Money & Banking

Farm-loan waivers turn nightmare for banks

G Naga Sridhar Hyderabad | Updated on December 04, 2018 Published on December 04, 2018

Farmers in election-bound States have stopped repaying in anticipation of write-offs

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.

Recent waivers

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.

Published on December 04, 2018

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!


Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.