Maharashtra’s Farm Loan Waiver Continues Even After Two Years

Two years after Maharashtra initiated a farm-loan waiver, the state is yet to close the scheme even as agriculture-related bad loans are rising in the state.

The local government, under the Chhatrapati Shivaji Maharaj Shetkari Sanman Yojana, has disbursed Rs 18,613 crore covering 43.91 lakh accounts, according to the latest data shared by the Department of Co-operation, Textiles and Marketing of the Maharashtra government with BloombergQuint. This department handles the farm loan waiver scheme. The state had received for 58.01 lakh applications.

While the final cut-off date to apply ended on June 15, 2018, the disbursements are still in process. Each application could have multiple bank accounts.

The scheme will continue till all the applications have been scrutinised and money is disbursed, two senior government officials aware of the details said on condition of anonymity as they are not authorised to speak to the media.

And Chief Minister Devendra Fadnavis announced in the state assembly that the government plans to widen the scope of the scheme ahead of the assembly elections.

That could make situation worse for banks already bearing the brunt. Rajnish Kumar, chairman of the State Bank of India, earlier told BloombergQuint after the first-quarter earnings that one of the reasons of increase in the gross slippage ratio of the bank is Rs 2,000 crore worth agriculture slippages due to the delay in one state.

That state, according to a senior SBI official speaking on condition of anonymity, is Maharashtra. Banks across Maharashtra are facing the problem of non-performing assets since the launch of farm loan waiver, said a senior executive at another state-owned bank on condition of anonymity. The agri sector bad loans in Maharashtra stand at 20 percent, the official said.

Maharashtra announced drought in 151 talukas and some farmers in the non-affected areas have also stopped repaying loans in the hope that they will also be covered under the farm loan waiver, the official said.

Renita D’Souza, research fellow at Observer Research Foundation, said loan waivers violate credit discipline, causing a spike in non-performing loans. “Farmers already find it difficult to raise loans through banks, now because of these waiver schemes, banks will be wary to lend money to farmers.”

In 2017, farmers were struggling to repay loans after four straight years of insufficient rainfall, causing rural distress. They also couldn’t borrow more from banks. The state decided to pardon loans of small and marginal farmers. Other states including Uttar Pradesh, Karnataka, Tamil Nadu, Chhattisgarh, Andhra Pradesh and Tamil Nadu announced similar waivers.

The Maharashtra government initially said the scheme will benefit around 89 lakh account-holding farmers and would cost up to Rs 34,000 crore. The estimate had taken into consideration long-term loans along with crop and medium-term loans. But when the scheme rolled out, it covered only crop and medium-term loans, the second official quoted earlier said.

Farmers who had borrowed money from banks between April 1, 2001 and March 31, 2016 were eligible.

So far around 43 lakh account-holding farmers have benefited, the official said. The clearance process is taking time as some accounts are pre-Aadhaar card era and sometimes the data is not fed properly by the banks, affecting the pace of rollout, he said.

The scheme offers relief in three ways:

• Waiver of up to Rs 1.5 lakh.
• One-time settlement for loans above Rs 1.5 lakh after the farmer repays the amount above the cap of Rs 1.5 lakh.
• A refund of 25 percent of the loan amount or Rs 25,000, whichever is less, to farmers who repay old loans within a stipulated time.

Of the Rs 18,613 crore disbursed, Rs 13,630 crore went to waiver, Rs 2,721 crore to incentives and Rs 2,262 crore to one-time settlement.

Still, the loan waiver scheme in the state has not been able to bring down the rural distress, according to D’Souza. Some of the main reasons for rural distress are low level of agriculture productivity and climate uncertainties, she said. Instead of waivers, the government should invest resources in revival of existing and new irrigation facilities, affordable access to agricultural inputs and equipment to mitigate monsoon dependence and other climatic uncertainties, D’Souza said. “The aim should be to make them financially robust so that they do not depend on the loans.”