H.S. Narasimha Kumar

NPAs rise as loan recovery rate plummets

Non-performing assets have crossed 40 per cent

This makes them ineligible for NABARD refinance

DAVANGERE: All 177 Primary Cooperative Agriculture and Rural Development (PCARD) banks in the State, which have been providing long-term loans to farmers, are in poor financial shape. Except for four or five banks, the non-performing assets of all others have crossed 40 per cent, which means that they are not eligible for refinance from the National Bank for Agriculture and Rural Development (NABARD).

The loan recovery rate of these banks has also come down by 30 per cent, and no bank has a recovery rate of 90 per cent. Banks should have a loan recovery rate of over 90 per cent if they are to seek refinancing from NABARD. All the banks are now unable to pay their employees.

The prime reason for this situation is the interest waiver scheme of the State Government (which was in force till May 2007) and the present loan waiver scheme of the Union Government.

There is a PCARD bank in each taluk, and they are funded by NABARD so that they can provide long-term loans to farmers for agriculture. They lend to farmers against a land guarantee. The banks have distributed several crores to farmers in the State.


The interest waiver scheme of the State Government and the loan waiver scheme of the Union Government have resulted in many farmers showing reluctance to repay their loans. Farmers are under the false notion that the Government will soon waive all their loans. Hence, they have stopped repaying the loan instalments resulting in financial problems for these banks.

The banks used to collect 15 per cent interest from farmers till some time back, but when the Government announced an interest rate of four per cent a few years ago, the banks had to choice but to bear the burden of the nine per cent, which had to be repaid to NABARD.

Apart from this, the State Government collects a guarantee commission from banks. The State Government collected over Rs. 30 crore between 1999 and 2007 as guarantee commission and has been demanding arrears of Rs. 7.35 crore from them.

The banks have, however, not defaulted even once on loans taken from NABARD and, hence, there is no need for NABARD to insist on a State Government guarantee.

The banks have distributed loans to farmers for agricultural and non-agricultural purposes. While the Government has waived the agricultural loans, it has not waived loans taken for building farmhouses, purchase grain threshers, fencing and construction of cowsheds Apart from this, farmers with more than five acres of land are not eligible for the loan waiver scheme. Many farmers, who have not understood this, are blaming the banks for not waiving loans.

G. Shankaramurthy, vice-president of the Karnataka State Cooperative Agriculture and Rural Development Bank, told The Hindu that loans for vehicle purchase, fencing, construction of cow sheds and farmhouses had been given in the belief that farmers would repay the loans with the profits from their agricultural operations. Hence, it was unfair to discriminate between the two kinds of loans, he said and demanded that all loans availed of by farmers in the cooperative sector be waived. He, however, said banks should not be affected and they should be repaid.

Mr. Shankaramurthy said the interest waiver scheme of the State Government and the loan waiver scheme of the Union Government had adversely affected the recovery rate of the banks.

He said the State Government should stop collecting guarantee commission and should give back the amount it had collected so far.