Farmers Face Debts As Banks Turn Risk-Averse During Pandemic

Farmers Face Debts As Banks Turn Risk-Averse
Farmers Face Debts As Banks Turn Risk-Averse

Farmers are being shunned by banks as lenders turn cautious due to rising bad loans

Last month, Dnyaneshwar Siddhanth, a farmer from Maharashtra, was in desperate need of money to buy seed and fertilizer as the monsoon sowing season approached. But after being rejected by his bank for a loan despite several attempts, Siddhanth finally borrowed ₹ 1.5 lakh from a moneylender at a rate of 60 per cent annually. Amid India’s worst economic slowdown in decades due to the novel coronavirus pandemic, millions of farmers like Siddhanth are being shunned by banks as lenders turn cautious due to rising bad loans.

That is forcing them to turn to illegal moneylenders who are charging increasingly exorbitant rates, according to over a dozen farmers and bankers that Reuters spoke to.

Agriculture accounts for near 15 per cent of India’s $2.8 trillion economy and is a source of livelihood for more than half of its 1.3 billion people. Higher interest rates will reduce farm earnings, impacting overall rural incomes which are key to reviving the economy.

“Most of the profit goes to paying interest to a private moneylender,” Siddhanth said.

“Everything now depends on monsoon rains. If the crops fail, then I will have to sell land to repay the loan.”

Lenders Hamstrung

Till last year private moneylenders were charging 24-36 per cent interest, but are now asking for 48-60 per cent as more farmers seek loans, said Prashant Kathe, another farmer who has borrowed ₹ 3 lakh rupees at a 60 per cent interest rate.

Typically, banks charge anywhere between 4-10 per cent for crop related loans.

The government has been instructing banks to increase lending, but bankers say they are choosing to be cautious.

Economists forecast India’s economy to shrink by 5.1 per cent in the current fiscal year, the weakest performance since 1979.

Lenders also complain that they are caught up by farm loan waiver schemes announced by several governments to win over farmers ahead of elections.


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