How are unregistered NBFCs regulated

A toxic mix of credits


Listen to this story.

Brothers Narayan Shelke and Janglu Shelke from the village of Bothbodan, Yavatmal, committed suicide in 2014 and 2018, respectively, in 2014 and 2018, according to their family. Together they owned 1.6 hectares of land on which the cultivation of cotton and soybeans was constantly affected by hailstorms and periods of drought.

Narayan's nephew, Kawadu Shelke, reports, “He [Narayan] was unable to repay rupee 50,000 (US $ 706) loans taken out with the [Yavatmal] DCC bank and the Central Bank of India. Bank officials visited his home and asked him to repay the loan. Ashamed and afraid that the bank might take his land away from him, he committed suicide.

The brothers Narayan and Janglu Shelke owned two hectares of farmland in Bothbodan village. Since they were unable to repay the loans for their farming due to crop failures, they committed suicide. (July 21, 2019, Bothbodan, Yavatmal District)

Narayan's brother and Kawadu's father, 65-year-old Janglu, also committed suicide in September 2018 from failing to shoulder the brunt of the crop failure and a mountain of debt - 40,000 rupees ($ 565) from the Yavatmal DCC bank and the Punjab National Bank and 35,000 rupees (US $ 494) from Andhra Bank - could not settle. Yavatmal DCC Bank, Central Bank of India, Punjab National Bank and Andhra Bank did not respond to a request for comment.

The source of the loan

According to a September 2019 report by RBI (Reserve Bank of India), scheduled commercial banks provide 70 to 80 percent of agricultural loans. Cooperative institutions such as state cooperative banks (StCBs), regional DCC banks, and primary agricultural credit unions (PACS) contributed 15 to 16 percent of agricultural loans in March 2017. In Maharashtra, the cooperatives' contribution to agricultural loans was higher at 31 percent.

According to the same report, NBFC-MFIs (Non-Banking Finance Company-Microfinance Institutions) also contributed to the agricultural loans. In the period 2013-2019, the number of NBFC-MFIs was classified as loans from banks to NBFC-MFIs as a priority lending sector due to the RBI's guidelines on the regulation of NBFC-MFIs. The RBI also stipulated that MFIs must use at least 50 percent of the loans for income-generating activities that MFIs have allocated to agriculture, livestock and trade. According to data from the industry association MFIN, the agricultural loans of the NBFC MFIs made up 57 percent of their gross loan portfolio in March 2019.

Sukhdev Sonpat Narote, 65 years old from Devpur Village, Buldhana District, hanged himself from a tree on April 24, 2019. Sukhdev did not get a bank loan for 2 acres of farmland and instead took a mortgage of 140,000 rupees ($ 1977 US) from Mahindra Finance, an NBFC, and relatives. Like other farmers, his soybean harvest had failed in the past two years because there was no rain.

According to Narote's son Vishwanath, the Mahindra Finance loan was in his brother Sandip's name, even though his father had taken out the loan. “The company representatives took away the papers for our house as a mortgage. We'll have to pay 25,000 rupees ($ 353) every six months for the next five years. But we didn't get a loan card, ”he says. Mahindra Finance has not responded to several requests for comment.

Bank loans are often difficult to come by for people like Narote. The farmers cannot always offer collateral, are engaged in unprofitable subsistence farming or are not found to be creditworthy by the banks. This forces farm households to draw on loans from NBFC-MFIs, financial corporations, financial corporations, provident funds, insurance companies, relatives, friends, moneylenders and landlords.

Private lenders made life difficult for 50-year-old Ramesh Gofnarayan from Ghusar Village in Akola County, according to his son Nitin. “Private lenders from whom he borrowed came regularly to ask for repayment. This embarrassed him. He was depressed. But we didn't know he'd take such a drastic step. ”Nitin doesn't know how much his father owed on agricultural loans from the lenders. Ramesh had also received a rupee 50,000 ($ 706) loan from Akola DCC bank that was not waived after his suicide and that his family is now paying back.

