Demonetisation: Farm credit dries up

Kolkata: Operations at Cooperative banks, the banking lifeline in rural India, have virtually come to a halt in Bengal soon after the demonetisation decision, choking the credit flow to farmers and robbing them of an avenue to convert their old notes. On the credit front, the 3,000-odd branches of cooperative banks in the state are unable to offer loans because they are not getting enough funds from lead banks (public sector banks) that are busy servicing the crowds at their own doorsteps. The impact is already telling on the ground. The state agriculture department today decided to shelve midway its campaign of drawing farmers to the banks to obtain loans through their Kisan Credit Cards. The one-month campaign was supposed to have been carried out between November 7 and December 7. "But we decided to stop the campaign from tomorrow as farmers are not getting loans from banks, not even the cooperative banks on which they depend heavily," said an agriculture department official. According to an estimate, around 2,000 of the 3,345 gram panchayats in Bengal depend solely on cooperative banks. The lead bank scheme had been launched to strengthen the cooperative banks after it emerged decades ago that nationalised banks shared only 1 per cent of the burden of institutional credit in agriculture. The lion's share was shouldered by the cooperative banks. "But as the commercial banks themselves are stressed following the demonetisation, the cooperative banks are facing a crunch and the rural people have no place to go," said a source. "We usually withdraw Rs 10 lakh a day from our current account at our lead bank during the peak season. But in the past one week, we got a total of Rs 8 lakh.... So, it's not possible to meet the demand for loans from the farmers," said the manager of a cooperative bank in Rampurhat, Birbhum. The cooperative banks' large customer base, made up mostly of farmers, faces a crippling problem on deposits, too. A cooperative department official said the branches of cooperative banks have stopped taking deposits in Rs 500 and Rs 1,000 notes following an RBI notification issued on November 14. The RBI notification said: "No exchange facility against the specified bank notes (Rs 500 and Rs 1,000) or deposit of such notes should be entertained by them (district central cooperative banks)." An official in the state cooperative department said: "It appears that as the majority of the cooperative banks did not make KYC (know your customer) mandatory, the RBI has prevented them from accepting deposits.... The decision has affected nearly 2 crore account holders of the cooperative banks." He said: "The two problems are enough to kill the rural economy.... The rural populace, more than 70 per cent of whom depend on agriculture, are forced to go to faraway places to exchange their old notes, which is causing a loss of mandays. The non-availability of loans is bound to hit the rabi (winter) cultivation this year." Usually, around 10 lakh hectares are cultivated during the rabi season, whose produce includes potatoes, other vegetables and oilseed. "Our estimate is that the area under cultivation would shrink by 30 per cent and the total sown area would be below 7 lakh hectares this year," said the official. The plight of Seikh Nijamuddin, a Birbhum farmer who has 22 bighas of cultivable land, tells a story. He had taken a loan of Rs 25,000 during the kharif (monsoon) season from a cooperative bank. He had arranged for Rs 27,000, all in Rs 500 and Rs 1,000 notes, to repay the loan and apply for a fresh loan of Rs 48,000 to sow mustard and potato seeds. "But the cooperative bank is not taking the old currency notes, and I have been unable to exchange the notes even after visiting banks located 20km from my village as the exchange limit is only Rs 4,500," Nijamuddin said. The farmer said that if he did not get the loan within the next seven days, his cultivation plans would be thrown into disarray.