Farmers' distress boon to gold loan firms

N Viswanath & Y Santosh Reddy Anantapur: Farmers in the drou- ght-prone Anantapur district who have run into huge debts due to failure of crops in the last few years have another loss to bear at the family level. It is gold. It is common knowledge people have insatiable thirst for gold. Besides being a status symbol in the form of jewellery, the yellow metal is a hedge against inflation and can be converted into cash at any time to tide over financial crisis in the family. From marriages to children's education and farm loans, gold ornaments are pledged either with banks or private lenders, generally at high interest rates. If the gold depositors fail to repay their loan amounts, the precious metal goes into the vaults of banks and lenders as it is happening in Anantapur district where the gold pledged is as much as 50 kg per day on an average. Traditionally, farmers give their daughters certain quantity of gold at marriage time and the womenfolk will never part with it unless it is absolutely essential. They regard gold given by their parents and in-laws as family treasure and are highly sentimental about it. They never touch it except as a last resort. The fact that the gold of most of the housewives in the villages of the district is in the vaults of private gold loan companies underlines the distress situation the farmers are facing. Reason? The farmers have exhausted all the loan avenues from banks to raise crops in the last few years. Due to failure of monsoon and depletion of ground water levels, the crops have withered away throwing the farmers into massive losses. Even though they spend huge sums to dig borewells, they are not able to draw water for their crops due to fall in the ground water table. The long spells of power cuts have worsened the situation. Spiraling prices of essential commodities and escalating expenses of children's education have added to the woes of farmers. They are left with no alternative but to mortgage their family gold to meet the immediate expenses. But once they pledge their gold, rarely they take its repossession because of high interest rates. As a result, farmers are forced to abandon the gold with the private companies, who auction it if it is not redeemed within one year. The distress of farmers is proving to be a boon for private gold finance companies which are mushrooming in the district. It explains why there are more gold loan private company branches than scheduled banks' ATM kiosks. There are about 65 branches of private gold loan companies in the district. While Manappuram has 31 branches, Muthoot has 14. According to reliable sources, Manappuram has a turnover of about Rs 350 crores in the district. In Saptagiri Circle Branch in Anantapur town, about 90 farmers, small businessmen and unorganized sector employees take loans to the extent of Rs 20 lakhs a day. In 11 branches in Anantapur town, about 150kgs of gold is pledged to get a loan of about Rs 30 crores. An official of the company told the Hans India that the recovery of loans is about 70 percent. The remaining 30 percent of the gold is auctioned off after lapse of one year. This goes to prove that at least 30 percent of the farmers who pledge their gold with these companies lose it forever. While Muthoot Finance Corporation has 519 branches all over the State, it has 14 branches in the Anantapur district. Its officers have refused to speak about their turnover or the volume of their business. But informed sources say it has comparable business with that of Manappuram Finance Limited. There are other companies like IIFL, Sri Ram Gold etc. All the companies put together, they are doing a business of about Rs 800 crores per annum. In this financial year, the scheduled banks extended gold loans worth Rs 194 crores to farmers. This is ten percent more than the previous financial year. Another Rs 250 crores worth gold loans were given to farmers, small businesses and others. This means more than Rs 1000 crore loans were drawn from either scheduled banks or private companies in the district by mortgaging gold. While the scheduled banks are giving loans to farmers at 4 percent interest, the private companies are offering them at varying rates, averaging 24 percent, under a variety of names like, Easy Gold Loan, Super Loan, Express Loan, True Value Loan and Fair Value loan etc. Different categories of loans carry different interest rates. How farmers are suffering due to failure of crops and loans taken on gold and land can be seen in the tales of woe gathered by the Hans India. Venkat Ram Reddy of Kanampalli village said he mortgaged four tolas of gold ornaments to Manappuram and took a loan of Rs 85, 000 to raise second groundnut crop as the earlier one had failed. He is paying an interest of Rs 4000 every month. He said consecutive years of drought have ruined him. He is apprehensive whether he would be able to regain his gold. Another farmer, Ramanjaneyulu of Katne Kalva, said he pledged gold with Karur Vysya Banka and took a loan of Rs 1.30 lakhs to raise groundnut crop six years ago. He was not able to repay the principal amount. He is paying only the interest due to drought conditions. Narayana Reddy of Narpala village said he took a loan of Rs 40,000 by mortgaging gold with Manappuram to pay for the school fees of his children as the crops had failed. Though he has been regularly paying the interest, he said, he is not sure he would be able to redeem his gold. A housewife from Thadi Kothapalli, Pramila, said she pledged her tali to pay her son's school fee as they did not have money due to crop failure. She said the government should write off the loans and save the farmers. Adinarayana, a farmer from Katne Kalva village, said he mortgaged his four acres of land to SBI and took a loan of Rs 2.60 lakhs four years back. Four years of crop failures have made him a pauper and he is unable to repay even the interest. The bank has given him notice to pay Rs 3.86 lakhs. He said he might not be able to pay the loan and redeem his land. One of his sons mortgaged gold to buy an auto to run it in the town. But he is not in a position to pay even the interest and rues that he might lose the gold to the private company. The farmers are waiting for the government to write off the farm loans to save them from indebtedness as the consecutive droughts in the backward Anantapur district have robbed them of their livelihood.