make their farming viable?
Rythu Bandhu scheme
The state government undertook a massive exercise of updating land records for the implementation of the Rythu Bandhu scheme. Teams of officers from the revenue and agriculture departments visited over 10,800 villages and verified 72.13 lakh land titles in order to free them from litigation. As part of the scheme, the state spent a total of Rs 12,000 crore during Kharif and Rabi seasons – Rs 4,000 per acre was given to land-owning farmers for each cropping season, irrespective the of size of land holding.
Refusing to learn from Punjab’s water crisis – which was aggravated due to free electricity – the Telangana government also announced that free power would be made available to farmers starting January 1, 2018.
The effectiveness of four years of loan waivers and one year of Rythu Bandhu in Telangana would be known only once data on over dues of farm loans and farmer incomes is released by NABARD, RBI and NSSO. The first two will do well to release detailed data on loan waivers so that the country gets to know the impact of frequent loan waivers on repayment behaviour of borrowers, and the benefit it brought to various crops grown by farmers.
Procurement of agricultural produce
Direct investment support on the lines of Rythu Bandhu is surely a better model than physical procurement of agricultural produce (except wheat and rice, which are required for PDS) or price deficiency payment, both a part of the Pradhan Mantri Annadata Aay SanraksHan Abhiyan. Price deficiency payment scheme was tried in Madhya Pradesh in Kharif 2018, but it failed in its objective because extensive paperwork and monitoring of mandis was required to make it effective. Moreover, traders’ collusion artificially depressed the mandi prices in Madhya Pradesh.

Telangana chief minister K. Chandrashekar Rao. Credit: Twitter

It does not, however, mean that states with a robust procurement infrastructure (like Punjab, Haryana, parts of UP, MP, AP, Odisha and Chhattisgarh) should immediately abandon procurement of paddy and wheat and take to DIS in lieu of procurement. This will result in an immediate crash in prices as the arrivals in mandis is concentrated over a short period of 3-4 weeks. DIS cannot compensate for this price crash and the farmers in these states, accustomed as they are to selling at MSP, are not going to accept such a situation.
Also read: Fact Check: Has the BJP Really Fulfilled Its MSP Promise as It Claims?
State-wise policies
So, the government has to evolve policies suitable to a particular state and fine tune them to local needs. In the last three years, especially after demonetisation, farmers have been hit hard due to the crash of prices in mandis. Neither loan waiver nor DIS addresses this problem sufficiently. Sustained reform of marketing of agricultural produce in mandis is necessary in order to free agricultural trade from the clutches of middlemen who decide the price a farmer gets at a mandi.
Several years ago, the National Egg Coordination Committee created a demand for eggs by highlighting its nutritional benefits. A similar campaign for processed and refrigerated food may create a demand for fruits and vegetables frozen through individually quick frozen (IQF) items. In a glut market, perishable produce can be bought by processors to be used for IQF. The country is now used to buying frozen peas and there is no reason why similarly processed vegetables and fruits cannot succeed in the market.
While repeated farm loan waivers will surely destroy the repayment culture, even a blanket DIS is unlikely to succeed in alleviating the distress of farmers if manipulation of mandi prices continues unchecked.


The Downside of Repeated Debt Waivers

The Downside of Repeated Debt Waivers

Debt waivers are supposed to help farmers make agricultural investments, repay future debts and tackle any other situation. But the history of waivers in India tells a different tale.

