Contrasting rules for farm, corporate loans

WHILE the Punjab State Cooperative Agricultural Development Bank (PADB) has issued arrest warrants against nearly 2,000 farmers with landholdings exceeding 5 acres to recover the outstanding dues, the nationalised and private sector banks have refrained from even divulging the names of hundreds of borrowers whose bad loans — amounting to Rs 11.68 lakh crore — have been written off in the past 10 years. Different strokes for different folks?

The total outstanding amount against 71,000 farmers in Punjab is around Rs 3,200 crore, for which the cooperative bank is planning to speed up the recovery process, which includes serving arrest warrants against loan defaulters, besides arbitration and persuasion.

Fair enough, but how come a majority of the 34 private and public sector banks have quietly written off corporate default of Rs 2.02 lakh crore in the financial year 2020-21? And further, in the first six months of the 2021-22 fiscal year, banks have already written off another Rs 46,382 crore, and Rs 39,000 crore in Q3.

That makes one wonder: when was the last time one heard of arrest warrants being issued against corporate defaulters? While many of the big defaulters have escaped abroad, why is it invariably a farmer (or a small borrower) who is left to face ill-treatment and injustice in the loan recovery process? While the big defaulters are treated with kid gloves, farmers are always treated with a different yardstick, as if they are children of a lesser god.

With the Punjab government coming under fire, Finance Minister Harpal Singh Cheema did well to order the withdrawal of all such warrants, but the bigger question that stays is why farmers have to face such a harsh treatment that necessitates them to undergo a jail term. The humiliation that farmers suffer as a consequence is what increasingly forces them to commit suicide.

On the contrary, it is only the corporates that enjoy absolute immunity against any such deterring punishment and humiliation. That’s the kind of protective ring the Reserve Bank of India, the banking watchdog, has thrown around the defaulting companies. No wonder, while the rich continue to enjoy the indemnity, the farmers are driven to despair.

There seem to be two sets of rules for two sections of bank defaulters. Using Section 45E of the Reserve Bank of India Act, 1934, the banking regulator has always taken cover of refusing to disclose the identity of the corporate defaulters, citing confidentiality as the reason. Except for a few names made public under court orders, Parliament has been informed that for the corporate defaulters, banks are expected to use any of the recovery mechanisms, including going to debt recovery tribunals, seeking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and filing of cases in the National Company Law Tribunal under the Insolvency and Bankruptcy Code (IBC) and through the sale of non-performing assets. With the recovery still far from satisfactory, the setting up of a bad bank for the purpose is the latest addition to the list.

I am aware that writing off of an outstanding loan is not the same as a waiver, and the recovery process by banks continues even after the bad loan is shifted to another bank ledger. Several RTI-based reports have shown that banks are able to recover hardly 10 per cent of the pending dues, and the remaining amount is finally struck off.

The same approach can also be followed for farm defaults. Instead of putting defaulting farmers behind the bars, often for petty unpaid amounts, why are the banks not directed to also shift the outstanding loans of farmers to a different ledger? Let the recovery process continue and, meanwhile, allow the farmers to continue with farming operations.

The prejudice against farmers is too apparent at almost every step. This is essentially because of a growing contempt against the farming community and, that too, largely among the educated. The media goes berserk whenever a state government announces farm loan waivers, with panel discussion screaming for stopping the waiver. In contrast, every six months or so, the banks write off sizeable amounts of corporate bad loans. Try recalling the last time you saw a TV discussion on the need to put a stop to the monumental corporate write-offs.

There is another policy decision that clearly shows the bias. Some state governments, including Madhya Pradesh and Haryana, are deducting the unpaid instalments under the Kisan Credit Card from the prices a farmer realises after selling his crop at Minimum Support Price (MSP) in the mandis. This is not only cruel and unjust, but it also reflects the tendency to bulldoze every decision down the throat of the gullible farmers. If deducting the non-payments from the crop MSP is a justifiable tool to recover bank dues from a farmer, one fails to understand why the banks are not made to deduct the bad loan amount when issuing fresh loans to industries.

Under IBC proceedings — one of the tools to recover bad loans — there have been a large number of cases wherein companies have gotten away with ‘haircuts’ ranging between an average of 65 and a high of 95 per cent, and still got fresh loans from the banks (and other lenders) to start afresh. The banks haven’t subtracted the ‘haircut’ amount — the loss they were left to bear — from the fresh loans. Even in the case of huge corporate write-offs, no bank is known to have debited the unpaid amount while issuing fresh loans.

As of June 2020, media reports say there were 1,913 wilful defaulters who had bad loans totalling Rs 1.46 lakh crore. What to talk of arrests, even their names were not being made public. On the other hand, the cooperative bank was quick to issue warrants against 2,000 Punjab farmers.

Agriculture is passing through severe distress and banks must realise that coercion is not the way to recover unpaid dues. In any case, if arrest warrants can be served on defaulting farmers, one fails to understand why the same legal provisions should not be extended to corporate defaulters. Isn’t it time for equitable justice?