Govt. mulling debt swap scheme to bail out distressed farmers

After debt redemption scheme, the State government is contemplating a debt swap scheme to bail out farmers from the clutch of moneylenders.

The idea is to transfer the liability of the farmer to banks which are expected to fulfil the payment through the scheme. The government is toying with the idea as it is observed that majority of farmers’ suicides are related to indebtedness.

Banking sources say that the subject came for discussion at State Level Bankers Committee (SLBC) meeting on Wednesday. The officials made a strong case for the debt swap scheme. It was found that the moneylenders charge exorbitant interest rates annually to the farmers. And, the officials argued, giving bank loans to such borrowers is a win-win situation for both, sources say.

As per the Reserve Bank of India (RBI) guidelines, officials say, the bankers can swap the debt up to Rs. 1 lakh. But, it is necessary to raise the ceiling of loan to Rs. 2.5 lakh as against the existing norm.

The bankers, however, say that existing norm is Rs. 50,000 and the RBI would have to clarify in this regard.

The government found that the small and marginal farmers still depend on private/non-institutional credit. The farmers were borrowing loans from micro-finance firms and private money lenders at a rate of 36 per cent per annum, breaking the neck of farmers.

AP Rythu Sangham State joint secretary J. Prabhakar, however, argues that the micro-finance firms were charging up to 5 per cent per month. The bank loans, on other hand, were available at 4 per cent per annum, if the loan amount was up to Rs. 3 lakh. And, at it is zero per cent interest, if the loan was less than Rs. 1 lakh. Majority of farmers approach private money lenders as bank loans were not easily available, he opines.

Sources say that the government is working out the modalities for the debt-swap scheme. The loan raised under the scheme is likely to be in the shape of term loan. Sub-Committees in the SLBCs were formed to study the proposal and the matter is posted for January 10.

The bankers also point out that it was necessary on part of the farmer, who was interested in debt swapping, to prove that the money borrowed from informal sector was for agricultural purposes. The farmers borrow money from private lenders for various purposes such as marriages, children education and medical needs. So, we need to weed out these loans, they say. In united AP, the then government made a similar move for debt swap of Micro Finance Institution (MFI) loans. The government then decided to swap the loans and make cooperative bank as a nodal agency.

Govt. move to transfer farmers' liability

to banks which are expected to fulfil the payment through the scheme

Banks can swap debt up to Rs. 1 lakh, but it is necessary to raise the loan ceiling to Rs. 2.5 lakh

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Printable version | May 11, 2021 10:39:53 PM |

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