Bankers have requested the Union finance ministry to convince the Andhra Pradesh government to drop its proposed farm loan waiver scheme, at a time when a rise in loans turning bad is eroding the profitability of lenders, especially state-run ones.
Telugu Desam Party chief Chandrababu Naidu, who is to take the oath of office as chief minister of Andhra Pradesh on Monday, will reportedly be signing on a file proposing a Rs 54,000-crore farm loan waiver. The amount could rise to Rs 60,000 crore if the state government also waives loans taken by mortgaging gold, as proposed.
Banks have taken up the issue with the financial services secretary. “We’ve (also) told the banking secretary that such a measure at this point will vitiate the (loan) recovery environment,” said a senior banker with direct knowledge of the matter. “We have said the proposed step should be properly examined. The Andhra government should look at alternative ways to support farmers.”
The problem for them is that Naidu’s TDP is part of the ruling Bharatiya Janata Party-led National Democratic Alliance, which has formed a government at the Centre after a landslide victory.
The state government has already met bankers to discuss the modalities. The banks also doubt the ability of the state government to waive such a big amount, as the latter’s finances are not in good shape. Bankers have demanded reimbursement in cash as the first option. If that is not possible, to issue bonds having statutory liquidity ratio status.
K Chandrasekhar Rao, chief minister of the new state of Telangana, has also planned a farm loan waiver scheme but of a lower magnitude. Telangana plans to waive farm loans availed after June 1 last year and up to Rs 1 lakh, and will not waive gold loans. The burden to the state government will be about Rs 12,000 crore and will benefit 2.3 million farmers.
The Congress-led United Progressive Alliance which ruled the country from 2004 till the NDA victory, had announced a similar farm loan waiver scheme before the general elections of 2009, which saw the UPA back in power with a greater seat share. The Union Budget for 2008-09 announced an Agricultural Debt Waiver and Debt Relief Scheme, which cost the exchequer Rs 52,000 crore.
Bankers have always rapped such schemes, for discouraging borrowers who pay their dues on time.