Loan waiver hopes prompt farmers to stop repayment across states; lenders' balance sheets to worsen further: Report

Lenders’ worst fears are coming true. After various state governments announced plans to waive off agriculture loans, farmers across the country have stopped repaying their debt, according to a report in The Times of India. As of now, Andhra Pradesh, Telengana, Uttar Pradesh and Maharashtra have announced waivers. With farm loan waiver becoming a key political plank to win elections, farmers in states that are going for elections this year are hopeful that they also will get the benefit. This is prompting them to stop repaying loans, even though they are financially better placed. “If I expect someone to write me a cheque of Rs 1 lakh to take over my loan, I am going to stop repaying. This is what is happening in many states,“ a CEO of a bank has been quoted as saying in the report. Last month, PTI reported recovery of farm loans in Punjab has been adversely hit with growers awaiting the implementation of the debt waiver scheme promised by the Congress-led state government. [caption id=“attachment_884597” align=“alignleft” width=“380”]  Reuters[/caption] With about 30 percent farmers’ accounts turning “irregular” in the state, banks had urged the state government to take a quick decision on the matter in order to clear the situation of “uncertainty”. “The loan recovery of rabi season has dropped because farmers are waiting for the debt waiver scheme,” Punjab State Level Bankers Committee (SLBC) Convener and Punjab National Bank General Manager (Punjab) P S Chauhan had told PTI. Whenever political parties have used farm loan waiver to win votes, bankers have seen this happening. Economists and agriculture experts have always warned that such waivers help politicians meet their narrow political ends but are no solution to the recurring problems in the farm sector. Such waivers only destroy the credit culture of the farmers, prompting them to stop repayment, even if they are in a position to. With Uttar Pradesh leading the way, it looks like all states will now be forced to take the populist route to avoid an agitation by farmers. It has to be remembered this is happening at a time when public sector banks are struggling with huge bad loans. Banks’ farm loans stand at more than Rs 10 lakh crore.