Thursday, January 28, 2021
Home News Reports Economists give a thumbs down to 'farm loan waivers', call it a threat for...

Economists give a thumbs down to ‘farm loan waivers’, call it a threat for bankers

The recent tactics of 'farm loan waiver', being endorsed by the opposition, to captivate the poor farmers to garner their votes, is doing them more harm than good

The latest enticement in the form of ‘loan waiver’ the Congress party is endowing on farmers to garner votes has been evaluated by many economists and bankers as a dangerous choice if implemented.

According to a report in the Economic Times, many economists fear that writing off loans in several states, including Madhya Pradesh, Rajasthan and Chhattisgarh, is likely to create a lending freeze for agriculture in the coming quarter as the public sector banks could anticipate a rise in non-performing assets (NPAs). Further, they feel that this may discourage banks from forwarding long-term loans to farmers.

The three states of Madhya Pradesh, Rajasthan and Chhattisgarh, where Congress has recently announced the ‘loan waiver’, has already an outstanding of almost Rs 1.47 lakh crore of agricultural loans. “If banks don’t get repayment of loans, where will fund to lend for the next cycle come from?” a banking executive, not wanting to be named, told the Economic Times. He reiterated that the states which go for loan write-offs not make an upfront payment of the total loans due to the banks.

With states like Uttar Pradesh, Maharashtra and Punjab announcing loan waiver in 2017 and the Congress-Janta Dal (Secular) coalition government in Karnataka following the same earlier this year, the total loan write off amount added up to Rs 80,000 crore so far. Now with these three states, joining the unprecedented move to underwrite a farm loan waiver, the write-off amount could rise to Rs 1.5 lakh crore, said the bank official.

Opinionating on this latest trend that is being popularized by the opposition, the United Bank of India’s managing director, Ashok Kumar Pradhan said “It is a deadly poison. It’s a wrong way of addressing the real issue.”

The possibility of many more state governments announcing such waivers is scaring bankers, who believe that even those who pay on time would be tempted to delay payments in the hope of such waivers.

“Undoubtedly, farmers’ expectations of loan waivers are going up,” said Mrutyunjay Mahapatra, managing director at Syndicate Bank. “It is not good for the country’s credit culture.”

With the suspected non-performing loans increasing sharply, soon after any debt waiver scheme for farmers is announced, as the farmers obviously, stop repayments and the delay from the state government to replenish the banks with the same, creates pressure on the lenders and tighten the flow of money.

The state government generally delays in paying the banks, as framing and processing the schemes take a lot of time and the banks generally receive fund from the government after a gap of more than four to five years. This creates pressure on the public sector banks which start feeling the cash crunch.

Further, bankers believe that if default becomes a norm, fresh lending to these farmers would be stalled because banking regulations do not allow disbursement of fresh loans to defaulters unless the loan is restructured.

The report also feared that there are threats of a rise in loan defaults spreading to other states as expectations increase for such debt waiver there, too. “This has a spiral impact on credit repayment culture. Repayments will halt these states with rising in defaults,” the official told the publication.

According to the report the ongoing farm loan waivers are likely to cost Rs 18,000 crore to the Rajasthan government and approximately Rs 35,000 crore to the Madhya Pradesh government. However, there is no unanimity in the banking industry on the amount.

HR Khan, former deputy governor of RBI and now the chairman at Bandhan Bank said, “There should be both political and technical solutions to this farm loan problem. “Farm loan waivers are only curing the symptoms. But there are structural issues. Production has increased but marketing has not. Moreover, Pradhan Mantri Fasal Bima Yojana (PMFBY) needs to be implemented in right earnest. Post-harvesting financing should be provided,” said Khan.

The NITI Aayog, too, has rejected farm loan waiver since it neither helps the state’s finances nor does it provide a long-term, sustainable solution to farmers’ distress. Such populist ‘solutions’ do not really address the fundamental issues and hurdles faced by the farmers.

The recent tactics being endorsed by the opposition, to captivate the poor farmers to garner their votes, is doing them more harm than good.

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

OpIndia Staffhttps://www.opindia.com
Staff reporter at OpIndia

 

Related Articles

Trending now

Sources claim Aroon Purie has stepped in to ‘manage’ the resignation of Rajdeep Sardesai, he may exit at a more ‘honourable’ time later

Rajdeep Sardesai may quit India Today at a later date so that his exit is not linked to controversies of this week

Speculations rife, Rajdeep Sardesai quits India Today after channel took him off air for spreading fake news

Sources claim that Rajdeep Sardesai termed his suspension and salary cut a big humiliation for him, and decieded to resign from India Today

‘You are a Dalal and a part of Godi Media’: Protestors confront Rajdeep Sardesai

A group of protestors had confronted Rajdeep Sardesai. While Sardesai tried to argue with them, they kept calling him 'Dalal' Dalal'.

