Feast of Memories -10

Dr. Madhavan shares his reminiscences in a series of articles. He has named these memoirs as “Feast of Memories”. In this episode he talks about farmer loans for mulch animal
purchase from the State Bank of India in Erode.

State Bank of India Loan for Milch Animals

Loan was synonymous with cooperative. When we talked to farmers on formation of cooperatives, the first question invariably asked was whether we will give loan for purchase of milch animals (cows and buffaloes).

Rightly so, most of the milk cooperatives formed were for advancing loans. Loan was used as a bait to form the cooperative. It was not for helping the farmer to provide an assured and remunerative market for milk. Nationalised banks advanced loan to the farmers for purchase of milch animals through the cooperatives.

The cooperatives were obliged to collect the loan instalments from the farmers and remit it with the banks. The farmers were happy when loan was advanced, but were the unhappy lot when loan instalment was deducted from their milk payments.

For fear of loan deductions, they stopped giving milk to the cooperative and sold it to private traders, even at lower prices. The cooperative lost the milk and the members and eventually, became defunct. This was the story everywhere, in all the states.

Advancing loan didn’t result in increasing milk production. It only shifted milk from one area to another: the total milk production in a given area remained almost the same.

Moreover, there was acute scarcity of good cows and buffaloes to meet the requirements under “Milch animal loaning programmes”. In many cases, loans were availed on the existing animals. In some cases, loans had been disbursed on “borrowed animals” also.

There were also cases where farmers availed the loans but didn’t purchase the animals.

I recall an interesting case where the local MLA rebuked the officer concerned for not recommending the loan saying that the farmer (applicant) had fixed his daughter’s marriage hoping that the loan will be sanctioned! Operation Food Programme didn’t support such unproductive loaning programmes. Also, didn’t permit the Anand Pattern cooperatives to involve in such loaning activities.

State Bank of India (SBI) had advanced loans to several farmers in Erode for purchase of milch buffaloes, through Nilgiri Dairy Farm (NDF). NDF had given repayment guarantee to the bank for the loan advanced.

NDF had made their agents responsible for collection of loan instalments and remitting it with the bank. The agent thus became the main link between the bank and the borrowers. To NDF, SBI loan came handy to exercise full control over the farmers (borrowers) to ensure regular milk supply.

The agent facilitated issue of loans. He kept all the documents, including the passbooks issued by SBI. The agent received the loan amounts and passed it on to the borrowers, but after deducting certain amount towards miscellaneous expenditure.

The details of such deductions were not given to the borrowers. Many borrowers didn’t even know about such deductions as they had no access to their passbooks.

With the loan amount, the borrower bought the buffalo and started supplying milk to the agent of NDF. The agent didn’t provide details of the quantities of milk supplied, the amount due, the deductions towards loan repayment, etc.

The agent owned a kirana (provision) shop from where the borrower purchased many things. Those transactions were not recorded and given to the borrower. As the passbooks were with the agent, the borrower didn’t know how much loan had been repaid and what the outstanding loan amount was.

After the borrower supplied milk for several months, the agent will arrange to have another loan issued to the same borrower, without the borrower asking for it. The borrower may or may not buy another buffalo. By this way, the borrower was totally confused and got bonded to the agent.

Many times, though the loan instalments had been regularly deducted from the milk amounts, as per the schedule given by the bank, the same were not remitted with SBI and the borrowers got notices from the bank for non-repayment.

The price paid by the agent (NDF) was very low as compared to that paid by the cooperatives. The price was also not based on milk tests as the agent didn’t have milk testing facility.

The cooperative price was much higher, based on individual milk tests. NDF and their agents were actually using SBI loan to safeguard their interest, by exploiting the farmers.

When the Team noticed that such a scandal was going on, we approached the SBI Manager at Erode and apprised him of this. We told the Manager that the price offered by the cooperative was much higher and that SBI should permit the borrowers to supply milk to the cooperatives and allow them to repay the loan directly to the bank and not through NDF.

The Manager out rightly rejected the suggestion and categorically said that the loan will be repaid only through NDF. It was obvious that the NDF and their agents were behind the game.

We told the Manager that the borrowers had already started supplying milk to the cooperatives because of the higher prices they got and the bank will lose the loan amounts should the borrowers were not permitted to repay the loan directly to the bank.

He said that the bank knew how to recover the loans should the borrowers violated the loan conditions. Clearly, there was an unholy alliance between SBI and NDF. SBI knew that the NDF would be the loser (they will lose all the milk) if the borrowers were permitted to repay the loan directly to the bank.

We encouraged the SBI borrowers to supply milk to the cooperatives. The borrowers were very happy because they were getting much higher prices. SBI promptly issued legal notices to the borrowers and even threatened them that their buffaloes will be confiscated. It was a pathetic site that several farmers (borrowers) approached us with such notices and threatening from NDF and its agents when we visited the villages.

Fortunately, the Chairman, NDDB had come to Madras during that time. I met the Chairman and explained the problems faced by the farmers who had taken loans from SBI for purchase of milch animals.

He patiently listened to the misery of the farmers. On his way back to Anand, Dr Kurien spoke to Mr Talwar, Chairman, SBI and narrated the story.

Mr Ramamurthy, Divisional Manager from SBI Madras came down to Erode to investigate the matter. I took him to a cooperative organised by the Team and he saw how the new society functioned and that milk payments were based on individual milk tests conducted at the society. I told him that the prices received by the farmers from the society were much higher, as compared to what NDF paid.

I requested Mr Ramamurthy to verify the facts himself which he did. He checked the society records and spoke to some farmers and was totally convinced that the farmers were getting higher prices from the society.

Mr Ramamurthy informed the Manager at Erode what he had seen at the cooperative and said that he was convinced that the society was paying a much higher price. He asked the Manager why the borrowers should supply milk to NDF at a lesser price, that too when the prices were not based on milk tests.

Mr Ramamurthy agreed that the borrowers could supply milk to the society and repay the loan directly to SBI. He said that the loan repayment will be faster because of the higher prices received from the society.


The farmers won the battle. Thanks, of course, to the Anand Pattern cooperative!

Contributed by Dr. E. Madhavan, Former Regional Director NDDB , Mumbai

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