Relaxed norm results in misuse of cheap agriculture loans

Nellore: Long queues are being witnessed at banks for gold loans under agriculture loans category, owing to relaxed norms. Are they really for agriculture needs? God knows. The catch here is the huge difference between interest rates charged on agricultural loans and normal loans. 

As against earlier requirement of applicants submitting copies of their land documents to banks for agriculture loans, now it is enough to give a 
declaration that the money will be used for agriculture purpose only. 

Schedules banks collect only 4 per cent interest on agricultural loans extended against gold ornaments, the rate of interest will be 10 per cent to 12 per cent for non-agricultural loans. 

In fact, commercial banks consider gold loans as secured loans as they disburse loan amount against the gold which they can auction in case of default by borrower. 

But the nationalised banks face a problem as the interest they collect for agricultural loans is nominal, which in many cases may not even equal the entire amount owed by the customer.  After the ascension of NDA government, Reserve Bank of India (RBI) relaxed rate of interest for gold loans to farmers fixing them at 4 per cent as against the 10 to 12 per cent for others. 

Now the farmer has to give in writing through a self-declaration that he has land and the loan would be utilised only for agricultural purpose. No other formalities like submitting copies of land documents, other related information is required for getting the loan up to Rs 1 lakh which should be repaid within a year at any cost.

Taking advantage of relaxed norms, many people who have no land are also flocking to banks to obtain loan against gold at nominal rate of interest by simply submitting a declaration that it is for farming purpose.  Banks are also are not following any mandatory checks on the credentials since rule book allowed only written declaration for giving agricultural loan at low rate of interest.

Many people who are availing gold loans purportedly for agricultural needs, are making use of the money for profiteering by away of finance business. They are getting loans at Rs 1 lakh from multiple branches as there is no mechanism to check and limit the low-interest agricultural loans despite the possibility of diversion to non-agricultural uses.  

“Bank officials normally have to meet their credit targets. Because of low interest, they are getting good business when compared with non-agricultural loans and also due to no specific restrictions on producing documentary proof, etc. But, there is a loss to the exchequer since these loans are mainly meant to help small and marginal farmers from landing in the clutches of money lenders,” said a retired senior manager of a scheduled bank.

Because of nominal rate of interest and simple formalities for getting a gold loan, now customers are visiting banks for their personal needs too avoiding approaching money lenders and private financial institutions, he added.

“In fact, the system should have been linked to Aadhaar for preventing such misuse of public money. In such a case, there would be at least some monitoring of number of people who are approaching various banks and utilising the loan opportunity. This has not been done so far,” said a senior manager of a leading scheduled bank.