Explained: Crop loan targets and why cooperative banks want action against commercial banks over not meeting it

While addressing the media in April, Vidyadhar Anaskar, the administrator of the Maharashtra State Cooperative (MSC) Bank had sought action against scheduled commercial banks for not adhering to the crop loan targets.

The veteran cooperative banker has raised this issue multiple times, while pointing out that cooperative banks have outperformed the scheduled commercial counterparts in meeting their targets for crop loan disbursal. We take a look at why the commercial banks missed the targets and what action can be taken against them.

What is crop loan and how banks disburse this?

Lending to the agriculture sector, like that to MSMEs or Housing, is clubbed under priority sector which banks are mandated to do. Before the start of the kharif-rabi cycle, banks are given district-wise targets to lend to each priority sector. The State Level Bankers Conference (SLBC) — a body of bankers in the state — fixes this by taking into consideration the scale of finance for individual districts. For the agricultural sector, banks extend for short term and long-term loans at concessional interest rates. The short-term loan is known as crop loans as banks extend this before the start of the cropping cycle.

The banks lend to farmers at a working interest rate of 7 per cent with state and central government providing 6 per cent interest subvention for repayment within a year. Thus, the effective rate of interest is 1 per cent. Recently, the Maharashtra government waived this off as well for crop loans upto Rs 3 lakh with the caveat of timely repayment. Crop loan is an important tool that farmers use to finance their need of capital for procuring seeds, fertilizers and other agri inputs.

However, there are structural differences in the way scheduled commercial banks and cooperative banks approach this. Cooperative banks, which include the district central cooperative banks and the state cooperative banks (in Maharashtra it is the MSC Bank), have a much more organized system of lending than the scheduled commercial ones. Cooperative banks operate through village level Primary Agricultural Cooperative Societies (PACS) — cooperative bodies of individual farmers at the village level. The PACS have secretaries who collect 7/12 extracts of farmers and work out the finances required by them. This consolidated demand is submitted to the District Central Cooperative banks who in turn communicate with the State Cooperative bank. Once the demand is received, the State Cooperative banks lend to the PACs via the District Central Cooperative Bank. Usually, the entire process takes about 7-10 days.

On the other hand, state commercial banks deal with farmers individually. Farmers are required to submit documents like 7/12 land extracts, their no-due certificates from nearby banks, clearance from revenue officials and finish the necessary paperwork before loans are disbursed. While this process seems simple, farmers complain of the “unsympathetic” attitude of these banks towards them. Many say that without an agent, loans are simply not passed and the time taken for it to be disbursed can range from 15 to 30 days.

How have the banks fared in the last three years in terms of disbursals?

Minutes of the SLBC meetings show that cooperative banks have out-performed their commercial counterparts in terms of loan disbursal.

As of January 31, 2022, commercial banks, who had a target of Rs 36,571 crore, had disbursed Rs loans worth 22,837 crore (62 per cent). On the other hand, cooperative banks, whose target was Rs 20,584 crore, had lent Rs 15,555 crore (76 per cent). Cooperative banks say their structure of lending, which links the village-level PACS to the central bank, allows for smoother disbursal.

Maharashtra has 3,221 rural branches of Scheduled Commercial Banks while District Central Cooperative Banks have 2,772 branches. Technically, the former would have more penetration and outreach and thus should provide more loans to farmers. But, as the stats show, the cooperative banks led in terms of disbursal. The matter assumes importance in districts where cooperative banks are too weak to finance and the only option left for farmers are the commercial ones. Of the 31 district central cooperative banks, 20 have failed to adhere to RBI’s financial health norms.

Are the banks liable for action over not meeting the target?

Anaskar, during his press meet, asked the RBI to take cognisance of this for appropriate action over the matter. The fact that commercial banks have consistently failed to meet their targets has been a sore point with state administrators and leaders alike. From district collectors threatening to take away government business from commercial banks to ministers openly flagging the issue, this has been in the limelight since the last few years.

SLBC’s meeting of March 17, 2022, saw the matter being raised by multiple state government officials. Anil Kawade, the commissioner cooperative flagged the low disbursal of crop loans in the districts of Palghar, Aurangabad, Beed, Buldhana, Jalgaon, Hingoli, Jalna, Latur, Nandurbar, Osmanabad, Palghar, Parbhani Ratnagiri, Sangli, Satara, Solapur, Thane and Wardha. The commissioner also observed that while a year-on-year growth has been noticed, in absolute terms, it was still low. Anoop Kumar, the principal secretary cooperation and marketing, observed that Beed and Buldhana districts have reported zero disbursal for the present Rabi season and overall, the cooperative banks have performed better than commercial ones.

Speaking to The Indian Express, Balasaheb Patil, the Minister for Cooperation in Maharashtra, too, acknowledged the problem. Last year, Patil had said that he, along with Deputy Chief Minister Ajit Pawar and Minister of Agriculture Dadasaheb Bhuse, had flagged this issue. “We had issued a warning to the banks and their performance had improved,” he said. This year, Patil said that they will keep a tab on disbursals, right from the start, and any laxity in the process will be pulled up.

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