Banks are increasingly lapping up the scheme for taking over loans taken by farmers from moneylenders. Besides helping banks in meeting priority sector lending norms, which is 40 per cent of the total advances, the scheme also involves minimal risk.
Banks are mostly extending the scheme to existing crop borrowers. The interest rate on such loans is linked to the prime lending rate.
The small loan size, strict vigil of bankers and the already high interest rates paid by the borrowers to moneylenders make the scheme attractive for banks.
Banks are also devising new models for recovering such loans, mostly by deploying agents or vendors on a daily or weekly basis in rural areas.
For example, Syndicate Bank, which pioneered the Pygmy Deposit scheme for small-scale savers and borrowers, is using Pygmy agents for recovering and monitoring the use of loans on a daily basis in its Small Credit scheme.
Through the programme, it provides loans up to Rs 2 lakh per borrower.
Under its two debt-swap schemes, Synd Jai Kisan and Small Small Credit, the bank has so far given out nearly Rs 214 crore and Rs 70 crore respectively.
"We conducted a survey and found that in certain cases moneylenders charge as high as 96 per cent annually. Giving bank loans to such borrowers is a win-win situation for both. We will take the scheme forward in the coming days," said George Joseph, MD, Syndicate Bank.
UCO Bank launched the debt-swap scheme in July last year and has advanced Rs 7.50 crore (Rs 75 million) so far with the maximum loan at Rs 25,000 per farmer.
"The risk of lending is much less in case of debt swap as the loan is given to farmers who already have security deposits with the bank in most cases. Standalone debt swap is relatively rare," said an executive of Uco Bank.
The bank plans to use vendors under its technology-based financial inclusion for collecting repayment.
Union Bank of India has also launched debt swap scheme by employing business correspondents for repayment.
