The veteran co-operative banker raised this issue several times, while pointing out that co-operative banks have outperformed their expected commercial counterparts in meeting their crop loan disbursement targets. We look at why commercial banks have failed to meet their targets and what action can be taken against them.

What is a crop loan and how do banks disburse it?

Loans to the agricultural sector, such as those to MSMEs or housing, are categorized under the priority sector that banks are mandated to do. Before the start of the kharif-rabi cycle, banks are assigned targets by district to lend to each priority sector. The State Bankers Conference (SLBC) – a body of state bankers – solves this problem by considering the magnitude of finance for individual districts. For the agricultural sector, banks provide short-term and long-term loans at concessional interest rates. The short-term loan is known as crop loans because banks grant it before the start of the crop cycle.

Banks lend to farmers at a current interest rate of 7%, with the state and central government providing a 6% interest subsidy for repayment within one year. Thus, the effective interest rate is 1%. Recently, the Maharashtra government has also waived this for agricultural loans up to Rs 3 lakh with the caveat of timely repayment. Crop loans are an important tool that farmers use to finance their need for capital for the purchase of seeds, fertilizers and other agricultural inputs.

However, there are structural differences in how regular commercial banks and cooperative banks approach this. Co-operative banks, which include District Central Co-operative Banks and State Co-operative Banks (in Maharashtra it is MSC Bank), have a much more organized lending system than the planned commercial systems. Cooperative banks operate through Primary Agricultural Cooperative Societies (PACS) at the village level – cooperative bodies of individual farmers at the village level. Pacs have secretaries who collect 7/12 extracts from farmers and calculate the finances they need. This consolidated application is submitted to the district central cooperative banks, which in turn communicate with the state cooperative bank. Once the application is received, the state cooperative banks lend to PACs through the Central District Cooperative Bank. Usually the whole process takes about 7-10 days.

On the other hand, state commercial banks deal with individual farmers. Farmers are required to submit documents such as 7/12 land extracts, their non-maturity certificates from neighboring banks, clearance from tax authorities and complete the necessary documents before disbursement of loans. While this process seems simple, farmers complain about the “unsympathetic” attitude of these banks towards them. Many say that without an agent, loans simply do not go through and disbursement time can be 15-30 days.

How have banks fared over the past three years in terms of disbursements?

Minutes of SLBC meetings show that cooperative banks outperformed their commercial counterparts in terms of loan disbursement.

As of January 31, 2022, commercial banks, which had a target of Rs 36,571 crore, had disbursed loans worth Rs 22,837 crore (62%). On the other hand, the cooperative banks, whose target was Rs 20,584 crore, had lent Rs 15,555 crore (76%). The cooperative banks claim that their lending structure, which links the PACS at the village level to the central bank, allows for smoother disbursement.

Maharashtra has 3,221 rural branches of regular commercial banks, while district central cooperative banks have 2,772 branches. Technically, the former would have greater penetration and reach and should therefore provide more loans to farmers. But, as the statistics show, the cooperative banks were in the lead in terms of disbursement. The issue grows in importance in districts where cooperative banks are too weak to finance and where the only option left to farmers are commercial banks. Of the 31 district central co-operative banks, 20 failed to meet the RBI’s financial soundness standards.

Are banks liable if the target is not met?

Anaskar, during his press conference, asked the RBI to take cognizance of this for proper action on the matter. The fact that commercial banks have consistently failed to achieve their goals has been a sore point for state administrators and leaders. From district collectors threatening to take government business away from commercial banks to ministers openly pointing out the problem, this has been in the limelight in recent years.

The March 17, 2022 SLBC meeting saw the issue raised by several state government officials. Anil Kawade, the Cooperative Commissioner, reported on the low disbursement of agricultural loans in the districts of Palghar, Aurangabad, Beed, Buldhana, Jalgaon, Hingoli, Jalna, Latur, Nandurbar, Osmanabad, Palghar, Parbhani Ratnagiri, Sangli, Satara, Solapur, Thane and Warda. The commissioner also observed that while year-on-year growth was seen, in absolute terms it was still weak. Anoop Kumar, Principal Secretary of Co-operation and Marketing, observed that Beed and Buldhana Districts have reported zero disbursements for the current Rabi season and overall Co-operative Banks have performed better than commercial banks.

Talk to The Indian Express, Balasaheb Patil, the Cooperation Minister of Maharashtra, also acknowledged the problem. Last year, Patil said that together with Deputy Chief Minister Ajit Pawar and Agriculture Minister Dadasaheb Bhuse, he raised the issue. “We issued a warning to the banks and their performance improved afterwards,” he said. This year, Patil said they would keep an eye on disbursements, from the start, and any laxity in the process would be noted.

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