012 WHERE IS THE BUZZWORD OF POST HARVEST CREDIT?

In the Financial Express July 16, 2007, Shri Varun Jaitly's report "Post Harvest Credit is the new buzzword" appears. 1. Post Harvest Credit is not new to Banks in India. The Imperial Bank of India, the predecessor of the State Bank of India, made good profits by making produce loans against grain stored in warehouses. In the post-nationalisation era of banking (after 1969), produce loans became complicated owing to introduction of Selective Credit Controls. Besides, the Lock and Key System of lending adopted in those days, though safe for banks from one angle, the supervising Officers found that they were likely to be caught if the borrower played a fraud by stealing from godowns or stored some dummy bags/tins under a heap of genuine bags/tins. There is also a danger of borrower storing inferior goods of low worth while borrowing huge amounts by declaring exaggerated values. For example, he can fill some edible oil tins with water while the first layer of the lot are filled with oil. Physical checking even on random basis is sometimes not practicable. For high value advances, the Banks seem to think that physical verification of stocks is of little relevance and they use a system what is commonly known as "Special Hypothecation" where the borrower is allowed to have control of the goods and sell them in the normal course of business. Many large borrowers including industrialists who are hailed as "great today" have misused the system and diverted bank loans to inter-corporate investments, speculation, hoarding of other commodities, gold and real estate transactions.

2. India though ostensibly shows a rate of inflation of about 5% in its official bulletins, the actual rate of inflation is very high and spiralling. People find their income shrinking every month with little to spare for essentials. Now, the post harvest credit is an opportunity for hoarders and black-marketeers to play with commodity prices. If post harvest loans are given to real farmers by linking them to the crop loans (pre-harvest loans) and rural godowns, the small and marginal farmers will benefit substantially. The private and foreign banks will never go to villages and finance extremely large number of small and marginal farmers. Simply, it is not their business goal of making huge profits with limited staff. Besides, they cannot use private collection agents to forcibly realise the loans from small and marginal farmers. It will result in a countrywide uproar and the Collection agents will also not come forward for low value-high volume business.

3. The lending by the foreign and private banks is going to be only at large Centres to wholesalers and hoarders who can build or hire godowns, show security, know the value of Bank loans for their aggrandizement and enrichment. They can satisfy the Bank Managers and their bosses in several ways and also help them in mobilising deposits from large family business houses.

There is, of course, a benefit or bane as one may view. Food Corporation of India will be gradually relieved from the burden of carrying huge buffer stocks of food grains. The Govt. also seems to have a vision of gradually disentangling itself from the burden of food subsidies. On the flip side, people will be at the mercy of the hoarders. The foreign and private banks can boast and gloat about their fulfilling the priority sector lending targets.

Thus there is nothing really great to coo about the post harvest credit.