The board of the Bank for Agriculture and Agricultural Cooperatives (BAAC) repeatedly refused to use its liquidity of 55 billion baht to advance money to unpaid farmers who pledged paddy for the current main crop.
The latest action adds to signs the caretaker government is hitting a wall in seeking funds for payments under the rice pledging scheme.
The caretaker cabinet's resolution at Tuesday's meeting requiring the bank to use its own liquidity to pay farmers is unclear, which is why the bank's board has insisted it will not pay advances to farmers, a bank source said.
The BAAC already paid about 180 billion baht in advances to farmers for paddy pledged during the first two harvest years of the pledging scheme, starting from the 2011-12 season.
The scheme, a key Pheu Thai Party policy that helped it win a landslide victory in the 2011 election, is facing deadlock after delays to payments to farmers who pledged paddy for the main crop, running from October to the end of February.
The caretaker government lacks the authority to allow the bank to borrow fresh money as it would breach election regulations, while the income stream from rice sales by the Commerce Ministry is insufficient.
The ministry has paid 180 billion baht received from releasing rice in stockpiles back to the BAAC. The money has been paid to service the government's debt owed to the bank for the first two harvest years.
Farmers from Phichit and Kamphaeng Phet provinces this week staged rallies to block a highway in Phichit, while others in Phitsanulok province rallied in front of the provincial hall demanding the caretaker government pay money owed to them.
Even though they called off the rallies after the government promised to pay them, they will call a new protest if they are not paid.
For the main crop of the 2013-14 harvest year, about 9 million tonnes of paddy worth 95 billion baht have been pledged. However, only 51 billion baht has been paid to farmers.
The source said less than 20 billion baht is available at the bank to pay farmers and the money is expected to run out next week.
BAAC labour union chief Prasit Pahome said the union could take legal action including an injunction to sabotage the government's relentless efforts to use the bank's liquidity for advance payments to farmers.
Even though the bank has liquidity of 180 billion baht, it is deemed not to be a high amount in view of the reserve requirement to comply with the central bank's regulation and the bank's obligations to its financial products, he said.
Mr Prasit also said the bank's board must take responsibility if it allows the bank to pay advances to farmers as such an action would be considered an incorrect use of the liquidity. Using additional liquidity to finance the scheme could erode depositors' confidence and lead to a bank run, he said.
Caretaker Deputy Prime Minister and Commerce Minister Niwatthamrong Bunsongphaisan said the BAAC should pay advances to farmers as the caretaker cabinet has already approved borrowing of 130 billion baht.
The Election Commission is considering the plan to borrow 130 billion baht and will decide if the government can proceed.
The bank is required to use liquidity to pay advances when the Commerce Ministry is waiting for money from new rice sales, he said. The ministry will hold a new auction to sell 150,000 tonnes of rice through the Agricultural Futures Exchange of Thailand next Wednesday.