The impact of farm loan waivers has started showing in bad loans accumulated at banks, such as HDFC Bank and Axis Bank
At a time when the Indian banking sector is struggling with bad loans because of the inability of over-extended companies to repay them, it seems that the agricultural sector will add to its woes. Earlier this week, private sector lender HDFC Bank Ltd reported that during the June quarter, 60% of the total increase in its gross non-performing assets was related to the agriculture sector. Axis Bank has also flagged the issue.
Recovery is being affected by farm loan waivers announced by several states. To be sure, farmers are behaving rationally as they stand to gain by defaulting at this stage.
This behaviour is likely to get more ingrained in the system, with periodic farm loan waivers affecting credit culture. It could also end up affecting the flow of credit to the sector, which could impact private investment in the medium term.
There is no doubt that the sector has genuine problems, but the question that needs to be asked is this: will farm loan waivers solve them, or will they only end up creating more problems?
Editor's Picks »
- IndiaCast partners with Thai company JKN Media for content distribution
- Copper dips on weariness over US, China trade dispute
- Retail inflation eases to 2.3%, factory output grows 8%
- Petrol now cheapest in 11 months. Check today’s petrol, diesel price
- CDC commits $25 million to Lighthouse’s third PE fund
- Escorts: Japanese joint venture to hone growth in tractors
- HCL Tech’s acquisition of IBM products raises more questions than answers
- Investors ignore NMDC’s price cuts, and worry about its Donimalai iron ore mine instead
- Steel stocks get winter chill as China demand issues resurface
- Why Uday Kotak’s defiance is scaring his bank’s investors