Farmers get SBI lifeline to escape from lenders

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MUMBAI, Sept 6 (Internet) The State Bank of India (SBI) has revised a scheme under which it provides loans to farmers to free them from the clutches of money lenders. The scheme enables farmers to avail of term loans at 12 per cent interest to clear 100 per cent of the sum owed to money lenders, if the debt is on account of cultivation or farm activity or Rs 50,000, whichever is lower. brThis is an improved version of the government's 2004 debt swapping of borrowers' scheme that did not meet with much success. The then scheme had capped the quantity of loan disbursal at 20 per cent of the production credit required, based on farmers' land holding and cropping pattern, or Rs 50,000, whichever was lower.brDespite having 75 per cent of its over 10,000 branches in rural areas, SBI's modified debt-swap scheme is expected to bring more of rural India into the organised credit fold by taking away the market share from money lenders, who charge exorbitant interest rates even after loan discounting. brWe believe the removal of the 20 per cent cap under the earlier scheme will help in mitigating the acute distress farmers face on account of indebtedness to money lenders, pawn brokers and mandi traders who charge hefty rates of interest, said SBI agri-business unit general manager KJ Taori. brIn addition to the term loan, SBI will also provide the farmer with a fresh crop loan at 7 per cent, repayable in a year and give him the option of a need-based term loan to pursue allied agriculture activity. brThe objective of the fresh crop loan and term loan for allied activity is to ensure that the farmer can pursue productive activity and repay the bank loan, including instalment of term loan given for swapping debt from money lenders, Taori said. brSBI's revised scheme comes in wake of the government fixing a 3-per cent farm credit target for banks towards debt swapping of borrowers from the current financial year (FY09).brA gross debt service coverage ratio (DSCR) of 1.75 will be maintained to take over the farmers indebtedness to usurious sources. DSCR gauges the repayment capacity of a borrower. Simply put, this means that for every Re 1 loan that the farmer is required to repay as a term loan instalment, his surplus income should be Rs 1.75.