Credit: PTI

Credit: PTI

India is facing an agrarian crisis. There is no doubt that the majority of the small and marginal farmers are indebted. According to the Reserve Bank of India, the amount of outstanding loans given out for agricultural and allied activities by the regional rural banks has increased from Rs 1.80 billion in 1980-81 to Rs 1329.67 billion in 2015-16. According to the 2009 India Human Development Survey, the average outstanding loan for a household was above Rs 50,000. The most popular and yet most debated public policy response to tackle this problem of spiraling farm debts in India has been debt waiver programs.
The theoretical argument in support of debt waiver policies originated in the macroeconomic context of debt relief programs for low income countries. For instance, Bolivia received on average $614 million in foreign aid per year between 1998 and 2002 towards debt relief. These numbers went up further in recent years. Sachs, in his 1989 work, argues that a very high level of outstanding debt reduces the incentive for the debtor to exert effort to repay, a concept captured by the Debt Lafer Curve. Krugman shows that in such a situation a policy of debt forgiveness could induce the optimal level of effort from the debtor and maximise repayment. A similar logic can be borrowed in a microeconomic setting like the agricultural loan waivers. Farmers who run into huge debts, due to uncertainties associated with agriculture, are less likely to be able to come out of the debt trap without any help from outside. Debt waivers are supposed to help the farmer come out of the unforeseen situation, make agricultural investments and be able to repay future debts. The problem arises though, when we consider the specific history of farm loans waivers in India.
A typical agricultural loan contract in India uses land as collateral, which are freed once the loans are repaid. Loan waivers protect households from confiscation of their land by credit institutions in case of default. Effectively, the practice of repeated loan waivers, announced in the wake of state level elections, have contributed towards shaping an expectation among farmers about government intervention to free up their collateral in case of default. This has led to a loss of credibility in the enforcement of loan contracts between the farmers and the banks. The hope for future loan waivers is likely to have generated incentives among farmers to utilise agricultural loans for unproductive purposes and adversely affect agricultural investments.
While the debate regarding efficacy of loan waivers has gained momentum in recent times, agricultural loan waiver programs have been around for a while in India. In 1990, Prime Minister V.P. Singh announced a waiver of up to Rs 10,000 for agricultural loans per household. It cost the government Rs 100 billion to complete the waiver and it took the banks, involved in the scheme, nine years to recover the funds from the government. In the same year, the then chief minister of Haryana, Devi Lal, announced a Rs 2275 million waiver for both cooperative and commercial bank loans. In 2008, the UPA government announced one of the largest debt waiver schemes in the history of India, the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS). ADWDRS became the most prominent waiver program, at least partly because of its size – a massive Rs 716 billion. It also served as a precursor to the series of state level waiver schemes that followed. In November 2011, the Samajwadi Party government announced a debt waiver of Rs 17.20 billion for Uttar Pradesh, while the Andhra Pradesh (TDP party) and Telengana (TRS party) governments came up with their own waiver packages of Rs 240 billion and Rs 170 billion respectively in 2014-15. In 2016, the AIDMK party announced its waiver package of Rs 57.8 billion for Tamil Nadu as part of its election manifesto. Despite having the second largest fiscal deficit last year, when the BJP won the elections in UP, the state once again had a debt waiver package ready to be implemented. The BJP’s electoral manifesto had committed to write off loans of small and marginal farmers, which would approximately cost the government Rs 370 billion. The states of Maharashtra, Madhya Pradesh, Punjab, Haryana, Tamil Nadu and Gujarat are also in the pipeline to announce their own loan waiver packages, taking the cumulative loan waiver amount in the year 2016-17 to approximately Rs 3200 billion, equivalent to 2.6% of the country’s GDP.
Despite large sums of money being spent on these programs, little is known about their effectiveness. Are they really helping the farmer increase their productivity and pull them out of the debt trap?
Uttar Pradesh debt waiver scheme
To understand how potential beneficiary households respond to repeated waiver programs, we evaluated the UP Rin Maafi Yojana (UPRMY) announced in recent research (Chakraborty and Gupta 2017). Under UPRMY, a household qualified for a waiver based on the amount of loan borrowed and repaid. A timeline of the roll out of the waiver program can be seen in Figure 1.

Figure 1: Map depicting phased implementation of the UPRMY
Under the UPRMY, approximately Rs 1700 crore was disbursed as debt relief covering approximately 7.3 lakh farmers from 74 districts. The program was rolled in a phased manner over a period of three years from 2012-2015. About 42 districts received the relief package in 2012-13. In 28 districts, the program roll out happened in 2013-14. The remaining four districts received the waiver in 2014-15. Figure 2 tells an interesting story. Irrespective of which district received the waiver in which year, repayment rates fell dramatically right after the announcement of the waiver program, across all districts of UP. The average rate fell from 25%-50% in 2010-11 (pre-announcement) to 10%-25% in 2011-12 (post-announcement).

