Banks hesitate to lend to farmers – they are not willing to lend to farmers unless their outstanding dues have been repaid.
As a result, farmers are left with no option other than to turn to moneylenders (who charge a higher rate of interest). Thus,
fertilizers and seeds are in short supply in the rural districts of Uttar Pradesh.
Even the loan waiver scheme has not helped the farmers in making credit easily available. Instead, the bankers fear that
loan waivers will only encourage the farmers to default on their (outstanding) loans. Banks have begun to scrutinize loan applications with much greater care than before, especially with regards to the credit standing of the farmers. They have also stopped lending to habitual loan defaulters.
This situation is not unforeseen; in fact, economists had predicted that this situation would arise as a result of loan waivers. Loan Waivers have made the recovery of existing loans yet more difficult. While farmers treat the loan waiver schemes – and loan repayments – as separate issues, bankers sometimes fail to differentiate between them. Basically, what it amounts to is that farmers are being treated with growing suspicion by the bankers, especially as credit is not readily available.
In fact, the entire issue is threatening to turn into a vicious circle, as the unavailability of fertilizers and seeds reduce the ability of the farmers to repay their dues in future. Farmers are facing a cash crunch; the unavailability of adequate funds means that they are not able to make the most productive use of their land. Some farmers are even selling part of their assets to make both ends meet; as delays in the availability of fertilizers and seeds will hamper their efforts to till the land.
The farmers have been promised a better deal – but are the bankers on board? And is there no better way of going about it than by carrying out loan waivers?