THE FOLLOW-UP on the great loan waiver has now started. State Level Bankers Committees (SLBCs) are now meeting in every state to get a clear idea of the extent of the loans, the category of farmers to which they belong and the role of the banks in finalising the credit lines for the next year. The problem is that after the announcement and the hope that the limits may be raised has led to serious defaults in payments to farm equipment dealers and fertilisers suppliers. Unless these issues are sorted out within the next few weeks, the bumper rabi crop of wheat may not make the easy transition to kharif sowing, as farmers are critically dependent on institutional support for the agricultural inputs. These in turn are dependent on availability of credit on the ground.

This brings us to the larger question of monitoring the loan portfolios. The extent of information technology (IT) penetration in the banking sector that caters to the industry and the service sector is such that a special meeting is not required to assess the ‘condition’ of the loans. However, in the case of agriculture sector, data has to be compiled bank wise and district wise, even though these accounts are also computerised. Why should a standing data base not be ready for mid-course correction all the time? The more serious question is: If such a data base was not ready, how did this figure of 60,000 crores appeared in the first place. It is true that ‘back of the envelope’ calculations by the Reserve Bank of India (RBI) can give indicative figures, but for the practical implementation of the policy, much more homework ought to be done. However, the positive aspect of this is that once this record is compiled on an all India basis, it will be easier for National Bank for Agriculture and Rural Development (NABARD), RBI and the banks to make interventions in the coming crop seasons.

Another aspect which this column wants to highlight this time is the working capital crisis which the input dealers, and sub dealers are facing on account of the rising cost of fertilisers and other inputs. As the fertiliser prices have touched the sky, the bank limits of most of the dealers at the district and the block level are getting exhausted with less than 50 per cent of the stock, which they held earlier. The liquidity position of the fertiliser companies is also affected, because the subsidy is released only after the supplies have been received at the district level, and the problem of rake movements, non-availability of wagons, and local problems adds to their woes.

As important as credit to the farmers is the necessity of ensuring adequate working capital for these small dealers because the ground level availability of fertiliser is the ‘essential condition’ before farmers start the sowing operations.

Interestingly, unlike the fertiliser companies, the farm equipment sector is quite rich and has taken the captive finance route to ensure that the sale of tractors and farm equipment is not affected. The effective rate of interest here is about 24 per cent per annum, substantially higher than the prevailing rate for priority sector loans, but the documentation is quicker, on-site, hassle free, and the tractor remains hypothecated to the ‘dealer’ who has facilitated this transaction. The rates of default here are minimal, and therefore one was rather surprised when the State Bank of India (SBI) unilaterally announced that they were going off tractor loans. This column expects the share of these captive finance companies to rise over the next few years. Many other interesting options regarding tractor use have also appeared. Informal markets now exist for the ‘use of tractor hours’, both with diesel and driver and without. A new breed of entrepreneurs who do not own any land have purchased tractors, and have started loaning them out, thereby adding to the productivity of the land. This category of entrepreneurs would not have been eligible for bank finance, but the captive finance companies have now started focussing on this sector.

The next step in this would be if these entrepreneurs also start ‘time share’ for irrigation equipment because the wage rates for agricultural workers has to exceed the threshold level, which is now assured under the National Rural Employment Guarantee Act (NREGA). Successful implementation of the Act in states like Bihar, West Bengal and Chattisgarh has arrested the movement of migrant labour to the agriculturally more prosperous regions in the country. As against the eight to 10 lakh agricultural workers available for the harvest during rabi season in Punjab, the available numbers was less than half, and therefore mechanisation of agriculture is perhaps inevitable.

The prognosis, according to AgriMatters, is that conventional farm loans (and waivers thereof) will become less relevant to farm economies than these newer and more innovative types of bank finance. Some of the new private sector banks have started ‘mainstreaming these models’ in their loan portfolios. Will co-ops and Regional rural Banks (RRBs) follow the suite or be left behind is as important a question as getting the accounts for the loan waiver ready.