11-Jan-2012

Why Not Restructure Farmers Loans Too?


Pretty damning coming from a banker.  Why no ‘CDR’ for farm loans?
But as our public policy discourse and chat-shows are predominantly urban and corporate-oriented, these [farmer] suicides have neither shocked nor shamed the policy-making establishment. That includes even the banking sector. Anybody with anything to do with this sector ought to feel vicariously culpable in the withering away of so many lives on this issue.
CORPORATES FAVOURED
This casual indifference is in marked contrast to the way corporate indebtedness is grabbing all the attention and focus, what with the travails of sectors such as aviation being played up in the media. The humdrum farm sector does not have the same glamour quotient and is, therefore, condemned to be the poor country-cousin in any national-level discussion.
The media, including the financial dailies, is no less guilty here, as there is little attempt on its part to go into the details of individual farmer suicides or see it as a reflection of the state of our agriculture.
The lopsidedness of our policy priorities comes out clearly when one looks at the kind of efforts being made at addressing financial distress in the corporate sector.
According to reports, the first half of the current fiscal alone (April to September) has seen restructuring of corporate loans totalling some Rs 34,560 crore under the Corporate Debt Restructuring (CDR) mechanism. And this does not include the mega liabilities owed by the big airline companies. 
The important thing here is that there is an established Reserve Bank of India-approved mechanism when it comes to dealing with issues of corporate loan delinquencies.
These involve extended moratoriums (during which no repayments at all need to be made), elongation of the repayment period itself up to 10 years, reduced rates of interest, provision of ‘funded' interest term loans to those unable to service even the interest component, conversion of cash losses on working capital into term loans, additional finance, and even conversion of debt to equity.
It is quite the opposite in respect of agricultural debt relief. Although there are serious systemic issues plaguing the farm sector, problems of indebtedness meet with sporadic or knee-jerk response at best. And whenever a relief package is announced, it tends to go to the other extreme of fostering or encouraging a culture of non-repayment, that too, among people with a credit morality much higher than those in the corporate sector. We have seen this happen even in the course of the Agriculture Debt Waiver and Debt Relief Scheme of 2008.
What the agriculture sector actually requires is not one-time waivers and write-offs as much as an institutionalised structure similar to the CDR mechanism, so that lenders have a regulator-approved route map ready when they deal with the problem of a farmer unable to service debt. 

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