Banks brace for high agri defaults, low credit offtake

According to PSU banks, recovery of short-term loans so far is 20% lower than in last year

Banks are bracing for high defaults in agriculture loans this financial year. While demonetisation had already affected recovery, rumours of debt waiver in states where Assembly 

elections were held have added to the defaults.  

This apart, drought in southern states such as Karnataka and Tamil Nadu have further accentuated defaults.

According to public sector banks (PSBs), on a conservative basis, recovery of short-term loans so far this year have been around 20 per cent lower than last year. 

The impact of a slow recovery is already visible in fresh offtake of loans. According to data from the Reserve Bank of India (RBI), agriculture loan growth on a year-on-year basis, as of January 20, was around eight per cent against 13 per cent in the corresponding period in January 2016. Agriculture loan growth was one of the lowest in the last three years. 

At Kolkata-based United Bank of India (UBI), recovery of short-term rabi loans has been around 20 per cent less. Against a recovery of around Rs700-800 crore last year, recovery in rabi crop loans has been around Rs550-650 crore so far this year.  

According to a Syndicate Bank spokesperson, this year the bank would require to restructure a large number of agriculture loans, mainly on account of drought. 

Notably, Kerala, Karnataka, Tamil Nadu and Puducherry have declared themselves as drought-affected. A State Bank of India spokesperson, too, confirmed this year’s defaults in agriculture loans could be higher, while fresh credit offtake would be lower. 

In the wake of the cash crunch because of demonetisation, RBI had in December 2016 granted an additional 60 days for repayment of farm loans which were due between November 1 to the end of the year. Later, it extended the repayment tenure by another 30 days, giving farmers a window of an extra 90 days to repay loans due within the stipulated period.

The kharif loan recovery season is generally at peak around November-December. Recently. Rajasthan Cooperative Minister Ajay Singh during the Question Hour in the Assembly had said the recovery of crop loans granted to farmers during the kharif season was as low as 14.50 per cent, as the government did not force them for repayment.

The cases of defaults are higher in states where recent Assembly elections were held, as farmers hoped for a loan waiver, said a PSB official.