Banks alone cannot save the farmers

Bankers are wary of the government’s move of waiving interest and writing off farm loans on a large scale. They feel it will end up destroying the credit culture in India. “It’s against the principle of equity and justice. Who will take care of those farmers who have taken loans from moneylenders but are not in a position to repay?” asks one banker.

“Helping farmers in distress is fine but won’t such a package be a disincentive for those who are regular in paying their dues to banks?” wonders another. None of them can talk openly against the government, the majority owner of public sector banks that account for close to 70% of the industry.

If banks can restructure loans for corporations, bring down the interest rates and offer them a longer repayment period with a moratorium and even freedom to switch from rupee loans to cheaper dollar loans, what’s wrong in offering concessions to agricultural borrowers? After all, farmers’ produce suffers from natural calamities as much as companies get affected by cyclical downturns and neither farmers nor corporations have control over these developments.

Indeed, at least Rs50,000 crore worth of stressed assets have been restructured by the Indian banking system over the last few years on the corporate debt restructuring or CDR platform. Any corporate loan worth Rs10 crore and above can be recast, provided 60% of creditors by number and 75% by value agree to it. Twenty-eight public sector banks, 17 private banks and 12 financial institutions are members of the CDR forum and the core committee meets periodically to clear loan recast proposals.