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Bankers are concerned that the decision to delay loan recovery by one year for farmers might result in clamour for waiver later. They fear it will increase non-performing assets of banks, as the waiver would ruin the payment behaviour of customers.
Officials of public sector banks said the government has so far asked only to stop recoveries for one year. If true, it would adversely impact the asset quality, which is already under intense pressure due to slowdown.
The relief and help to those hit by unseasonal rains and hailstorm is essential. But across-the-board relief is no solution, as it will hit the recovery because those in position to pay also take benefit. It would lead to higher incidence of delinquency, said a senior State Bank of India executive.
The Reserve Bank of India (RBI) has already made its reservation known on debt wavier. RBI Governor Raghuram Rajan has said such schemes launched for growers actually “impeded” the credit growth in the system and disrupted the credit culture.
A head of rural lending with Mumbai-based state-owned bank explained that the one-year moratorium on principal and interest payment is standard norm for farm loans, which are restructured. The crop loans to affected farmers are converted into medium-term loans (three to seven years).
The repayment schedule is decided keeping in mind payment track record and income generation. Besides, converting short-term loans into medium-term advances, farmer is given fresh crop loan for current season, he said.
Union Agriculture Minister Radha Mohan Singh had on Monday announced that the government had deferred farm loan recovery for one year, due to crop damage. He was replying to a discussion in the Rajya Sabha on the agrarian crisis and farmer suicides.
Untimely rain and hailstorm had affected 18.9 million hectares of crop area. Uttar Pradesh, in its report on April 16, said 2.9 million hectares were affected but later corrected to 9.5 million hectares.
Senior State bank of India executive said it is a vicious circle. The decision about waiver is a political one but it is the banks and exchequer which suffer in the long term.
In 2013, Comptroller and Auditor General of India report pointed out irregularities in the Rs 71,680-crore agricultural debt waiver and debt relief scheme of 2008. It had flagged administrative and accounting lapses as well as pointed out cases where ineligible accounts were extended benefits. Later, RBI told banks to deal with such cases sternly, make recoveries to ensure there was no loss to the exchequer.
