SBI cover up to lower farm loan losses
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NAGPUR: A massive exercise over the last two months in State Bank of India branches across India saw farm loan accounts being tweaked to show the current season's standing crop as a security against short-term farm loans which had turned bad as far back as 10 years ago. While the farmers remain unaffected, the drive can help SBI report lower losses on the farm lending front.
Insiders say this is the first time that the bank has undertaken such an exercise. SBI's farm loans stand at Rs 40,000 crore with 7 to 8% of bad debts. Experts TOI spoke to say that the exercise is nothing "but fudging of books". An RBI spokesperson said, "We are aware of the issue and examining it."
A mail sent to Mahindra Rekhi, deputy general manager of corporate communications, a month ago has remained unanswered. However, a senor official of general manager rank from the bank's head office in Mumbai, on the condition of anonymity, said there was nothing wrong in the practice. "Farming is a continual business. So, each time a fresh standing crop is there in the fields, the bank has a charge on it. It also has the right to harvest and recover the money," he said.
Some of the loans are as old as 2003, but the standing crop of the current season has been placed as a security in the account. TOI has access to documents from SBI's branches in Maharashtra and Madhya Pradesh. "The manipulation took place all over the country," said a source in SBI.
The drive was undertaken to help the SBI beef up its profits, said the source. "Had the manipulation of accounts not been done, the bank would have been forced to provide a higher amount against the losses on account of bad loans. This is just a patch-up job as in coming years if the farmers are unable to pay back the loan, it would have to be shown in the books as losses and SBI would have to write it off," he said.
Without a security, the provisioning can go up to 100% depending upon the tenure of delinquency. "So, if most of the crop loan accounts are shown to be backed with a security, SBI has to provide less, leaving scope for a higher profit in the next quarter," the source added.
Several loan documents accessed by TOI from Wardha show that securities were 'inserted' between June and July this year. The loans were for less than Rs 1 lakh for which only the crop is taken as a security. Example 1: The date of opening a loan account of a farmer (no farmers are being named in this story) is shown as 2003. In 2008, the loan was declared out of order as the farmer was unable to pay back. The security in the form of standing crop was placed in July this year. Example 2: The account opening date is 2007, the date out of order is 2008, but the security was included in 2013.
There are other loans which have turned bad between 2009 and 2013 but securities have been included in the accounts only in the current fiscal. The hurried measure of work by SBI is revealed in the pattern where the date of inserting security is the same for several accounts.
For loans more than Rs 1 lakh, land is taken as security. Papers shown to TOI in Madhya Pradeshrevealed that even land was being updated as security in the current exercise. Example 1: Opening of loan is 2007, went out of order in mid 2008, in July 2013 land and stock shown as security. Example 2: Opening of loan is early 2007, out of order later the same year, land shown as security in first week of July.
The senior SBI officer too admitted that the provisioning for bad debts will come down when a fresh security is shown in the accounts of the borrowers.
A chartered accountant, who has undertaken rural branch audits of banks, said, "Even though land is taken as security, it is considered to be a non-recoverable asset. There has been no instance of any PSU bank taking over an agriculture land to recover its dues. There are several legal hurdles to it. In same way, harvesting the crop to recover a loan is also out of question. Under the circumstances, the SBI should have considered such loans as unsecured."
A farm activist said that the SBI move is bringing injustice to the farmer. "How can the bank have a claim on a crop for which a farmer has not borrowed money," asked Kishore Tiwari of the Vidarbha Jan Andolan Samiti which works for the farmers' cause. "Of course, he still has to pay for the loans taken in previous years," he added.
The SBI Officers' Association, which normally is very vocal on policy matters, has been a little tepid on this issue. V Sudarshan, who heads the body and is based in Bengaluru, said it was "indeed" a serious issue but "I would not like to comment on it now".
WORKING THE BOOKS
State Bank of India tweaks overdue farm loan accounts across India in June, July
Current season's standing crop 'inserted' as security against unpaid short-term farm loans below Rs 1 lakh taken even 10 years ago
Farmer's land 'inserted' as security for old bad loans over Rs 1 lakh
No effect of this on farmers; PSU banks never take possession of crop or land to repay loans
But without such 'securities' on farm loan, SBI needs to keep aside an amount equal to the loan from its profits
Drive can help SBI report lower losses on farm lending front, and show higher profit in next quarter
RBI officials 'are aware of the issue and examining it'
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