Consumption and investment behaviour of eligible vs. non-eligible households
We analyse the change in household behavior following the UPRMY using primary data collected in 2015 from 5,270 individuals in 770 households across six districts of UP. The districts were chosen to include regions from different phases of the program roll-out. Auraiya and Kanpur Dehat received the waiver in 2012-13. Agra and Firozabad received the waiver in 2013-14. We also include Lakhimpur, the only district that did not receive the waiver at the time of data collection and Sitapur, which received the waiver in 2012-13 and is adjacent to Lakhimpur. In each district a household qualifies for loan waiver if it had borrowed an agricultural loan of up to Rs 50,000 from the UP Gramin Vikas Bank. Further, the household was required to have repaid at least 10% of the borrowed amount on or before the programme announcement date.
Table 1: Household Behaviour In Response to UPRMY

Variable Received Loan Waiver Not- Received Loan Waiver
Consumption 41479 32728
Productivity 29397 38690
Income 52623 59051

Note: Consumption, is the yearly consumption expenditure in rupees; Income, is the annual income of a household; Productivity refers to the value of total production over farm size.
The average consumption value of households that received the loan waiver is roughly Rs 41,000, much higher than those of households who did not receive the waiver. This is in spite of the fact that the households that did not receive the loan waiver had a higher income and a higher level of agricultural productivity.
We delve deeper in to this apparent evidence of moral hazard using more rigorous statistical techniques. We compare differences in consumption and investment decisions between potentially eligible and not eligible households in districts that received the waiver vis-à-vis the differences between potentially eligible and not eligible households in districts that did not receive the waiver.
Our findings suggest that eligible households in districts that received the waiver had higher consumption expenditure, approximately by Rs 8,000 per year, as compared to non-eligible households. What is of greater concern is that eligible households also tend to spend significantly more on social events such as weddings, family occasions and so on. In addition, we find that eligible households had no significant productivity gain as a result of receiving the debt waiver compared to non-eligible households. Given that households in the same districts face similar agricultural shocks the insignificant productivity difference between eligible and not-eligible groups suggests a failure of the program to achieve its desired goals.
Rethinking policy interventions
Eligibility of households for loan waiver frees them up from debts and builds expectations of future credit availability. Consequently, the need to arrange for debt repayment falls. In other words, our results indicate, repeated debt waiver program have led to willful defaults. Farmers borrow from banks for agricultural investment but do not undertake the investment. Instead they use up the loan for consumption and are unable to repay the debt in the future. These findings, coupled with Figure 2 suggest that blanket waiver schemes lead households to stop repaying debts irrespective of their waiver eligibility status. This could be detrimental for the financial sustainability of this line of policy. It is important to note, however, that our findings do not speak against loan waiver programs altogether. Rather they warn against implementation of loan waiver programs based on simplistic eligibility rules that do not account for the actual needs of the farmers and the agricultural shocks they have faced. The agricultural sector in India is still vastly affected by scanty rainfall, poor irrigation facility and loans from private moneylenders with high rates of interest. A majority of the defaults could be a genuine disability to pay back due any of these reasons. However, a more thorough understanding is required regarding the effectiveness of different interventions. An alternate policy to explore is agricultural insurance which has seen an extremely low take up rate from farmers so far.
Tanika Chakraborty is assistant professor of Economics at the Indian Institute of Management, Calcutta, on leave from Indian Institute of Technology, Kanpur. Aarti Gupta, an angel investor by profession, has a Phd in Economics from IIT Kanpur, with her doctoral thesis on Loan Waivers in India.


