NPA Farms of India


Crores of green notes are pumped into our green fields but the financial traffic lights are yet to go green…

NRI BankDrenched he was. From head to toe. Dripping eyebrows and damp clothes, feeble bent frame and sulking eyes. Somehow managing to sit.

On the other side of the table, sat the manager; stern spectacles not displaying even slightest tinge of unease. Comfortable in that tie, he was trying his best to stay at ease in his easy chair. His full sleeves could not keep him warm enough but the farm loan heat was giving him cold sweat even at 18 degrees of the air conditioner.

Today, almost every rural branch of all Indian banks are witness to such sweating managers. A farmer, with sweat beads all over, requesting remedies over nonpayment of the farm loan and an apparently comfortable banker who is actually chocking under the rising non-performing assets or the NPA on the farm loan extended under priority lending rules. So what are the seeds of this undying and choking creeper of loans, its repayment (or otherwise) and the mounting NPA on agricultural loans?

Strange as it may sound but loans were in fashion, rather still are. I am talking about farm loans in particular. This is a symbol of
prosperity in the Indian villages today.

“Can’t you see he has a loan of one crore. What more proof do you need to say that he is rich?” This was a reply I received from a farmer of Nallur  a small village in the Davangere district of Karnataka  to a question as to how do they judge if a farmer was rich or not. Almost every second person in the villages of the Davangere district has taken a farm loan. Loans, devised to benefit the farming sector that sustains nearly 70 percent of Indian population, have turned into a menace instead, for banks of course.

The outcome of this initiative was some happy farmers during the niche period. Then came middlemen. Our farmers who were either busy or illiterate, took loans without understanding the nuances of the loans and its repayment process. Many didn’t even know how interest on their loans would be calculated or be compounded in years to come. On top of this, when the government introduced waivers, for ‘special’ conditions like droughts, floods and others, it sent across a wrong message. For instance, during 2000 to 2005, the rains failed and there was a drought condition in the Channagiri taluk in Karnataka. Repayment of loans was a farfetched thought; the farmers’ very survival was at risk. Considering the situation, the central government waived off all agricultural loans. “This was to help the farmers but it sent a wrong message,” said Shambhu Lingappa, an employee of the Canara Bank in Davangere. He has been working with the bank for more than 20 years. He added: “Owning tractors had become a fashion in the villages. Even the farmers having as less as four to five acres of land took loans to buy tractors.”

Many big banks have high NPAs related to agricultural loans

“Initially only people with land at least more than 15 acres were given loans for tractors but now even those who own less than 10 or even 5 acres take loans to buy tractors, just because their fellow farmer has it. It has become a status symbol for them,” said Lingappa. Another such case was of Pandomatti village in the Channagiri taluk. Two things are fashion statements here, areca nuts and farm loans. Almost every second person in this taluk has taken a loan of more than 5 to 10 lakhs. More loans symbolize that one has more land and therefore is rich.

C. G. Shivkumar, one of the farmers in this village proudly accepts that he has taken a loan of “about one crore” over a period of

Shivkumar makes himself comfortable in an easy chair and details how during 2000-2005, the government had waived off loans as drought conditions had led to a miserable condition of the farmers. “1500 acres of our land went almost barren. It was a tough time, two meals a day seemed to be impossibility. But because all the loans were waived off I took fresh loans and now those 1500 acers have been revived.” said Shivkumar. While at the same time in the same taluk in the villages like Nallur and Mudigere, there are many farmers who are struggling to get loans. They do not have any money to buy new seeds or equipment.

Farmers in Channagiri used to grow rice, ragi, paddy and other food crops. Gradually, over the last 20 years these food crops were replaced largely by areca nut plantations. The main reason for the shift was the high profi ts from this commercial crop. However, with the prices of areca nut falling in the global market, increasing labor cost and low water availability, the prosperity period soon ended. One of these burdened farmers is C.M. Baswarajappa who is unable to repay the loans. He says, “I either feed my family or I pay back my loans.”

The farmers said that at least they could have used traditional crops such as rice, ragi and paddy for their own consumption but areca nut could not be even be used for self-consumption. “I can’t eat it; we have to depend on buyers and the market price to feed our families now. Areca nut used to give high profits but these days it is not.” said Mahadevappa, another farmer in Channgiri. The villagers in Nallur village said that they were already under debt because of the failure of areca nut farming. Now that the staple food production has gone down and is close to nothing, they buy them at very high rates. The prosperity period was also associated with wasteful expenditures financed by loans. The farmers had taken loans to convert their fields to areca nut fields; to dig bore wells and for other irrigational facilities; to buy machineries and so on, regardless of the requirement. It has come to haunt them now. The vicious circle was not only for the farmers but also for the banks and the government. More and more loans were taken as almost every farmer wanted to grow areca nut and in the same proportions increased the NPAs in the banks. On the other hand, big land owners are feasting. Shivkumar now pays off some amount every month as interest (which he does not even remember). He practices drip irrigation, has bore wells, uses fertilizers, and gets other facilities from the agricultural department. All these are provided or subsidized by the government, of course. He owns two cars and a big house. There are other farmers in the same village who toil the whole day and try and repay their loans on time. However, Shivkumar does not even remember the amount he pays as interest which shows his careless attitude towards repayment of loans.

If we go by the 2010-11 record of the lead bank of the district; total number of loans disbursed by the banks in the Davangere district was 546. The total amount that was disbursed was Rs. 493 lakh and this has multiplied ever since. And the situation is not isolated to Davangere, or Karnataka. It is the same story in every state. Any person who takes a loan is supposed to pay back the loan after one harvest season. If any loans bearer does not starts repaying the loan amount by the end of two harvest seasons then that loan is said to become a Non-Performing Asset for the bank, that is to say that the bank is not getting any  fi nancial return out of that loan account.

The tendency of dependence on farm loan has been increasing over the years. Only considering the PLD bank in Channgiri taluk, we fi nd that the farm loans of over Rs. 20 crore are being disbursed by banks every year. These loans include land development loans, loans for machinery, irrigation and other farm activities. There are subsidies on seeds, fertilizers and other agricultural facilities. The government spends thousands of crores to provide these subsidies but they hardly reach the farmer in real need. Benefi ts are mostly weaned by big landowning farmers who can afford to buy inputs at market rate and can repay loans at the going rate. The lead bank of the district said that the farmers who are consistent and pay the loans on time are the
ones who suffer. An instance from Bihar of 2006-07 is noteworthy here. In a bizarre move, in that year, the Bihar government waived off the agricultural loans of only those farmers who had not paid back any amount. Those who were consistent and had started paying back on their loans, were not exempted from it. That’s punishing honesty in the worst possible way.

An ex-chairman of Tumcos, a local agricultural body of the Channgiri taluk that provides assistance to member farmers including small loans, said that these pending loans are used as a trump card by the politicians in the taluk. Just before the elections, the candidates contesting elections assure the farmers that if they win all the loans would be waived off. The poor villagers believe their promises and vote for them. In some cases if the winning candidate is infl uential they do put pressure on Tumcos to waive off loans.

The loopholes in the government policies have always been adverse for the poor. Same is the case with the agricultural loans. They were introduced for the poor but these hardly serve the interest of the farmers who actually deserve the schemes. The implication of these two situations only leads to the vicious circle of loan that not only entraps the marginal farmers but also the banks. The NPA keeps mounting while some irresponsible farmers wait for the magic spell — LOAN WAIVERS!

Sagarika Ranjan