'Stop considering credit scores for farm loans'

Stop considering credit scores for farm loans: Karnataka govt to banks

The CIBIL score is a summary of a consumer’s credit history based on past credit behaviour, such as borrowing and repayment habits shared regularly by banks and lenders

In a bid to assuage farmers’ anger to some extent, the  Yediyurappa-led BJP government has mounted pressure on banks to stop considering credit scores while approving agricultural loans. 

The Finance department has taken a serious view of complaints from farmers that banks reject loans due to low CIBIL (Credit Information Bureau India Limited) scores. 

The CIBIL score is a summary of a consumer’s credit history based on past credit behaviour, such as borrowing and repayment habits shared regularly by banks and lenders. 

“Since the farmers in the state are facing either famine or flood continuously for the last five years and loans are being restructured/rephased, it may not be appropriate to decline proposals of farmers for renewals or additional loans based on CIBIL or such scores,” finance secretary (fiscal reforms) Manju Prasannan Pillai said in a letter to the State Level Bankers’ Committee (SLBC).

The government has asked banks to “adopt a common farmer-friendly and fair approach in the matter and extend succor to the farming community.” 

The SLBC is expected to take a decision on this at its next meeting. 

Karnataka, a drought-prone state, has suffered consecutive flooding in 2019 and 2020 that led to crop loss in 20.59 lakh hectares. 

The Finance department’s letter to SLBC was prompted by a petition signed by 16 farmers of Marikatte village, Bailhongal taluk in Belagavi. They gave the petition to Deputy Chief Minister Laxman Savadi, which finally reached the Finance department. 

“When it comes to repayment of loans, farmers face trouble due to flood or drought. Like this, every year, farmers become defaulters,” read the petition signed by farmer Somanagouda Shivanagouda Patil and 15 others.

“Then, the farmer ends up repaying the loan under the pressure of the bank and with a one-time settlement. Next, when he goes to another bank for a loan, he gets turned away based on his CIBIL report. He grows tired of approaching commercial banks and is left with just one option: suicide,” the petition stated. 

Till September 2020, banks in Karnataka have disbursed agricultural loans worth Rs 55,746 crore. The state government offers 1% interest subvention in crop loans up to Rs 1 lakh for farmers who are prompt in repayment.