Home / Industry / Banking /  Banks will take Rs27,400 crore hit if BJP sticks to UP farm loan waiver promise: SBI

Banks will take Rs27,400 crore hit if BJP sticks to UP farm loan waiver promise: SBI

SBI’s research report has therefore suggested that instead of waivers, farmers should be brought under the Pradhan Mantri Jan Dhan Yojana so that government benefits reach them directly. Photo: ReutersPremium
SBI’s research report has therefore suggested that instead of waivers, farmers should be brought under the Pradhan Mantri Jan Dhan Yojana so that government benefits reach them directly. Photo: Reuters

If the BJP govt in Uttar Pradesh reimburses banks, the state's fiscal arithmetic will get stressed as these loans account for about 8% of its revenues, says SBI report

Mumbai: If the Bharatiya Janata Party (BJP) government in Uttar Pradesh goes ahead with its poll promise of waiving loans to small and marginal farmers, banks will have to take a hit of Rs27,419.70 crore, said a research report. That impact, of course, will be temporary, as the state government will step in to reimburse lenders. But in turn, Uttar Pradesh’s fiscal arithmetic will get stressed as these loans account for about 8% of its revenues, said the State Bank of India (SBI) report.

The BJP’s election manifestos in Uttar Pradesh and Uttarakhand and the Congress’s manifesto in Punjab have committed to write off loans of small and marginal farmers. The Congress and the Nationalist Congress Party in Maharashtra have also been demanding a loan waiver for around 3.1 million farmers in the state who owe Rs30,500 crore to the banking system.

ALSO READ | Crop-loan waiver assurance during UP polls campaign was state-specific: Venkaiah Naidu

Here’s the math according to the SBI report: Bank credit to the agriculture sector stands at Rs86,241 crore in Uttar Pradesh. Overall, in India, nearly a third of direct agriculture credit went to small and marginal farmers. Applying that measure to Uttar Pradesh works out to Rs27,419.70 crore that could get waived off.

While banks have typically been reimbursed in such cases, they have highlighted the moral hazard in loan waivers. Last week, SBI chairman Arundhati Bhattacharya had cautioned that farm loan waiver will disrupt credit discipline among borrowers.

“Money will come in today because government will pay but when we will give loan in future, farmers will wait for next elections. Support to the farmers is necessary but not at the cost of credit discipline," Bhattacharya had said.

ALSO READ | Farm loan waiver is no solution to farmers’ woes

SBI’s research report has therefore suggested that instead of waivers, farmers should be brought under the Pradhan Mantri Jan Dhan Yojana (PMJDY) so that government benefits reach them directly. “With the introduction of PMJDY, almost all the households in UP now have bank accounts, but only a small proportion of population engaged in agriculture have availed of agriculture advances from scheduled commercial banks," said the report.

For the banking industry, farm loan waivers are not unprecedented. In 2008, the Congress-led government had announced a massive Rs60,000 crore debt waiver package for small and marginal farmers. But a report by the Comptroller and Auditor General in 2013 found that of the 80,229 accounts granted debt waiver or relief, the beneficiaries in 8.5% of the cases were not eligible for either.

ABOUT THE AUTHOR

Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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