The increasing demand for farm-loan waivers and slippages in existing loan repayments by farmers in anticipation of write-offs are giving banks a nightmare.
Apart from drawing the attention of policy makers and political pundits, last week’s mega farmers’ rally in the national capital has also created tremors among bankers.
“The expectation of agricultural loan waivers next year when elections to the Lok Sabha and some key States are slated to be held is so high that some farmers in many States have gone slow on their repayment, leading to a bigger bad loan portfolio,’’ said a senior official of a leading public sector bank.
While overall data for banks are not available yet, individual cases of election-bound States with loan write-off prospects show increase in agri NPAs.
In Telangana, which is going to polls on December 7, NPAs went up by ₹18,194.49 crore in the quarter ended June 2018. Similarly, non-performing assets in agricultural loans had increased by ₹4,795 crore in the quarter. While NPAs in agri term-loans crossed 12 per cent, bad loans in total agriculture advances stood at 7.70 per cent.
The NPAs in total outstanding agricultural advances touched 23-30 per cent across States. Bankers are expecting a major announcement in the ensuing Union Budget about waiver of certain categories of farm loans and are gearing up to face it.
The recent history of waivers is a case in point. These include the Agricultural Debt Waiver and Debt Relief (ADWDR) Scheme announced by the Central government in 2008 and State-specific farm-loan waivers announced by Andhra Pradesh and Telangana in 2014; Tamil Nadu in 2016; and Uttar Pradesh, Maharashtra, Punjab and Karnataka in 2017.
As per RBI data, UP’s farm-loan waiver was at ₹36,000 crore – around 2.5 per cent of its Gross State Domestic Product (GSDP), while in Maharashtra it was at ₹34,000 crore. Punjab provided ₹1,500 crore in the State budget for 2017-18 for loan waiver, while Karnataka has announced a waiver amounting to ₹8,100 crore for farmers availing loans from cooperative banks.
The loan-waiver promise by States which had either gone to polls or are now going such as Telangana amount to ₹40,000-90,000 crore approximately.
At a time when inflation and fiscal deficit are major concerns in the backdrop of stress on other segments of banks loans, loan waivers can only worsen the situation for already beleaguered banks.
Economists and the RBI have also been critical of such moves.
The micro lenders, another key players in rural credit, however, are not worried. “Historically, there has been no data to show that farm-loan waivers adversely impacted MFI advances,’’ BR Diwakar, Chief Financial Officer, CreditAccess Grameen Ltd, said. The repayments rates for NBFC-MFIs are over 99 per cent, as per MFIN data.
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