Not all agri-loans are for agriculture, many are diverted

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BL Research Office

The Center has raised its target for agricultural loans year after year. But there are still several weak links with the large flow of credit to agriculture. The diversion of agricultural loans for non-agricultural purposes is one of these key issues that requires immediate attention. According to the recent report of the RBI Internal Working Group on Agricultural Credit, in some states, said that agri-credit is much higher than their agro-GDP, indicating the possibility of misappropriation of credit for non-profit purposes. agricultural.

For example, in states like Tamil Nadu and Kerala, outstanding agricultural credit accounts for 170 to 180 percent of underlying agricultural GDP. Also in Karnataka and Telangana, the ratio of agricultural credit to agricultural GDP is over 100 percent. On the other hand, the northeastern states, West Bengal, Jharkhand, Madhya Pradesh, Odisha and others., Have a very low ratio, which implies low demand for credit and low access in these states.

Another key metric that raises concerns about agricultural loan diversion is the ratio of disbursed crop loans to input requirements. According to RBI data, some states get considerably high credit relative to their input cost needs, such as Andhra Pradesh (7.5 times), Kerala (6), Goa (5), Telangana, Tamil Nadu and Uttarakhand (4) and Punjab (3).

In some other states like Jharkhand, NE states, West Bengal, Chhattisgarh, Bihar, Odisha, Maharashtra, Uttar Pradesh and Rajasthan, data suggests that credit is not enough for meet their input needs.

High debt and NPA

The misappropriation of agricultural loans in some states is a major source of concern, as it exacerbates the problem of over-indebtedness. RBI data suggests that there is a high risk of indebtedness in some states. The ratio of crop loans to crops GVO (gross value of production) shows that while the average for all of India was 0.32, there were 11 states with a higher loan-to-production ratio – the Kerala being the highest with 0.90 and Tamil Nadu with around 0.65. The higher level of credit intensity in some states is a major cause for concern, in light of rising NPAs in the industry.

Bankers say most farmers have become over-indebted, over time, due to restructuring and the distribution of additional funds.

Over the years, GNPAs for agricultural loans have increased sharply. From around 2.5% about five years ago, GNPAs climbed to 8.44% as of March 31, 2019 in the agricultural sector according to the RBI report.

The deterioration in the credit culture came as a result of announced loan waivers by state governments, which led many borrowers to suspend repayment. In 2016-2017 and 2017-2018, the level of the NPA increased sharply, indicating a strategic default (in anticipation of a loan waiver) arising from the state-level loan waiver announcements. The incidence of NPAs has been higher in states such as Maharashtra, Karnataka, Uttar Pradesh, Punjab and Bihar.

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