Issue No: 21
Moneta
July 2017
Bank and decreases there loan
disbursing capacity leading to decline
in there profit. Dolat capitals is in
belief that provisions made against
such NPAs/farm loans should be
reversed and prove NII positive. If
Provisions are removed from farm
loan waiver then the PSU will not get
affected from farm loan waiver but if
provisions are to be made banks will
have to face a downfall. Banks getting strict with collateral for
future debt, and charging higher
interest rates to cover losses,
farmers could again approach
moneylenders, who more often than
not exploit borrowers. With some
farmers receiving loan waivers, other
farmers across states, even those
who are able to pay, are wilfully
defaulting on loans in order to get
loan waivers.
Revati Kasture, Chief General
Manager, Care Ratings said, "Micro
Finance Institutions which have been
challenged by the aftermath of
demonetization are also expected to
be at the receiving end of farm loan
waivers. MFIs have already been
facing collection delays in states like
UP,
Madhya
Pradesh
and
Maharashtra.‖ Rise in NPA can be seen for Private
bank such as HDFC Bank, country's
second largest private sector lender,
known for its asset quality, reported a
0.20 per cent jump in gross NPAs for
the June quarter which has 0.13 per
cent contribution in the fresh bad
loans was from the agriculture
sector.
Also, the loans of farmers with small
land holding were waived off by the
government. This is going to bring in
a big challenge for the State
governments. Economists believe
that the Maharashtra government’s
fiscal deficit would rise up to around
2.71% in the current financial year of
gross state domestic product. If the
state governments take the burden
on themselves and repay the loan
taken by the farmers, it will impact
the governments’ finances which in
turn will raise the state's fiscal deficit.
According to Morgan Stanley, "These
loan waivers apply only to loans by
public sector banks which in due
course will get compensated by the
respective
state
governments.
However, the concern is risk of
'moral hazard' or wilful defaults by
borrowers. However, in our view, the
impact is likely to be greater for
banks with large unsecured farm
loans and less for secured loans or
joint liability group (JLG) lending."
Views of RBI governor and SBI
Chairman have raised concerns
regarding health of Credit Discipline
and Short term view of government.
Loan waivers also end up creating a
vicious cycle of sorts for credit-
hungry farmers, as banks become
reticent to lend to the sector and with
According
to
Ambit
capital,
―Collections in tractor loans for
NBFCs in the states where the
waivers
are
announced
or
anticipated are getting delayed as
borrowers hope the waiver to be
applicable even to non-PSU bank
lenders".
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