Maharashtra farmers delay loan repayment on hopes of a debt waiver

Speculation of a loan waiver is leading to more defaults in loan recoveries

District central cooperative banks in Maharashtra have become victims of Uttar Pradesh’s farm loan waiver. Borrowers are delaying payments in the hope their loans will be waived as well after the Uttar Pradesh government announced a farm loan waiver earlier this month.

Cooperative banks in Maharashtra were facing issues in loan recoveries after last year’s note ban. Speculation of a loan waiver is leading to more defaults.  

ML Sukhdeve, chairman, board of administrators, Maharashtra State Co-operative Bank, said, "The expectation of a waiver is affecting credit discipline." Loan repayments in Maharashtra were steady even after severe droughts in 2014-15 and 2015-16.  

A cooperative bank employee said the tendency to delay payments was higher among those who had the capability to pay. Small and marginal farmers are aware that fresh credit for the new crop season will not be forthcoming unless past dues are cleared. The interest rate subvention is available only when repayments occur.

An executive with the National Bank for Agriculture and Development (Nabard), the supervisory body for district central cooperative banks, said recoveries were under pressure and the picture would become clearer in June.

Reserve Bank of India (RBI) Governor Urjit Patel had, while announcing the monetary policy for 2017-18, expressed strong reservations about farm loan waivers. Such schemes affected the repayment culture and cast a severe burden on the state exchequer, Patel had said.

Supporting the RBI's reservations, Nabard also said such schemes should be designed only for the needy. "There should not be omnibus waivers," Nabard Chairman Harsh Kumar Bhanwala had told reporters after announcing its financial performance for 2016-17.

His comments followed close on the heels of Uttar Pradesh Chief Minister Yogi Adityanath’s announcement of a Rs 36,000 crore farm loan waiver package in the state. There is a clamour for similar schemes in Maharashtra, Haryana and Tamil Nadu.