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'Loan waiver, mounting NPAs may force banks to stop lending to agri sector'

Waivers may impact supply of credit as lending to agri sector could dry up, say HDFC's economist

Press Trust of India  |  Mumbai 

hdfc, bank, HDFC bank

Days after it reported spike in its own NPAs due to farm waivers, Bank on Friday warned that lenders may discontinue fresh lending to the agriculture sector.

"are likely to see increase in NPAs in the agriculture sector and a general worsening of culture," its economists said in a note.

"waivers are likely to also impact the supply of as fresh lending to the agriculture sector could dry up," they added.

Bank, country's second largest private sector lender, known for its asset quality, reported a 0.20 per cent jump in gross NPAs for the June quarter.

The city-headquartered bank had said up to 0.13 per cent contribution in the fresh bad loans was from the agri sector. Other lenders have also reported similar difficulties.

"With some farmers receiving waivers, other farmers across states, even those who are able to pay, are wilfully defaulting on loans in order to get waivers. Thus resulting in a classic microeconomic problem called the moral hazard," it said.

could adopt indirect approach like supplying through microfinance institutions, it said.

Strategies, like staggering of or converting loans into bonds, are also likely to create cash flow problems, it said.

Flagging another concern, the note said unlike Uday Bonds for the power sector which focused on creating efficiencies in the system, there are no such measures in the farm side.

"Borrowings for farm are unlike those that were done under the — which were contingent on certain conditions that were aimed at improving DISCOMs' efficiency. Therefore, farm waivers are freebies that are overall negative for the culture and markets," it said.

Uttar Pradesh, Maharashtra, Punjab, Karnataka, Telangana and Andhra Pradesh have announced waivers recently.

The bank pegged the total waivers at Rs 2.3 lakh crore or 2 per cent of the GDP in FY17.

The note argued that FY09 announcement had led to changes in allocation and increase in defaults in India with post performance declining faster in districts with greater exposure to the program.

Only a third of the small and marginal farmers will benefit from the move as two-thirds are outside institutional and depend on moneylenders or relatives, it said.

waivers also do not help on consumption and investment fronts, it said, citing studies done after FY09.

On crop insurance, it said insured amounts are seldom sufficient to cover the amounts and there is also the risk of insurance amount being used for basic necessities or funding the next sowing which does not guarantee repayments for the

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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