Farm loan nonpayment increase as banks brace for big write-offs

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According to the data from the Reserve Bank of India (RBI), in the past one year, banks have seen bad loans rise from 7 percent to 8.4 percent in their agricultural book. This ratio has never seen a downfall ever since 2011-12. This is the reason that now even banks are waiting for announcement of farm loan waivers.

These numbers clearly correspond to the increasing farm stress. As reported by the Mint, the farm wage growth is already at a three-year low. Just add the collapse in the prices of food over the past year to this list and the distress in the houses of farmers would be clearly visible. The collapse in realizations from selling produce and the trembling wages are enough for the farmers to throw their incomes and loan repayment schedules into a complete chaos. In spite of the hike in the minimum support price, revenue of farmers is falling, suggests anecdotal evidences.

Therefore, one should not be surprised with the rising delinquency rates. But what one should notice here is the fact that these rates have not climbed steeply merely in the last year when the agro related distress was at its peak. The bad loans trend show that they have been rising for around more than five years now. Another factor contributing to this rise is the fact that the share of farm loans in the total loans disbursed by the banks have remained almost constant for many years now. In FY18, the banks disbursed just 6.37 percent of the total credit they gave to the agriculture sector, which is the lowest in a decade.

This indicates that the banks are not only cautious in giving out loans to farmers, but are also not able to control the delinquencies. Much of this hesitation and failure in recovering the loan could be attributed to the concerned approach of some of the governments towards farm loan waivers. According to many analysts and policymakers, such loan waivers have a negative impact on the economy and vitiate credit culture. This is true to a large extent, if the loans that farmers take are waived off every year, then why would they even bother to pay them back?

In wake of chunky toxic assets in the corporate loans, we urgently need a provision against such bad loans as the loan waivers not only reduces the loan books of banks but also closes the paths for all potential recoveries in future.

Keeping the upcoming national elections in mind, the state governments of eight states have already announced the farm loan waivers of that add up to a massive total of ₹1.9 trillion. These kinds of steps will only make the banks more reluctant to lend to the farmers and hence would do no good to the future of the farmers.

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