Stop it now: After RBI's Rajan, now PSU banks' heads speak up against farm loan waivers too

Andhra Pradesh and Telangana governments had declared loan waivers for the farmers hit by cyclone Phailin last year

hidden January 05, 2015 09:01:19 IST
Stop it now: After RBI's Rajan, now PSU banks' heads speak up against farm loan waivers too

Pune - To check adverse impact of farm debt waiver programmes on the banking sector, heads of the public sector banks have now joined the chorus to seek elimination of such schemes after the issue was red-flagged by RBI Governor Raghuram Rajan last month.

Last month, the RBI governor had said debt waiver schemes have constrained flow of credit to farmers.

"In some states on certain occasions we have had debt waivers. How effective these debt waivers have been? In fact the studies that we have typically show that they have been ineffective. In fact they have constrained the credit flow post waiver to the farmers," he had said.

Doing away with debt waivers schemes of the government was one of the recommendations by the bankers at 'Gyan Sangam' or Bankers' Retreat which concluded here on Saturday.

Besides, they have also sought removal of interest rate caps on agriculture loans of less Rs 3 lakh so that there is no artificial distortion in credit market.

Andhra Pradesh and Telangana governments had declared loan waivers for the farmers hit by cyclone Phailin last year.

While the Telangana government has given the mandated 25 percent of the written off loan amount to the banks, Andhra Pradesh has not done it so far.

Banks have over Rs 1.3 lakh crore exposure to the farm sector in these two states.

Stop it now After RBIs Rajan now PSU banks heads speak up against farm loan waivers too

Reuters

In 2008, the then UPA government at Centre had come out with Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) 2008 under which 3.69 crore small and marginal farmers and 60 lakh other farmers were given debt relief to the extent of Rs 52,516 crore.

Government auditor CAG had found in several cases that ineligible farmers were given benefit while deserving were left out, pointing to large-scale possibility of fraud.

Besides, top management of the bank also sought digitisation of top 30 processes including land records so that risk of frauds could be minimised.

Sensing opportunity from ambitious Digital India campaign of the government, bankers in the 2-day retreat also pitched for enabling infrastructure for Digital Banking under the campaign.

Bankers also felt the need for deepening of mobile banking penetration and creation of data and analytics for improving efficiency of the sector.

PTI

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