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Farmers deliberately defaulting on loans amid hopes of waiver, say bankers

India TV Business Desk New Delhi 13 Jun 2017, 14:14:56 IST
India TV Business Desk

Already reeling under the pressure of bad corporate loans piling up to lakhs of crores, banks have another issue added to their list of worries. A new trend is catching up in India’s agriculture sector wherein farmers deliberately default on their dues to financial institutions, in hopes that the government will waive their loans sooner or later.

With several state governments buckling under the political pressure to waive farm loans lately, bankers say that this growing trend adds more pressure on their performance, the Times of India reported today.  

India’s total farm loans are estimated at around Rs 10 lakh crore.

While bankers have refrained from quantifying the extent of loan defaults by farmers, they do observe that in some states, the default rate has increased by up to 50 per cent in recent months.

"Farmers are emptying their bank accounts so that we cannot deduct the payment due from them," the head of a large bank told TOI. The chief of a public sector bank headquartered in the south said that in some places loan defaulters have come together to demand relief.

Andhra, Telangana, UP and Maharashtra have announced farm loan waivers. Other states, especially where polls are due, are under pressure to follow suit.

At least two bank chairmen said they were finding it tough to get dues from Andhra Pradesh, which had waived loans of over Rs 40,000 crore after N Chandrababu Naidu won the assembly polls in 2014. Uttar Pradesh too announced a farm loan waiver of over Rs 30,000 crore soon after Yogi Adityanath was appointed CM after the BJP’s massive poll win. Recently, the Madras High Court also directed the state government to offer loan waivers to all farmers in the state.

Bankers cited in the report said that while loan waivers or relief from governments help clear their books as far as defaults are concerned, it impacts the overall payment culture badly in the long run.

The concept of loan waivers has faced criticism from the RBI as well as bankers including SBI chairman Arundhati Bhattacharya, who had recently warned: "Support to farmers is necessary but not at the cost of credit discipline."