Coop Bank gets ÔÇÿtrappedÔÇÖ as Punjab moves to bail farmers out of debt trap

Ever since the State Govt promised to waive off agricultural loans, farmers have not repaid Rs 3,500 cr to the bank, hugely impacting further lending in the absence of fresh cash flows

DW Bureau / Chandigarh

The Punjab GovernmentÔÇÖs plan to write off debt for the small and marginal farmers has triggered a fresh spell of defaults for the Cooperative lending institutions in the state.

While the impact has also spread to commercial banks as regards the agricultural lending, it has been far more pronounced in the Cooperative sector. Ever since the announcement of debt relief package by the Capt Amarinder government and a provision of Rs 1,500 crore in the current yearÔÇÖs budget, even the farmers who had the capacity to repay loans have refrained from doing so.

Top government sources told Daily World that after the GovernmentÔÇÖs announcement, the Punjab State Cooperative bank has registered a net cash shortage of Rs 3,500 crore for further lending as well as availing of the re-finance facility from the Natinal Bank for Agriculture and Rural Development (NABARD). This money is owed as of on Sunday by nearly 6.5 lakh account holders who own less than 5 acres of land. While the long term loan recovery has come down from the earlier 60-65 per cent to presently at 10 per cent, the short-term loan recovery has come down from earlier 85-90 per cent to presently 55 per cent, sources said.

The State Cooperative bank extends loans to the farmers after taking short-term credit of about Rs 6,000 crore from NABARD during each crop cycle. It means that the NABARD gives around Rs 12,000 crore to the State Cooperative bank which is further lent to the farmers. Once the bank recovers the money from the farmers, the same is returned to NABARD and thus, the cycle continues.

Unless the State Government bails the Cooperative bank out, it will difficult for the lending institution to further finance the farmers in the manner it did in the past. The bank has apprised the Government about the precarious situation the bank is facing now, and is now waiting for a response.

It may be mentioned that the short-term agricultural loans are available to the farmers at interest rate of 7 per cent, but the effective interest for the farmer is 4 per cent, and if they repay the same in time before June 30, three per cent subvention is made available by the Central government to the good paymasters, encouraging timely loan repayment by the farmers.

In a scenario where the government has promised wholesale reprieve even from the principal amount, the farmers are assuming that the extra 3 per cent interest burden would also be borne by Punjab government. Eventually, the mandarins of the Finance Department as well as the Cooperative department, besides the Dr T HaqueÔÇÖs Committee set up by the Punjab Government to devise ways and means for the loan waiver, will have to consider this burden on account of 3 per cent extra that would have to be paid by the State Government.

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