Telangana Government GO on Crop Loan Waiver

140813 Loan Waiver GO Telangana
The eligible amount for debt waiver would be limited to the amount of loan (together with applicable interest), which is disbursed and outstanding as of 31st of March, 2014 or Rs.1,00,000 per farmer family whichever is lower. The farmer family is defined as head of the family, spouse and dependent children.
The following loans/accounts shall not be eligible under the Crop Loan Waiver Scheme.
a) Advances against pledge or hypothecation of agriculture produce other than standing crop
b) Tied loans
c) Closed crop loan accounts
Short term production loan means a loan given in connection with the raising of crops which is to be repaid within 18 months. It will include working capital loan, for traditional and non-traditional plantation and horticulture.
Implementation Guidelines of the Scheme
a) Preparation of list of farmers with outstanding crop loan dues and arriving at the amount of claim
i) Each lending institution – bank branch – which has disbursed short term crop loans to farmers shall prepare village-wise list of farmers with outstanding crop loan dues as on March 31, 2014 in the prescribed format (Annexure-A).
ii) Each lending institution, shall also prepare a village-wise list of farmers who have outstanding dues as on March 31, 2014 in respect of crop loans taken against gold in the prescribed format (Annexure-B).
iii) The list of farmers in Annexure-A and Annexure-B should be compared by the Bank Branch Manager and a final list of farmers who have outstanding crop loan and limited to a maximum extent of Rs.1.00 lakh should be prepared by the Bank Branch Manager in the format designed in Annexure-C. One copy of Annexure-A, B, C should be sent by the Bank Branch Manager each to LDM and District Collector.
iv) Some of the farmers might have taken crop loan/agriculture gold loan for crops from more than one bank branch of same bank or another bank. Hence, for eliminating the duplication/multiple financing and restricting the benefit of loan waiver of Rs.1.00 lakh per farmer family, a Bankers meeting at Mandal level will be convened by the JMLBC (Joint Mandal Level Bankers Committee) Convener. At the JMLBC meeting all the Banks will come with the lists of eligible farmers prepared in the proforma as in Annexure-A, B & C prescribed by the Government, and compare the list of farmers in Annexure- C with Annexure- C list of other bank branches in the mandal belonging to all the other banks (commercial, rural, cooperative). The mandal Tahsildar will also check all names in Annexure- C of all banks in the mandal and will verify if there are any fake pattadar pass books and also if all loanees have farm land. After this verification any false claims will be deleted. Then the farmer family who have availed loans from more than one bank branch will be identified by the JLMBC members. Their details will be recorded by the JLMBC in Annexure- D. The Co-op. Dept. auditors under the supervision of District Co-op. Audit Officer shall cross verify the A, B, C with D list pertaining to PACs and DCCBs. The DCAO shall allot the auditors to Mandals under his jurisdiction under intimation to the District Collector. A senior officer not below the rank of Deputy Collector and nominated by the District Collector will be the observer for this meeting. The Annexure-D thus prepared in JLMBC will be shared by all bank branches at the mandal level.
v) After comparing and deleting farmer family who have taken loan in more than one bank branch (Comparing Annexure C and D) each bank will prepare Annexure-E. It is to be noted that if a farmer family has multiple accounts but overall outstanding for crop loan is less than Rs.1.00 lakh, then their name will not be deleted. In case outstanding crop loan is more than Rs.1.00 lakh, then the name will be retained in the bank where the farmer family first availed the crop loan or where the outstanding amount is higher, the latter being the first priority. Annexure-E will be the final list of farmers bank branch wise who will be eligible for loan waiver.
vi) Annexure-E will be exhibited village wise and social audit conducted by a team consisting of MPDO, Tahsildar, AR (SDLCO)/Sl.& Branch Manager or his representative. After conduct of social audit and finalization of all objections received the final list of farmers bank branch wise will be prepared in Annexure-E (final). After the social audit and after taking into account the objections of villages, if any, a final village-wise list of eligible farmers along with the amount eligible for waiver shall be prepared Annexure ‘E’ and displayed at all bank branches after due authentication. The final list shall be sent to the LDM and the District Collector in Annexure-E.
vii) A District Level Bankers’ meeting will be convened (DCC) by the LDM and district details of loan waiver bank wise, farmer wise will be recorded and sent to SLBC in Annexure-E. SLBC will intimate Bank wise, Branch wise farmers eligible amounts to be released to the Government in Annexure-E.
b) Claim reimbursement by the Government to the lending institutions
i) The final list shall be consolidated village-wise and district- wise by convening a meeting of the District Level Bankers’ Committee. After consolidating all such lists from the districts, the banks would need to raise a claim with the Government, which would be reimbursed to the banks.
ii) After adjustment of loan waiver amount by the State Government, each branch shall certify the amount of outstanding crop loans waived after duly crediting the amounts in the crop loan accounts of farmers. Before crediting the amount, an undertaking should be taken from the farmer in that he shall repay the amount of waiver if it is found subsequently that he/she has fraudulently obtained the crop loan or is found not eligible for crop loan waiver under the Scheme. A certificate of loan waiver in Annexure ‘F’ shall also be issued by the bank branch to each farmer, whose outstanding loan has been waived. The amount of loan waiver shall be consolidated bank-wise for the entire State.
iii) A meeting of the JMLBC shall be convened within one month of the completion of procedures laid down in i) and ii) above.

