Facing precarious situation after farmers stopping repayment in view of the debt waiver scheme, State Agri Bank also to raise Rs 150 crore
By Manish Tiwari | Chandigarh
The virtually debt-trapped Punjab government on Wednesday directed the State Cooperative bank to raise a loan of Rs 3,600 crore and promised to give state guarantee to bail it out from the financial mess, it is learnt. The government also asked the Punjab State Agricultural Development Bank to raise a loan of Rs 150 crore, assuring to stand guarantee.
A decision to this effect was taken at a high-level meeting held under the chairmanship of Finance Minister Manpreet Singh Badal on Wednesday. Others who attended the meeting included Financial Commissioner (Taxation) Anurag Agarwal, Financial Commissioner (Cooperation) DP Reddy, Managing Director of State Cooperative Bank SK Batish, PIDB MD Harinder Sidhu and Registrar (Cooperative Societies) Arvinder Singh Bains.
Sources said the governmentÔÇÖs announcement on debt waiver had triggered a fresh spell of defaults for Cooperative lending institutions even as the State Cooperative Bank has registered a net cash shortage of Rs 3,600 crore for further lending as well as availing of the re-finance facility from the NABARD. This money is owed as of today by nearly 6.5 lakh account holders who have land holdings of less than 5 acres.
The State Cooperative Bank that primarily deals in providing short term credit to farmers and the State Agricultural Development Bank which largely deals in long term credit had recently apprised the government that their financial condition was deteriorating by the day as a majority of the farmers in Punjab had stopped repaying loans after the governmentÔÇÖs announcement on debt waiver.
According to an estimate, while the long-term loan recovery has come down from the earlier 60-65 per cent to 10 per cent, the short-term loan recovery has also fallen from the earlier 85-90 per cent to 55 per cent as of now.
The State Cooperative Bank extends loans to farmers after taking short-term credit of about Rs 6,000 crore from NABARD during each crop cycle. Once the bank recovers the money from the farmers, the same is returned to NABARD and thus the cycle continues.
They informed that a steep decline in the recovery of loans given to farmers by the State Agricultural Development Bank has resulted in a shortfall of Rs 350 crore for further lending as well as availing further finance from NABARD. The Bank has to pay at least Rs 150 crore to NABARD by July 31 otherwise it would lead to a default of Rs 2,500 crore credit which the bank had obtained from NABARD.
While the PunjabÔÇÖs Finance Department has agreed in-principle to State government guarantee, observers point out that the Reserve Bank of India (RBI) which also exercises the dual control over Cooperative bank, may not be happy with this arrangement as it is bound to adversely affect its capital adequacy ratio.