Loan waivers prompting willful default by farmers: report
13 June 2017
Government's intervention to bail out farmers defaulting on concessional bank loans extended to them, is prompting more farmers to stop repayments, increasing the pressure of non-performing assets on banks, says a report.
A Times of India report quoting bank officials say there is a rising trend of farmers refusing to clear loan dues, an issue that was also flagged at a meeting convened by the finance ministry on Monday.
Bankers say that in some states, the default rate has increased by up to 50 per cent in recent months. Total farm loans, however, are estimated to be only a little under Rs10,00,000 crore, an amount slightly bigger than current NPA levels of state-run banks.
While banks are yet to quantify the extent of loan delinquency by farmers, most bankers say that in some states, the default rate has increased by up to 50 per cent in recent months. "Farmers are emptying their bank accounts so that we cannot deduct the payment due from them," ToI report cited the head of a large south-based bank as saying.
Bank officials see the demand for loan waivers as the coming together of defaulters to demand relief after squandering the money taken as loans.
"If I expect someone to write me a cheque of Rs1 lakh to take over my loan, I am going to stop repaying. This is exactly what is happening in many states," the report quoted the CEO of a Mumbai-based bank as saying.
Farmers are not only resorting to willful default, but also the money is being diverted to other family members in the cities for luxurious living.
While states like Andhra, Telangana, UP and Maharashtra have announced farm loan waivers, other states, especially where polls are due, are under pressure to follow suit.
SBI chairman Arundhati Bhattacharya, too, had recently warned: "Support to farmers is necessary but not at the cost of credit discipline."
In fact, the cheap loans that farmers get are lend out on higher interest rates pocketing the margin. Many landlords who get loans at cheaper interest rates lend it to someone on higher interest rates, it was pointed out.
Some bankers, however, say it is not true to say all farm loan defaults are deliberate and that farmers are genuinely unable to repay loans due to bad produce or crop loss.
They say farmers often fall in real trouble due to severe crop loss and bad produce that make life difficult. The percentage of farm loan is also less in comparison to corporate loans, they add.