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'Collateral' Hurdle Hits Lending to Farmers' Cos

Published: 20th February 2015 06:03 AM  |   Last Updated: 20th February 2015 06:03 AM   |  A+A-

KOCHI:Refusal by banks to sanction loans to farmers’-run companies without collateral is affecting growth prospects of these companies. More often than not, these companies, which are run by farmers, are forced to depend on overdraft facilities or pledging personal properties for funding or approach money lenders.

“Banks are asking for collateral, which we don’t have. We buy produce from farmers who are our shareholders and need cash to pay them. For our  requirements, we depend on overdraft facilities, where the interest rates are 13.75 per cent,” said K J Thomas, managing  director of the Aluva-based Indian Organic Farmers Producer Company  (IOFPC). According to him, it will take at least three months, for example, to extract oil from coconut procured from farmers.

“We cannot delay payments to farmers, but lack of bank support is constraining our ability to grow,” he explained. Also, if such loans are categorised under farm segment, the interest rates would be much lower, he said. According to Reserve Bank of India (RBI) guidelines, banks can provide loans upto Rs 5 crore to producer companies, set up exclusively by only small and marginal farmers.

When contacted, an official at Canara Bank said there was no proposal at the moment before the State Level Bankers’ Committee, to consider farmers’-run companies for priority-sector lending.

“I think this is an issue which requires serious consideration. We would look into this if we receive any such proposal,” the official said. Thomas said though Nabard (National Bank for Agriculture and Rural Development) has sanctioned farmers’-run companies, especially in North India, his firm was not that lucky. IOFPC has now approached Small Farmers Agri Business Consortium (SFAC), a Central Government undertaking, for loans.

Baby John of Vazhakulam Pineapple Farmers and Processors Company said bank loans to well-established farmers-run companies should have cheaper funding sources from the banking sector.  “When we began, we pledged our personal properties for bank finance. It will be great if banks could provide funds without collateral,” he said. On the flip side, there will be instances where companies with political patronage approaching banks for funds. To avoid this, only companies with good track-record  be given such financing, he said.

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