Any delay in loan waiver refund could hit coop. banks hard

They may be forced to stop lending to farmers owing to shortage of financial resources if government delays release of reimbursement: Experts

Waiver of crop loans from cooperative banks/societies will hit Primary Agricultural Cooperative Societies (PACS) and District Cooperative Banks (DCCBs) in the short-run if the State government delays reimbursement of the waived amount.

This is particularly so because DCC banks have already been adversely affected by the Modi government’s demonetisation move. DCC banks in the State are still stuck with ₹116 crore worth of demonetised notes and only on Wednesday, the banks got a direction from RBI that they could deposit this amount, said M.N. Rajendra Kumar, Director, Karnataka State Cooperative Apex Bank.

As many as 5,098 PACs and 21 DCCBs in Karnataka are involved in agricultural lending.

Experts argue that a large number cooperatives may be forced to stop lending to farmers owing to the shortage of financial resources in case the government delays release of reimbursement. Mr. Kumar told

The Hindu that failure of the government to reimburse the waived portion of loan would spell trouble to cooperative banks in the short-run. A total of ₹10,736 crore was borrowed from cooperative societies by farmers of Karnataka during the 2016-17 season.

Pointing out that the loan waived by the previous BJP government headed by Jagadish Shettar in 2013, ahead of the last Assembly elections, was waived eight months later by the Congress government, Mr. Kumar said: “Timely reimbursement of the loan component by the government helps cooperative banks in sanctioning new loans to farmers.”

Now, the government has been reimbursing ₹900 crore to ₹1,000 crore interest portion to cooperative banks every month. Cooperatives have been sanctioning crop loans upto ₹ 3lakh per farmer free of interest.

The larger question is the very reach of the loan waiver scheme that is limited only to co-operative banks. Only farmers who are members of the PACs and DCC banks and own large tracts of lands would benefit from the scheme, a senior Congress leader said.

He said that it was “an emotional subject” rather than one that really benefits all the farmers.

In fact, Chief Minister Siddaramaiah too said only 20% farmers would benefit if the State alone waives loans, while making an argument that the Centre needs to step in and waive loans from nationalised banks as well.