Dwiddly

My notes and musings …

GoI spins a ‘no, I really do love you!’ to Cooperative Banks as a relief to farmers

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The demonetization drive made a whole lot of cash, (80+% of the total cash in circulation actually) flow into the nationalized banks and severely affected the balance sheets of cooperative banks. A friend flagged a Deccan Herald news report asking for my opinion. And I stumbled upon how the GoI spins a ‘no, I really do love you!’ to Cooperative Banks as a relief to farmers.
Apparently, the GoI decided in its cabinet meeting on 24th Jan that interest for the 2 months of Nov-Dec. would be waived on short term crop loans taken by farmers in the Q1 & Q2 of FY16-17 and allocated Rs. 660 Cr. towards that. The original press release from Cabinet Secretariat can be found in item # 5 of Cabinet decisions in Jan 2017.
As stated in the last paragraph of the press release the Rs. 660 cr. is to cover the interest subvention and administrative cost incurred by NABARD on additional short term borrowing of Rs. 20,000 crore for on-lending to Cooperatives Banks in the current financial year. 3% cost of the interest subvention scheme and 1% of that towards administrative costs(which seems reasonable) matches up with this number. This additional Rs. 20,000 Cr. credit made available is communicated through item #1 in of Cabinet decisions in Jan 2017 with the following explanation:
In the light of good monsoon and expectation of increased credit demand and in order to boost agricultural production, the farmers need to be supported through Cooperative Banks, which purvey credit at their doorstep, to enable them to scale up their agricultural operation.
The approval will ensure increased availability of short term crop loans to farmers through Cooperative banks at reduced rate of interest.
BTW, DH news report got the numbers mixed up: of the announced Rs. 1060.5 Cr., the amount left for the waiver of (2 months) interest on the short term crop loans would be 400 Cr. This would be sufficient to cover the cost of the interest waiver (@ the post income subvention scheme rate of 4%) on a sum total of Rs. 6,000 Cr.
PS: I did not search out what was the total short term crop loans disbursed in Q1 & Q2 of FY16-17. The DH news report does note that Rs. 7.56 lakh crore was the total credit disbursed by the banks for this period under the agricultural credit category. But note that this includes not just short term crop loans but other categories of agricultural credit too.
Wow, if we are to trust this number in the DH news report, then all of 0.8% of the total agricultural credit disbursed in Q1 & Q2 of FY16-17 were as short term crop loans? This really needs some digging and verification. I suspected it would be small but this is way too small a slice of the pie !
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Written by Dwiji

Thursday, January 26th, 2017 at 07:56

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