Central Government to tweak loan norms for farmers

Mumbai,Praveena Sharma(dna): The weather gods may be playing foul. But the government has swung into action to provide relief to the farmers affected by unseasonal rains and hailstorms by activating a norm under which their farm loan will be rescheduled and extended by six months.

Hasmukh Adhia, financial services secretary in the ministry of finance, told dna that even though it was a bit early to discuss the impact of monsoon on kharif (summer) crops as forecast by India Meteorological Department (IMD), the government has decided to reschedule farm credit repayment of farmers who have lost rabi (winter) crop due to unseasonal rains.

“It is too early to do anything about it (agricultural consequences of IMD’s monsoon forecast) but we have a standard way of rearranging the loans. The moment any such calamity is proclaimed by a local authority or a state government then immediately that becomes active and their (farmers’ loan) accounts are rescheduled and they are given more time (for repayment). Normally, agricultural finance has be returned within 11 months. In case of disaster like this (unseasonal rains) they (farmers) are given six months more,” he said.

Recently, the Reserve Bank of India (RBI) revised its priority sector lending (PSL) rules for banks, which has raised the share of agricultural credit to small and marginal farmers to 8% from the earlier 6%.

This, Adhia said, was done to widen the base of small and marginal farmers availing farm credit in the country.

“Right now, only six percent (of the 18 percent agricultural credit) is going to the small and marginal farmers. This will go up to eight percent which means banks will not only have to meet the agriculture obligation but they will have to actively look for small and marginal farmers for new accounts.

And they will have to be given credit, resulting in their share in agricultural credit finance getting wider. So more number of small and marginal farmers will get agriculture finance,” he said.

Adhia said currently only about 45 percent of the small and marginal farmers were getting agricultural credit. The government was looking to up this percentage and the new norm will automatically push it up.

He said most banks shied away from lending to small and marginal farmers and preferred to lend to big farmers because of lower risk involved there.

According to him, contrary to the myth of lower recovery in the small and marginal farmer segment, the recovery rate was around 90 percent because of the special incentives provided to them.

“It (loans to small and marginal farmers) is a short credit. They take it every season and get a special incentive of three percent discount for paying on time – two percent interest subvention and one percent for timely payment. So, the recovery rate is almost 90 percent. That is because if they default then they will not get the next year’s loan so they pay back on time to draw another loan after a few months,” said Adhia.

The financial services secretary said the agriculture portfolio has almost doubled in the last 3-4 years. It was Rs 8 lakh crore last year and has been increased to Rs 8.5 lakh crore in the current year. A major part of this at present goes to big farmers but with the new PSL norm in place, the share of small and marginal farmers is likely to go up.

Posted by on April 27, 2015. Filed under Nation. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.