The Finance Department has informed the Banks that there will not be any interest subsidy for Gold Loans given to Farmers (Refer Circular of SBI No.1370 / 2019-20 dated 24.12.2019).
In 2006-07 Budget speech, the Finance Minister announced an interest subsidy of 2% for farmers who avail credit upto Rs.3 lakhs. In 2010 one more incentive of 3% Interest was given to the same borrowers for prompt repayment. The same continued till few days ago. Practically the small and marginal farmers who account for 86% of the farmers in the country could get Agriculture Gold Loan for 4% interest. Some of them may not have gold is another issue.
However for those who could avail loan at present, now it will be available at 11.05% as Personal loan or Multipurpose Gold loan.i.e. 7.05% more.
A 2018 report of NABARD says more than one in two Agri household is indebted equal to their annual income. As per a RBI report based on Priority Sector Lending (PSL) Returns 2015-16, the number of accounts (Loans) under small and marginal farmers (SMF) category are 5,13,88,257 and the total number of SMF in the country in 2015-16 was 12,56,35,000. This means only 40% of SMF are getting loans from Commercial Banks, though they constituted 86% of the Farmers. The withdrawal of the Agri Gold Loans is going to affect these farmers badly, especially in south India where Agri Gold Loans are more.
The decision to discontinue Agri Gold Loans appear to be based on a report of RBI Internal Working Group (IWG) headed by Mr. M.K. Jain, Dy. Governor, dated 13 September, 2019. The Committee had only discussed with limited groups including Bill & Melinda Gate Foundation, few technical experts and staff. They also had an interaction at China but no feedback was taken from the stakeholders- i.e. Farmers and Farmers Organisation.
The major recommendation of the IWG are
- Increase share of short term Crop Loans
- Increase Credit for Allied Agriculture Activities with separate target
- Increase Institutional Credit to farmers
- Provide Loans up to Rs.3 lakhs without collateral and Rs2 lakhs without land records.
- Bring in Land Leasing Act in all states like AP act and model act of NITI Ayog.
- Digitize Land Records
- Set up a Federal Institution like GST for Agriculture and Agri Loans similar to 59 min loan for MSMEs
- Provide Rs. 1 lakh loan to each farmer for consumption.
- Remove Regional Disparities in Credit
- Centre and States should increase Capital Expenditure which will stimulate demand for increase in Agriculture.
- Stop Loan Waivers
The IWG has also recommended that
* Interest Subvention should be replaced with DBT;
* Banks should develop a MIS to flag Agri Loans with Gold as Collateral for effective monitoring of end use of funds;
* In order to curb the misutilisation of interest subsidy, banks should provide crop loans eligible for interest subsidy only through KCC mode.
While no effort has been made to enforce the first 10 recommendations listed above (there are few more), Interest Subvention for Agri Loan is withdrawn. WITH THAT 3% INCENTIVE FOR PROMPT REPAYMENT WILL ALSO BE GONE.
Now farmers have to go to Muthoot Finance and other NBFCs or money lenders and pay huge interest.
The Kissan Credit Card is not going to be made available for these borrowers. The easiest solution could have been to introduce one more category of loan in Core Banking as KCC-GL and continue the interest subsidy.
In fact in KCC Accounts limit alone is renewed every year with Interest and hardly any new credit is given. The target of 9,10 and 11 lakhs announced in the budget is achieved by renewal of existing credit with accrued interest. So the Govt is throwing the farmers to Loan Sharks. More suicides will happen. It is high time for all of us to fight and Farmers Organisation should raise their Voice. Let us not allow the back bones of the Farmers who are the back bones of the economy to be broken.
Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.