Mumbai, March 23, 2017

The Reserve Bank of India is concerned around blanket farm-loan waivers, as they undermine credit discipline among borrowers, said SS Mundra, a Deputy Governor of the apex bank.

This observation comes in the context of the poll promise of the BJP to waive farm loans in Uttar Pradesh if it won, the opposition in Maharashtra piling pressure on the BJP-Sena government to forgive farm loans, and the newly-elected Congress government in Punjab seeking a loan waiver from the Centre.

Speaking on the sidelines of an event organised by a private bank, Mundra underscored that traditionally, the central bank has been concerned over farm-loan waivers due to the adverse impact on credit discipline.

Closer look needed

He elaborated that it is important to consider whether the farm-loan waiver was case-specific or whether it was circumstance-specific. “That is how it should be looked at,” he said.

A few days ago State Bank of India chief Arundhati Bhattacharya, too, had voiced concern about farm loan waivers.

According to a recent SBI report, the total outstanding credit (2016) for the agriculture sector is Rs.8,6241.20 crore in Uttar Pradesh, with an average ticket size of Rs.1.34 lakh.

“According to RBI data (2012), 31 per cent of the direct agriculture finance went to marginal and small farmers (landholdings up to 2.5 acres). Taking this as a proxy for Uttar Pradesh as well, approximately Rs.27,419.70 crore will have to be waived off in case a loan-waiver scheme is implemented for small and marginal farmers,” it said.

The report assessed that the UP government’s total revenue for FY17 was Rs.3,40,255.24 crore, in revised estimates. Thus, waiving off Rs.27,419.70 crore amounted to forgoing approximately 8 per cent of total revenue.

[The Hindu Business Line]