Date:28/01/2007 URL: http://www.thehindu.com/2007/01/28/stories/2007012803450400.htm

Karnataka - Bangalore

Loan waiver may weaken cooperatives in State

Nagesh Prabhu

A large number of societies, banks are running at a loss

BANGALORE: The Government's proposal to help indebted farmers by waiving crop loans will make rural cooperative societies and cooperative banks financially unviable and affect the finances of the State.

The proposal to waive short-term crop loans up to Rs. 50,000, totalling Rs. 3,900 crore, will benefit 5.12 lakh farmers, but it will weaken the cooperative credit system. A large number of cooperatives are running at a loss because of low recovery rate. In all, 14,012 cooperative societies and banks were operating at a loss as on March 31, 2005. Of the 32,382 cooperatives, 2,310 were defunct and 2,659 were liquidated as on March 31, 2006, official sources told The Hindu .

Not recommended

It is said the proposal to waive loans will go against the recommendations of the A. Vaidyanathan Committee on cooperative bank reforms. The committee recommended various measures, including capital support from the Government, for making cooperative banks financially and organisationally sound so that they could effectively deliver rural credit.

Chief Minister H.D. Kumaraswamy, and Deputy Chief Minister B.S. Yediyurappa who holds the Finance portfolio, have held meetings with officials of the Finance and Cooperation departments on finding ways to raise resources to compensate cooperatives if crop loans are waived. The Government is thinking of using revenue from the retrieval of government land encroached upon in Bangalore and other resources to release funds to cooperative societies or banks for the waiver of loans.

The Government has not yet released the full amount to cooperative banks for the waiver of interest on crop loans and distribution of loans at 4 per cent interest. Interest amounting to Rs. 920 crore was waived. Further, an order was issued to reschedule, over five years, all loans of farmers in six districts that had received assistance under the special package of the Centre.

The cost

If the Government waives crop loans up to Rs. 10,000, totalling Rs. 401 crore, the move will benefit 3.50 lakh farmers. Waiving of loans between Rs. 10,000 and Rs. 25,000 will cost about Rs. 996 crore and between Rs. 25,000 and Rs. 50,000 will cost about Rs. 2,500 crore to the State exchequer. About 2.38 lakh farmers have taken short-term loans above Rs. 50,000. A farmer in Chikmagalur district took a short-term loan of Rs. 1 crore, an official said.

Debt is one factor for farmers' suicides in the State. As many as 61.6 per cent of farm households is living in debt, while the national average is 48.6 per cent. The average amount of outstanding loan per farmer in Karnataka is Rs. 18,135, according to a survey conducted in 2005.

A senior official said that loan waiver would not benefit small and marginal farmers, who do not borrow from cooperatives.

Double benefit

Many farmers who had benefited from waiver of interest on loans would again benefit.

This fiscal year (2006-07), cooperatives have decided to extend Rs. 1,556.86 crore as crop loan.

According to the 2005 survey, although cooperatives cover 77.60 per cent of the adult population, loans from cooperatives are not a major source of funds for farmers in the State. The break-up of sources is banks (50 per cent), moneylenders (20 per cent), cooperative societies (16. 9 per cent), relatives and friends (6.8 per cent) and traders (1.9 per cent).