Farmers in Andhra Pradesh appear to have taken more loans by pledging gold bars and ornaments, than loans from banks for purely agricultural purposes. Some have even diverted the agri loan and bought gold.
According to official records, up to March 31, 2014, farmers have taken loans worth $5.7 billion (Rs 348 billion) by putting up gold as collateral, while $4.2 billion (Rs 257 billion) was taken as crop loans.
In their review meetings, bank officials have noted that a majority of the loans, particularly by pledging gold, were taken by farmers after January 2014. Officials said the reason for this could be attributed to the fact that the interest rate on loans meant for agriculture is far less, than other loans like personal loans, education loans, or home building loans, etc.
Another reason for the rising number of loans was Chief Minister N Chandrababu Naidu’s election promise of waiving off all farm loans after coming to power. This spurred farmers to go all out and take more loans, with some diverting loans, ostensibly taken for agriculture, to actually buy bullion.
Another official added that after Naidu’s announcement on waiver of farm loans, farmers had taken loans unrestrainedly though the agricultural activities were over.
In a major relief to the Andhra Pradesh government and farmers, the Reserve Bank of India (RBI) has agreed to reschedule crop loans. The RBI has written to the Andhra Pradesh and Telangana state governments expressing its willingness to consider rescheduling crop loans, but only for three years including a one year moratorium.
Officials engaged in the loan waiver and reschedulement exercise in both the governments said that the banking regulator had also made it clear to the governments that the gold loans, (by pledging gold), even if taken for agriculture purposes, would not be considered under the rescheduling scheme.
The RBI’s offer falls short of the government’s demand for a 5 to 7 year reschedulement period for all the loan dues, including gold loans. The Andhra Pradesh government has written a letter to the RBI post this decision, specifically asking for extending the relief to gold loans as well.
State Finance Minister Yanamala Ramakrishnudu said the state government had already sent a note to RBI governor on rescheduling of crop loans. “We are asking the RBI to treat the gold loans taken by farmers as crop loans, so that they also get the benefit of loan rescheduling,”’ he said.
Though successive droughts could have led to his defeat in 2004, Andhra Pradesh chief minister Chandrababu Naidu is incidentally using the looming drought to buttress his case for implementing the farmers’ loan waiver scheme.
Though the apex bank has said that it cannot reschedule loans taken by farmers against gold ornaments, the state government has not given up hope, as it has been banking on the massive relief from the RBI with regard to farm loan waiver. With gold loans on the higher side as compared to agri loans in the state, the government has presented another case before the regulator.
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