Institutional Credit and Overdues D Rajasekhar G Suvarchala STUDENTS of political economy have been arguing that, in the rural areas, the financial system has been subordinated to the interests of the rural rich. Pointing to the growing political clout of the farmers' organisations, reflected in the prominence of political stalwarts like the late Charan Singh and Devi Lal, it has been argued that the rural bank- ing system has been (mis)used to provide subsidies and easy money for those who belong to this class. Overdues to the banks are only a symptom of this basic malaise. Be that as it may, we are grateful to A S Kahlon for initiating a debate on this important issue (Institutional Credit and Over- dues: Borrowers' Angle', EPW, February 2, 1991) within the narrower framework of the existing financial system. The main argument of the paper is that the loan policies and procedures of lending institutions have impaired the borrowers' ability to secure adequate incremental returns to enable them to repay their loans. Consequently, the over- dues have been mounting. The author, by using evaluation studies, District-Oriented Monitoring (DOM) studies and supply side studies conducted by NABARD in the early 1980s (which are not easily accessible to researchers), highlights the impact of factors like under-financing, tight repayment schedules, absence of initial grace period, short loan maturities and delays in sanctioning of loans, on overdues. While emphasising these points, the author has noted the hiatus between actual implementation and the set guidelines. For instance, as per the guidelines of NABARD, a banker must give 11-15 years' time to the borrower in order to enable him to repay instalments for schemes like dug-well with pumpset. However, in reality the borrowers are provided with only a 10-year term. Similarly, the author has noted the variation between the actual unit cost and amount disbursed in various categories of loans, once again arguing that the shortfalls have contributed to the default. Thus he concentrates on the causes of non- wilful default.
