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Tamil Nadu is Good Ground for 'Agricultural Jewel Loans'

If ordinary citizens are obsessed with foodgrains, vegetables and fruits that are untainted by harmful chemicals, policy makers and administrators in this part of the world seem to be losing their sleep over keeping crop loans as “pure” as possible. Their concern is quite obvious if one were to go by the State Focus Papers of the National Bank for Agriculture and Rural Development (Nabard) that have been urging the commercial banks to ensure that they extend “pure crop loans” even as they exhort them to step up disbursements of crop loans.

The reasons for the Nabard’s concern are not far to seek: many commercial banks in the State have been providing short-term crop loans against the pledge of gold jewellery, instead of the ideal arrangement of extending the facility based on the security of land documents. This category of loans is called ‘agricultural jewel loans (AJL).’

A former senior official of Nabard said that AJLs accounted for around 80% of the crop loans disbursed in the State. Going by this account, a sum of Rs. 50,000 crore would have been disbursed by the banks as AJLs — the total disbursement during 2017-18 was Rs. 65,218 crore — which are then accounted for as crop loans. The Central government has fixed Rs. 3 lakh as the ceiling for each farmer-borrower.

The banks’ preference for AJLs is primarily driven by the fact that these loans [AJLs] free them from the burden of verifying land documents — a laborious process — and act as better hedge against NPAs.

Though B. Uma Maheswari, Convener of the State Level Bankers’ Committee (Tamil Nadu), said that the ‘crop loans’ were being administered properly, Nabard and the Reserve Bank of India representatives conceded that the banks provided AJLs. They justified the practice on the grounds that these loans served a “social purpose.” Various guidelines have been issued by the RBI and Nabard on AJLs, a move seen by some as legitimising the practice.

Despite their ineligibility, non-agriculturists get attracted towards these loans because of the effective rate of interest — 4% — which is what one has to pay after taking into account the 5% interest burden that the Centre bears if the loan is repaid within a year. In Tamil Nadu, for crop loans taken through cooperative institutions, the State government absorbs the entire interest burden of 7% in the case of those farmers who repay the loans within the due date.

A circular sent to the banks and cooperative institutions across the country, last year, stated that “to avoid multiple loaning and to ensure that only genuine farmers avail [themselves of] concessional crop loan through the mechanism of gold loans, the lending institutions may conduct due diligence and ensure proper documentation including recording of land details even when the farmer avails [themselves of] gold loans.”

A State Cooperation official said that primary agricultural cooperative societies did not provide AJLs, as the practice would affect their regular ‘jewel loans’ scheme.

P.R. Pandian, chief of the Tamil Nadu Federation of All Farmers’ Associations, complained that non-agriculturists benefitted more from AJLs than deserving farmers. State officials monitoring the farm sector added these loans were used for ‘consumption purposes (such as medical emergency and marriage expenses). They said since land documents were not sought b0efore disbursing the loans, there was a possibility that a same person could be repeating the process. Nabard and the RBI have realised that all is not well with the disbursement of crop loans.


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