Banks almost write off Andhra, Telengana loan waiver plans

Andhra Pradesh chief minister N Chandrababu Naidu's promise to write off farm loans worth over Rs1,07,000 crore in the residual state of Andhra Pradesh is turning out to be a political gimmick, with the Reserve Bank of India (RBI) refusing to grant permission to the government of the new state to issue any fresh bonds.

With overdue loans of farmers and self-help groups crossing Rs1,00,000 crore each in the residual Andhra Pradesh and Telangana, the new governments were actively considering issue of bonds to banks against loan dues from farmers and self-help groups.

However, this is not likely to happen as the RBI is unwilling to grant permission to the state governments to issue any fresh bonds for the purpose as the finances of the two states are already over-leveraged.

Despite opposition from the RBI and the Indian Banks Association, the new governments of Andhra Pradesh and Telangana, however, are determined to go ahead with their election promise of waiving off loans taken by farmers.

In a communique to the chief secretaries of the two states, RBI executive director Deepali Pant Joshi had pointed out that such gestures would damage not only the banking system and the economy, but also choke credit flow into the respective states. "The RBI does not support the farm loan waiver scheme as it would hurt the financial health of the banks while destroying the repayment system," the letter said.

In a series of meetings with Naidu, bankers have indicated that there was no way to execute the scheme in its original shape.

Also, bankers pointed to a spurt in borrowings by farmers and other rural customer over the last three years after Naidu began to talk on loan waivers as a run-up for the polls.

The number of crop loans aggregating to over Rs1,07,000 crore, far outnumber the number of farmers in Andhra Pradesh, which clearly indicates multiple loans in each farmer family instead of one loan that it is eligible.

In the case of gold loans, it was pointed out that in one instance, one family had taken a total of 13 gold loans, totalling Rs4.5 crore from a leading bank.

Naidu has now come up with an alternative plan that weeds out all ineligible farmers and limits the debt waiver applicable only to one loan per family. This would limit the state government's liability to around Rs 30,000 crore.

He also suggested issue of government passbooks to farmers with a credited amount of Rs1 lakh, which can be utilised by the farmers in a phased manner, of Rs 20,000 or Rs 25,000 per year against their expenses on fertilisers and other inputs.

However, farmers and self-help groups would have to repay their loans first to be eligible for fresh loans, which might trigger political criticism.

Restricting benefit to levels around Rs1 lakh through the issue of post-dated cheques would lower the state government's burden to manageable levels of Rs10,000 crore, it was pointed out.