Loan waiver - without any effects?

The Maharashtra government announced a debt relief of 340,000 million rupees (over $ 4 billion) in the lead up to the 2017 state elections to ease farmers' plight. But the suicides continued, with 4,500 farmers committing suicide following the debt relief announcement, according to an RTI request submitted by Ghadge. On the other hand, 100,000 rupees ($ 1,412) in compensation to families of peasants who have killed themselves are increasingly denied because claims for compensation have been denied, Maharashtra State Treasury said in response to Ghadge's questions about the RTI -Inquiry.

According to a September 2019 report by the Internal Working Group on Agricultural Loans Review (RBI), the announcement of loan waivers during election cycles suggests political opportunity and fails to address long-term problems in agriculture. In other states where debt relief was announced, the number of banks' non-performing assets (NPA) rose as people stopped repaying loans in anticipation of debt relief, including Maharashtra, which was among the highest in 2017-18 of NPAs had.

However, a 2019 India Spend report found that the total indebtedness of India's ten largest corporate borrowers, including Reliance ADAG, Vedanta, Essar, Adani and Jaypee, was four times the farmer loan waiver the governments of ten States announced between 2017 and February 2019. Another loan waiver was announced in December 2019.

Institutional credit and DCC banks

According to information from the State Crimes Records Bureau (SCRB), Pune Criminal Investigation Department, on the Global Ground Media Had access, the number of suicides due to loans from banks or registered MFIs in 2015 was 224 for Amravati, 183 for Yavatmal, 142 for Wardha, 86 for Buldhana and 62 for Washim.

Interviews by Global Ground Media of nearly 40 farming families in the Amravati region whose family members committed suicide, identified at least 12 cases where the farmers had taken out loans from regional DCC banks.

Short-term institutional loans for rural India, including Maharashtra, are disbursed through state-run credit unions, DCC banks, and primary agricultural credit unions (PACS). The profitability of DCC banks, in terms of both operating and net profit, declined in 2016-17.

According to data compiled by Indian Express, the districts in Maharashtra with the highest number of peasant suicides in 2015 also had the DCC banks with the highest NPA scores. The highest number of peasant suicides was recorded in the Yavatmal district (383), where the percentage of NPA values ​​from DCC banks was 38.02 percent. In Amravati, 306 peasant suicides were recorded, with the percentage of NPA values ​​of the DCC banks being 25.38 percent. In Buldhana, where 189 peasant suicides were recorded, the percentage of NPAs in DCC banks in the district was as high as 85.74 percent.

One consequence of the high NPA levels is that bank managers are feeling increased pressure to collect loans.

Professor Ramakumar explained Global Ground Media: “The net result of the credit unions is suffering, so they may put more pressure on the customers. Bank managers on the lower level, such as the branch level, but also on the district, district, state and federal level must report to their headquarters and prove that the claims have been collected. They increase the repayment rates and enforce them, which the farmers perceive as a nuisance. Just as moneylenders urge borrowers to repay, so do commercial and credit unions. Unsurprisingly, the peasant suicides are also linked to formal banking institutions. "

Professor Ramakumar also points out the trend for commercial banks to use outside agencies or agents to collect accounts receivable from borrowers. “In such cases, the bank does not contact the borrower - the agency does. This type of outsourcing takes place on a large scale, especially at commercial banks. "

If you need help or know someone who does, please reach out now through a suicidehotline near you.

Article by Urvashi Sarkar.
Editing by Mike Tatarski and Anrike Visser.
Fieldwork by Varsha Torgalkar.
Research by Peter Allen Clark.
Picture by Abhaya Gupta.
Illustrations by Imad Gebrayel.

This article was developed with the support of the Money Trail Project (

Global Ground is investigative, independent journalism. We're ad-free and don't sell your personal data, so we mainly depend on donations to survive.

If you like our stories or think press freedom is important, please donate. Press freedom in Asia is under threat, so any support is appreciated.

Thanks in advance,

The Global Ground Team