Bankers are planning to write to the finance ministry against a proposal for waiving farm loans in Uttar Pradesh as promised by the Bharatiya Janata Party (BJP) before the polls.
The BJP, which won the state assembly elections, had promised to waive off loans of small and marginal farmers. BJP president Amit Shah, after the election results, had said the party will keep its poll promises.
According to bankers, the Indian Banks’ Association (IBA) will take up the matter with the department of financial services in the finance ministry.
The magnitude of the problem, if the scheme is implemented, can be seen from the fact that U.P. ranks third in India in terms of agricultural credit exposure, bankers said.
The state has a 9.3% market share in agricultural credit and about 45% of its total exposure is in the rural areas. Bank of Baroda is the leading bank at the state-level and its branch network is as high as the country’s largest lender State Bank of India (SBI).
Credit discipline
Arundhati Bhattacharya, chairman, SBI, said such schemes disturbs credit discipline and raises hope for more waiver by other states.
“We feel that in case of a (farm) loan waiver there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. As such future loans given often remain unpaid,” Ms. Bhattacharya said on the sidelines of an event organised by Confederation of Indian Industry.
“Today the loans will come back as the government will pay for it but when we disburse loans again then the farmers will wait for the next election expecting another waiver,” she said.
Ms. Bhattacharya, however, said the bank has not received any proposal to waive off farm loans in Uttar Pradesh. She said though it is important to support farmers but it has to be done in a way which does not disrupt credit discipline among them.
One-time settlement
She also said SBI has announced a one time settlement (OTS) scheme worth ₹6,000 crore in the tractors segment to speed up its recovery. The bank has also announced such OTS scheme in education and SME segments.
“We do give OTS in respect of many loans which are outstanding for a long time and people may have had some difficulties,” she said. Bhattacharya said the recovery due to OTS scheme in these segments have been fairly good.
In 2014, banks have raised opposition to loan waiver scheme for Andhra Pradesh and had written to the finance ministry expressing their concerns.
In 2008-09, the then government at the Centre, United Progressive Alliance announced a mega farm loan waiver scheme, which many believe was key for the UPA to return to power in the general elections held in 2009.
