Issue No: 21 Moneta July 2017
Farmer loan waiver has always been an important Pre poll manifesto announcement for political parties. Loan waiver has his roots attached from year 1990, it become a talking point when UPA government announced Rs. 65,000 Cr. loan waiver in 2008. Farmer loan waiver were seen as a help to farmers but it had negative implications attached to it. Recently Yogi Adityanath after coming to power in Uttar Pradesh announced farmer loan waiver for Rs. 36,000 Cr. which has resulted in a domino effect and has resulted in widespread protest in different states to give farm loan waiver. Punjab, Maharashtra, Karnataka have also followed the same path by announcing loan waiver to farmers of total worth more than Rs. 30000 Cr.
Seeing these moves taken by state the Reserve Bank of India( RBI) governor Urjit Patel has raised his concerns in his statement ― I think it( farm loan Waiver) undermines an honest credit culture, it impacts credit Discipline, it blunts incentives for future borrowers to repay, in other words, waivers engender moral hazard.‖
Similarly, Arundhati Bhattacharya chairman of State Bank of India has also voiced concern over it. ― Credit discipline breaks when you waive off farm loans. The money will come in today because the government will pay but when we will give loan in future, farmers will wait for next elections. Support to the farmers is necessary but not at the cost of credit discipline,‖ she said.
However, the question is with all these agricultural loans being waived off by state governments, whose books get a hit? Banks, Non-banking financial services( NBFCs) or Microfinance institutions( MFI)?
Dolat Capital believes that although banks own 63 % of these farm loans in Maharashtra( only 8 % with private banks), in short term, these farm loans waiver won ' t impact banks but will continue to pose threat to MFIs and NBFCs.
For conversion of loan into NPA, if no payment is received by bank in 90 days then the loan automatically turns into NPA and RBI policies mandates to make a provision on NPA, Which affects the liquidity of
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