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Unable to move ahead with its much-publicised farm loan waiver, the government of Telangana too has decided to press for its reschedulement in the current year.
The state government is sending a team of officials led by chief secretary Rajiv Sharma to meet Reserve Bank of India Governor Raghuram Rajan on July 4 in this regard, government sources said on Tuesday.
Last month, the Andhra Pradesh government too had sent its officials to Mumbai for this purpose, The RBI is yet to officially convey its decision on this request.
Even with certain limitations, about Rs 19,000 crore in Telangana and close to Rs 35,000 crore in Andhra is required to fund the scheme, according to officials.
Both the ruling parties, Telugu Desam and Telangana Rashtra Samithi (TRS) promised the electorate that they would waive the farm loans if they come to power. But almost a month later, neither chief minister N Chandrababu Naidu nor chief minister K Chandrasekhara Rao had come out with a plan as to how they are going to fulfil this promise.
Caught in the crossfire are the banks whose NPAs would rise dramatically in the current quarter if the RBI does not come to their rescue. Close to Rs 10,000 crore in Andhra and around Rs 5,000 crore loans in Telangana are expected to freshly add to the NPAs from this month onwards as the short-term production loans given in April last year remained unpaid for the last 90 days, according to officials.
“This is going to be a big setback for banks because they will have to make a provisioning for the fresh NPAs that will further affect their profitability. The interest calculated so far on these loans will have to be returned now. This will further dent their performance,” a former bank official told Business Standard.
Obviously AP-based banks like Andhra Bank and State Bank of Hyderabad will be taking a major hit on account of this loan waiver mess. Andhra Bank, for instance is already suffering from high NPAs both on agriculture and corporate credit fronts and fresh NPAs may take this figure to as high as Rs 9,000 crore, according to sources.
In Andhra, almost 4 million farmers will be added to the list of defaulters if the farm loans are not rescheduled in areas that were categorised as either drought-hit or cyclone-hit. In Telangana, this number is expected to be around 3 million.
The government sources said if the RBI considered the request for rescheduling of loans in distress areas only, 20 per cent of the total loan liability would fall on government shoulders. The government was willing to reimburse that portion of the liability to the banks, they said.
Officials said RBI’s intervention had almost become imminent since the loan defaults of this scale was a problem banks cannot afford to live with. On the other hand, these farmers will not get fresh loans as the AP’s State-level Bankers' Committee (SLBC) president and Andhra Bank CMD C V R Rajendran pointed out in the meeting yesterday that the crop loan disbursements during the current season had almost come to a halt.
Sixty-75 per cent of the total agriculture loan disbursements will take place during the kharif season.
