260
expected to impose a fiscal burden of
`
71,680 crore which the government
was prepared to shoulder; finally, the actual burden came to
`
52,440 crore.
Secondly, earlier in 2004-05, the Union Finance Ministry had introduced a
special package scheme of doubling of bank credit for farmers within three
years. Thirdly, there is the interest subvention scheme whereby the effective
rate of interest for crop loans up to
`
3 lakh has been reduce to 4%.
These short-term approaches to the problem of agricultural
indebtedness and farmers credit needs have gone on too far and too deep; they
have corrupted the banking environment and the credit market. A stage has
come where a close examination of their repercussions on the banking system
and the attitudes of farmers regarding their expectations of public policies, is
called for. Undoubtedly, instead of promoting an environment of harmonious
relationship between the banking institutions and the farm community, such
short-term quick-fix approaches appear to have created a schism between the
two. The system of repetitive loan waivers has adversely impacted the attitude
of farmers towards credit institutions, if bankers’ own views and field level
reports have to be believed. To an extent, the repayment culture has been hurt.
The process of rapid doubling of bank credit, without the preparatory work of
strengthening bank branch network and infrastructure and without identifying
the demand-side issues, is sure to hurt the quality of lending. The banking
fraternity will have scant respect for the policy-making bodies and for the system
of governance. They respond equally in an unhealthy manner. Sizeable farm
loans from urban and metropolitan branches and large size credit of
`
1 crore
and above or
`
10 lakh and above, do not speak well of a healthy farm credit
dispensation, just to satisfy the new requirement of doubling hurridly. There
are significant evidences of deterioration in the climate for loan recovery and
consequential increases in the incidence of non-performing assets in this area
of bank lendings with the aftermath of such lendings. A staggering performance
of banks since 2004-05 has been the attempt to achieve the target of doubling
of bank credit for agriculture in three years and so, banks have adopted a
number of unhealthy devices replete with serious potential repercussions. And
the interest subvention scheme appears to have created a sense of disrespect
for the value of capital and financial savings of the community; these financial
savings do not come out of thin air and they have a cost. The banks are unable
to evolve a healthy interest rate structure for mobilisation of savings and
dispensation of credit in such an environment where interest rates are fixed
in such a palpably uneconomic manner. The public authorities have got to
realise that the use of such fiscal measures can inflict severe damages on the
operating environment for the banking system and in fact it can harm the
system’s enthusiasm, wherever it exists, for performing social goals.
