Loan waivers have made banks wary of them; beneficiaries are farm infra/services firms
Every year the Centre announces an increase in the agri credit limit, but not even half of this reaches small farmers.
Small farmers typically take small loans — of less than Rs. 2 lakh. RBI data show that in FY17, the share of loans of Rs. 2 lakh or less was just 40 per cent of the total agri credit of Rs. 10.78-lakh crore.
In contrast, loans between Rs. 2 lakh and Rs. 1 crore accounted for 47 per cent of the disbursals, and around 13 per cent of the total agri credit was accounted for by loans of Rs. 1 crore or more. Loans of over Rs. 100 crore were sanctioned to just 210 accounts (individuals/entities).
Speaking to bankers and market veterans revealed that the bulk of these subsidised loans — at 4 per cent interest rate — are taken by owners of warehouses/cold storages, manufacturers of fertiliser/farm-equipment, and food processors.
Gradual drop
The share of loans of Rs. 2 lakh or less in the total agri credit has gradually decreased from 45 per cent 10 years ago to 40 per cent in FY17.
Banks have been wary of lending to small farmers mainly because of the spate of loan waivers in recent years. The waivers have destroyed the credit culture in rural India, said a banker who spoke on condition of anonymity.
For Union Bank of India, which allots 60 per cent of its agri loans to small and marginal farmers, NPAs formed 7.62 per cent of the agri book in the September 2018 quarter.
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