#DNAExclusive: SBI offers 50% loan write-off to distressed farmers

Forget state-sponsored farm loan waivers.

State Bank of India (SBI) is on a massive mission to persuade farmers to opt for a one-time settlement (OTS) scheme for non-performing agricultural loans and other unsecured loans up to Rs 20 lakh.

This is the biggest exercise ever undertaken by an Indian bank and comes at a sensitive time when loan waivers are impairing the credit repayment habits of farmers across the country.

SBI hopes to collect Rs 1,500 crore through this programme by October 31, 2017. The NPAs that will be eligible for settlement under this scheme will be Rs 19,000 crore. Of this, Rs 6,000 crore is from agri loans alone.

The success of the OTS scheme is significant as all banks are currently battling against populist loan waiver measures launched in certain states. .Agriculture forms about 15% of our GDP and about 60% of the workforce is in this sector it is critical that banks support the sector. Called the ‘Rinn Samadhan Programme’, the campaign run through SBI’s 15,000 rural and semi-urban branches across the country.

Any farmer with a loan up to Rs 20 lakh can come and settle 50% of his dues, with the remaining being written off. After 30 days, the farmer is eligible for a fresh loan. The average size of an agriculture loan is Rs 1.25 lakh.

Given the challenging times, SBI has devised an election-style campaign to mobilise the farmers. Farmers are galvanised by the sight of posters, flash mobs, skits and impromptu meetings.The campaigns are full-blown in all states including those where loan waivers have been announced by state governments.

Rajnish Kumar managing director SBI told DNA Money, “Even in states where loan waivers are announced, farmers have come forward for the one-time settlement to be eligible for a fresh loan. There is genuine farmer distress and we are trying to address it by organising farmers’ meets and trying to get them into the formal credit channels while inculcating a repayment culture."

Posters are pasted all over the villages, announcements are made with loudspeakers on autos, flash mobs are set up. Magic shows and plays are enacted persuading farmers to repay their debt.

"We are using all kinds of methods to get repayments. OTS is one method where we believe that if we write off a part of the loan then we may be able to get back at least part of the loan. It also includes our very old loans.But by repaying farmers get an opportunity to be part of the formal credit channel," Kumar said.

As on June 30, 2017, SBI's domestic fund-based outstanding in the agriculture sector was Rs 189,100 crore (11.76% share). This was second-highest after infrastructure (which comprised sectors including power, telecom, roads and ports), which, at Rs 254,219 crore, had a share of 15.81% of the total bank’s advances. SBI reported Rs 17,988 crore of NPAs from the agriculture sector, constituting about 9.5% of the total NPAs of the bank.

According to RBI’s latest statistics, Indian banks have loan outstanding of Rs 974,300 lakh crore to the agriculture sector, up 6.8% over the previous year. SBI accounts for 30% of the market share.

Reserve Bank of India (RBI) governor Urjit Patel, too, has acknowledged that the farm sector is in deep distress despite considerable direct financing and lower interest rates.

“Indian agriculture is beset with deep-seated distortions that render it vulnerable to high volatility. It has perennially been characterised by low investment, archaic irrigation practices, monsoon dependence, fragmentation of land holdings and low level of technology. Lack of property rights and low initial net worth of farmers add to the constraints. Consequently, the considerable flux in output and prices is common, imposing large losses on farmers and potentially imprisoning them in a circle of indebtedness with disturbing frequency,” Patel said in a seminar on debt waivers held in Mumbai last month.

...& ANALYSIS

• This is the biggest exercise ever undertaken by an Indian bank and comes at a sensitive time when loan waivers are impairing the credit repayment habits of farmers
   
• The campaign run through SBI’s 15,000 rural and semi-urban branches across the country.About Rs 6,000 crore of SBI’s agri loans will be eligible for this programme.