‘We have no other money’, Prannoy Roy and Radhika Roy offer their NDTV shares as security in lieu of deposit against SEBI penalty

Supreme Court noted that Prannoy Roy and Radhika Roy must deposit some security against SEBI penalty, else SAT will not hear their appeal

Canadian MPs urge PM Justin Trudeau to officially condemn China’s treatment of Uyghur Muslims

Canadian MP Garnett Genuis said that Canada must recognise and respond to the Uyghur genocide in China.

Rajdeep Sardesai facing heat for peddling lies? Reports claim he is taken ‘off air’ by India Today, faces salary cut

Rajdeep Sardesai has been penalised for spreading fake news that farmer who had died in accident was shot dead by Delhi Police

Recently Popular

Speculations rife, Rajdeep Sardesai quits India Today after channel took him off air for spreading fake news

Sources claim that Rajdeep Sardesai termed his suspension and salary cut a big humiliation for him, and decieded to resign from India Today

Nude images of Thailand King’s royal mistress leaked online, rivalry with Queen suspected: Read details

The leak of the "very explicit" photos of Sineenat Wongvajirapakdi, who is fondly known as 'Koi', is believed to be a result of the bitter rivalry between her and the Queen.

Tractor rally: Rioting mob vandalised Ram Mandir and Kedarnath tableaux from Republic Day parade

Rioting mob on Tuesday not only desecrated the Red Fort and tried to kill the Delhi Police personnel but also vandalised the tableau from the Republic Day parade.

Rajdeep Sardesai lies twice, says ‘farmer’ was killed because the police shot him in the head: Here is the truth

In this way, those who had shared the fake news once would live under the false impression that it was indeed a case of police firing.

‘Flag of Khalistan is waving on Red Fort,’ ‘Historic Moment’: All Pakistan Muslim League celebrates “Black Day” for India

The All Pakistan Muslim League (APML) is celebrating the hoisting of the 'Khalistan Flag' at Red Fort on Republic Day.

Rajdeep Sardesai facing heat for peddling lies? Reports claim he is taken ‘off air’ by India Today, faces salary cut

Rajdeep Sardesai has been penalised for spreading fake news that farmer who had died in accident was shot dead by Delhi Police
- Advertisement -

 

Sources claim Aroon Purie has stepped in to ‘manage’ the resignation of Rajdeep Sardesai, he may exit at a more ‘honourable’ time later

Rajdeep Sardesai may quit India Today at a later date so that his exit is not linked to controversies of this week

News Minute publishes false information in the TRP manipulation case, corrects it after receiving legal notice from Republic TV

The News Minute had falsely said that BARC had determined TRP manipulation based on exchanges between Arnab Goswami and Partho Dasgupta

Republic TV files defamation suit against Times Now anchor Navika Kumar, sends notice to Indian Express. Details

The Republic TV petition mentions that Goswami had launched Times Now in 2006 and had taken it to the number 1 position in a year. It adds that Times Now and Kumar are now harbouring professional jealousy against Republic TV because of its success.

Speculations rife, Rajdeep Sardesai quits India Today after channel took him off air for spreading fake news

Sources claim that Rajdeep Sardesai termed his suspension and salary cut a big humiliation for him, and decieded to resign from India Today

‘Kiran ki na ka matlab?’ UP Police gets innovative while spreading awareness about consent of women

UP Police used a clip from the movie Darr, that dealt with the topic of respecting the 'no' answer of women, to spread awareness

‘You are a Dalal and a part of Godi Media’: Protestors confront Rajdeep Sardesai

A group of protestors had confronted Rajdeep Sardesai. While Sardesai tried to argue with them, they kept calling him 'Dalal' Dalal'.

‘We have no other money’, Prannoy Roy and Radhika Roy offer their NDTV shares as security in lieu of deposit against SEBI penalty

Supreme Court noted that Prannoy Roy and Radhika Roy must deposit some security against SEBI penalty, else SAT will not hear their appeal

Canadian MPs urge PM Justin Trudeau to officially condemn China’s treatment of Uyghur Muslims

Canadian MP Garnett Genuis said that Canada must recognise and respond to the Uyghur genocide in China.

Video from Punjab: Tractor runs over farm law protestors, kills 2, injures 3 others

The incident occurred near the Attari-Verka bypass in Vallah, Amritsar on 26 January.

Rajdeep Sardesai facing heat for peddling lies? Reports claim he is taken ‘off air’ by India Today, faces salary cut

Rajdeep Sardesai has been penalised for spreading fake news that farmer who had died in accident was shot dead by Delhi Police

Connect with us

245,563FansLike
496,912FollowersFollow
23,000SubscribersSubscribe