Nagpur: The Nagpur District Central Cooperative Bank (NDCCB), which finally got a banking licence again from RBI this week, will now have to deal with massive farm loan defaults, amounting to 57% of its advances. As a district central cooperative bank (DCCB), its primary role was to lend to the farmers. As the bank's condition deteriorated, many farmers preferred to hold off repayment till the outcome was clear. A poor crop in 2015 is also one of the reasons for low recovery, say sources.
Now, as the bank is set to reopen, defaults by farmers are more than the money it lost in the investment scam of 2002 that led to its downfall. The bank's lending stopped in 2014 even though its situation had begun deteriorating after 2010. The root cause was that it lost Rs150 crore due to the investment fraud in which Congress MLA Sunil Kedar is the main accused. The scam left a big hole in the bank's balance sheet.
Today, however, the bigger problem is recovering farm loans to the tune of Rs265 crore, which have turned non-performing assets (NPAs). This comes to 57% of the total advances. Unless enough recovery is made, there is a little scope for allowing withdrawals by depositors once the bank resumes work, say sources.
Sources say it was seen that once the bank's condition started deteriorating, borrowers preferred to stop repayments and wait. The bank did not grant any fresh loans in 2014-15 and 2015-16, so defaults also swelled during these years.
On March 2012, the NPAs stood at 13.5% of the total loans worth Rs389 crore. The next year, it was 14% of total loans of Rs500 crore. As on March 2014, out of total loans of Rs468 crore NPAs were Rs112 crore, touching 23%, The next year, the NPAs jumped to 57%.
Crop losses during last year can also be attributed to the low recovery. Once the government survey declares a loss of more than 50%, coercive action cannot be taken to recover the loans, sources said.
The bank management is planning to appeal to farmers to repay their loans by March 31 and get fresh credit under the new scale of finance. Each year, the amount to be lent is increased by 10% for crop loans. It is expected that farmers will turn up with money so that they get fresh loans. The NPAs will have to be reduced by at least half. Though the norms call for 15% of gross NPAs. The bank hopes to recover Rs100 crore and give fresh loans to the tune of Rs105 crore against it, a source said.
IN A NUTSHELL
NDCCB farm loan defaults stand at Rs265 crore, 57% of total advances
This is more than the amount, Rs150cr, it lost in investment fraud of 2002
2002 scam is root cause of NDCCB's fall
Borrowers preferred to stop repayments as they saw bank's condition was failing
Poor crop also considered a reason for defaults
Withdrawals can only happen after enough recovery of loans takes place