SBI Chief Warns Against Farm Loan Waivers
Workers clean rice paddy at an Agricultural Produce Market Committee (APMC) wholesale market in Jalandhar, Punjab. (Photographer: Dhiraj Singh/Bloomberg)

SBI Chief Warns Against Farm Loan Waivers

Small and marginal farmers may need help but waiving off farm loans is not the best way to help them, said Arundhati Bhattacharya, chairman of State Bank of India. Speaking on the sidelines of a conference in Mumbai, Bhattacharya cautioned that loan waiver schemes vitiate the credit culture and make it tougher for banks to continue lending to these segments.

The debate over loan waivers has picked up after political parties, including the Bharatiya Janta Party (BJP), hinted that such schemes may be considered in the run up to the recently concluded state elections. In Maharashtra, too, the issue is being debated with opposition parties demanding that the ruling party consider a loan waiver for the state’s farmers if it is willing to offer such relief in other BJP ruled states.

Bhattacharya said that banks have not heard anything from the central government and added that this would not be the best course of action to consider.

We feel that in case of a waiver there is always a fall in credit discipline because the people that get the waiver have expectations of future waivers as well. As such, future loans given often remain unpaid.
Arundhati Bhattacharya, Chairman, State Bank of India

Credit discipline, Bhattacharya added, is important to ensure that banks continue to lend to farmers.

As on January 20, loans to the agricultural sector accounted for 13.7 percent of all outstanding loans, according to data available on the Reserve Bank of India’s website. SBI, India’s largest lender, had 8.35 percent of its loan book in the form of farm sector loans as on December 31. SBI’s non performing assets in the sector, which also includes loans towards agricultural machinery, stood at Rs 7,407 crore.

Other bankers, too, have cautioned against waivers. Rajeev Ahuja, executive director at RBL Bank said there are other ways to provide relief to the farm sector.

“Farmers can be given relief by waiving off the loans, which is in some senses, setting back the credit culture. Though the government does compensate (the banks), it’s a very long process. Or, you actually say I (the government) will provide income support or financial support to the farmers using Aadhaar,” Ahuja said.

This is not the first time such a scheme is being discussed. An Agricultural debt Waiver and Debt Relief Scheme was introduced by the United Progressive Alliance government in 2008 a year before the Lok Sabha elections. During this scheme, according to the Comptroller and Auditor General of India, farm loans worth Rs 52,000 crore were waived by the government.

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