“We feel that in case of a (agriculture) loan waiver there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. As such, future loans given often remain unpaid,” Bhattacharya said on the sidelines of a CII event in Mumbai. However, she added that the bank has not yet received any loan waiver proposal.
As of the first quarter of 2016-17, close to 10% of the Rs 86,000-crore farm loans in Uttar Pradesh, mostly disbursed by public-sector banks, are assumed to be impaired, according to a report by Kotak Institutional Equities. Out of Rs 13,300 crore worth farm loans extended by SBI in UP as of Q1FY17, 27% are overdue, the report said.
Bhattacharya said while it is important for banks to make credit available to farmers so that they can leverage and do better, it is also important to maintain credit discipline. She isn’t alone in questioning the policy of loan waivers and interest rate subvention. In 2014, then Reserve Bank of India governor Raghuram Rajan had said interest subventions and loan waiver could distort the price of credit and also lead to misuse of such schemes. Recently, RBI governor Urjit Patel said “steep interest rate subventions and large credit guarantees impede optimal allocation of financial resources and increase moral hazard” and, as such, these don’t solve the sector-specific issues.
Even the Rs 60,000-crore farm loan waiver scheme announced by the UPA government ahead of the 2009 general election attracted criticism from the Comptroller and Auditor General, which had said that 8.5% of farmers out of 80,299 accounts audited were not eligible for debt waiver.
Fresh crop loans to UP farmers have been to the tune of Rs 65,000-75,000 crore per annum over the last few years, or around 9% of the such loans to farmers in the country. “Crop loan disbursed to UP farmers during 2016-17 rabi season was around Rs 32,700 crore, and more than 95% of this was by commercial banks and the balance by cooperative banks. During the 2016 kharif period, fresh loans disbursed was to the tune of over Rs 30,000 crore, with a sixth of it by cooperative banks,” a UP finance department official had earlier told FE. Any waiver of these loans will likely add roughly 70 basis points to the state’s fiscal deficit.
The loan waiver promise comes at a time banks, especially the public-sector ones, are struggling with non-performing assets (NPAs). More than four-fifths of the NPAs are estimated to be in public-sector banks, where the NPA ratio had touched almost 12% compared with 9% across all banks as of September last year. The NPA ratio worsened by the end of December 2016. According to CARE Ratings, bad loans touched Rs 6,97,409 crore, or 9.3% of banks’ advances, by December last year, rising from Rs 4,37,859 crore a year earlier.
Meanwhile, the finance ministry on Wednesday said the rate of increase of bad loans has slowed in the current quarter of 2016-17. It added that the steel sector, with a significant exposure, shows sign of improvement and that the setting up of more oversight committees, along the lines of the one already established by the RBI, is under consideration to address the NPA crisis.
Speaking at the first meeting of the Consultative Committee (which has members cutting across political parties), finance minister Arun Jaitley said the government is taking sector-specific measures to deal with the NPA problem, specifically for the resolution of large cases of debts. The members of the committee suggested that the government set up the Public-Sector Asset Rehabilitation Agency (PARA), as mooted by the latest Economic Survey, and it should only consider those NPAs where sector-specific reforms do not work. It was also suggested that the government explore long-term debt market for financing NPAs.
Members also suggested a close monitoring of private-sector asset reconstruction companies (ARCs), which haven’t done well so far, especially in the wake of the government’s decision to allow 100% foreign direct investment in ARCs through the automatic route. Other suggestions include allowing state governments to take part in the auction of stressed assets to fixing the gross NPA norm in the range of 9-10% as well as not counting the asset as an NPA if it has been restructured.
Source : Financial Express