After the completion of procedures in i) and ii) above, the auditors of the Cooperation Department shall take up the audit of Primary Agricultural Cooperative Societies to ensure accuracy of the waiver amounts and shall submit the audit report to the Chief Auditor. The books of accounts of every lending institution that has granted crop loan waiver shall be subject to an audit in accordance with the usual procedure prescribed by RBI / NABARD. The audit may be conducted by concurrent auditors, statutory auditors or special auditors.
Obligations of lending institutions
Every lending institution shall be responsible for the correctness and integrity of the list of farmers eligible under the scheme and the particulars of crop loan waiver in respect of each farmer. Every document maintained, every list prepared and ever certificate issued by a lending institution for the purpose of the scheme shall bear the signature of an authorised officer of the lending institution.
Monitoring and Grievance Redressal
There will also be a suitable monitoring and grievance redressal mechanism established at Mandal, District and State levels and every representation has to be disposed off within 30 days. Detailed orders in this regard would be issued separately.
Fresh Lending and agriculture campaign
Since the eligibility for loan waiver is decided based on the outstanding crop loan as on March 31, 2014, along with the interest on it computed up to the date of implementation to be notified by the State Government, and the liability will be taken over by the State Government. All the bankers should commence fresh lending of crop loans immediately. For clarity, it is reiterated that the eligible loan amount as computed by following the prescribed procedure shall be reimbursed irrespective of its renewal subsequent to 31-03-2014.
The Commissioner & Director of Agriculture,
Government of Telangana, Hyderabad.
Copy to:
The Principal Secretary to Chief Minister.
The P.S. to Hon’ble Minister (Agri & A.H.)
The P.S. to Chief Secretary.
The Finance (EAC) Department.
The Accountant General, Telangana, Hyderabad.
The Pay and Accounts Officer, Telangana, Hyderabad.


Memorandum to AP Chief Secretary on Loan Waiver

140622-Chief-Secretary-Telangana-final Download
Rytu Swarajya Vedhika has a submitted a memorandum with the following demands.

  1. As a first measure, the Government must delink the loan waiver proposal from distribution of Kharif loans for the current agricultural season and should immediately take action to disburse crop loans  without delay to all the farmers including Tenant farmers.
  2. While the farming community is in deep crisis due to indebtedness, loan waiver is not a solution to end the crisis. The crisis is still continuing even after the debt waiver and relief extended during 2008.   A comprehensive solution lies in bringing in policy changes related to all aspects of agriculture (Credit, input support, extension and marketing) as well as pursuing the land reforms agenda with renewed vigour to bring about a meaningful change in the agriculture sector to help close to 85% ofsmall and marginal farmersto secure and sustain their livelihoods. . A piecemeal, myopic solution to the problem in the form of loan waivers alone is a grossly inadequate solution to the larger, complex set of problems ailing the farming sector in the State.
  3. Tenant farmers, dalits, tribal and women farmers who received lands under various land distributionschemes do not have access to institutional credit. They are taking loans from private money lenders, input dealers or Microfinance Institutions at a higher interest rate (as high as 60% Rs. 5 per Rs. 100 per month).  These farmers  are in deep crisis and constitute a large chunk of farmers committing suicides. This loan waiver is of no help  to them.
  4. Government should make immediate effort to increase access to institutional credit to real cultivators.  One of the problems often expressed by the bankers in giving crop loans to these farmers is the lack of a guarantee for repayment. The state government should establish a Credit Guarantee Fund for small and marginal farmers which can give collateral security to the tenant farmers.
  5. All the real cultivators who are not covered under institutional credit are to be organised into cooperatives and linked to the institutional credit.  All their high interest private loans can be swapped with low interest bank loans.
  6. Loans of all farmers who have committed suicides since 1997 have to be waived and their private loans be swapped with no interest bank loans.
  7. Government should introduce special budget for agriculture with an allocation of atleast 10% of the total budget.
  8. Government must ensure that the loan waiver does not benefit non-cultivating, absentee land owners who have other major sources of income or livelihood and have taken loans in the name of agriculture. Specific mechanisms must be evolved to identify and eliminate the above categories of landowners from the purview of the loan waiver scheme. Further, steps must be taken to identify the actual cultivators and update the revenue records accordingly. Government must also actively explore mechanisms (e.g. setting up a separate Committee) for evolving a set of criteria to enable eligible farmers benefit from the loan waiver scheme in a meaningful manner.
  9. Government should also take care that the loan waiver does not apply to ineligible loanees through the following measures
    1. Restricting the loan waiver only to crop loans
    2. In case government decides to waive short term and allied sector loans, it should be restricted to small and marginal farmers only (up to 4 ha in rainfed areas, 2 ha in irrigated areas)
    3. Exempting Hyderabad district from the purview of the loan waiver. A thorough enquiry should be conducted and if need be waiver can be extended in the second phase. Pending this, the crop loan waiver up to one lakh for all farmers in the other district should be done immediately.
  10. Government should with stain from any effort to impose additional taxes or issue bonds and transfer the burden on to people or the next government.

Banks may write off Rs 7200 crore debt to microfinance institutions

MUMBAI: Banks that restructured Rs 7,200 crore of debt to microfinance institutions are staring at a possible write off as several of these institutions are finding it difficult to recover loans in Andhra Pradesh.
Lenders had bailed out microfinance institutions (MFIs) such as Spandana Sphoorty FinancialAsmitha MicrofinShare MicrofinTrident MicrofinFuture Financial Services and Basix in 2011 after the Andhra Pradesh government passed a law to regulate MFIs.
“MFIs have not been able to recover any loan. The restructuring has failed. They have not been able to recover any money from Andhra Pradesh,” said a senior banker close to the development.
MFIs had sought the Reserve Bank of India’s nod for a second round of restructuring, but the regulator rejected the request. “If banks were to restructure loans of troubled microfinance institutions for the second time, they will not get any benefit in terms of provisioning,” RBI Deputy Governor Anand Sinha had said at a recent banking conference. “We do not stop second restructuring. But what we say is that asset classification benefit will not be available to banks. The RBI does not stand in the way of second time debt restructuring.”
RBI prescribes that if a borrower, who is already into corporate debt restructuring, has to avail of loan recast again, then its banks will have to provide 15% of the recast loan amount as provision. This has increased the trouble for banks and MFIs.

Banks may write off Rs 7200 crore debt to microfinance institutions

“Banks are staring at a possible write off unless the state government changes its stance and conveys the message that it is the duty of every borrower to repay debt. There are about 92 lakh defaulters in Andhra Pradesh, which has affected their credit history,” said Vijay Mahajan, founder and chairman of Basix, a livelihood financial services group.
“The average ticket size of the loan is around Rs 7,000. We had also offered to waive off the interest charged on loan after October 2010. This would mean an interest loss of three years. Borrowers would have to repay only the principle. It is for the government to decide,” he said.
Mahajan said the legislation passed by Andhra Pradesh has several provisions that make it difficult for MFIs to recover their dues.
“It requires MFIs to take government permission for every fresh loan granted. This is cumbersome. We are also not permitted to visit the borrower’s house or work place for collection of loan. We have to meet the borrower at a public place or panchayat office,” Mahajan said, adding that there have been no recoveries in the past two years.
Andhra Pradesh-based MFIs have been facing repayment pressures after the state government in October 2010 passed the Microfinance Act to check alleged coercive recovery practices of these institutions. The Act, apart from other provisions, also mandates MFIs to collect loan payments on a monthly basis as against the earlier practice of weekly collections, which has further hit their collections.