States might not be able to bear farm-loan waivers
The Centre has said it would not share the financial burden of farm-loan waivers announced by states.
This would mean the states would be more comfortable to waive loans taken only from financial institutions within their jurisdiction, which would be state and district credit cooperative societies and primary agriculture credit societies.
Uttar Pradesh and Punjab have announced loan waivers, while Maharashtra has not despite Opposition pressure.
Loans taken from scheduled commercial banks in any given credit season comprise more than 70 per cent of farm credit availed by growers. Some experts said any state government can ask scheduled commercial banks to collect loan dues, but this has seldom happened.
It is not clear who would be asked to bear the loan waiver burden: Cooperative societies or the state exchequer?
Barring Punjab, state cooperative banks are not healthy enough in Uttar Pradesh and Maharashtra because of nonperforming assets (NPAs). But profits of cooperative banks in Punjab do not match the debtwaiver requirement. Let us look at the financial health of cooperative banks in some major states: Uttar Pradesh
The most-talked about loan waiver promise was made by the BJP government under Chief Minister Yogi Adityanath. A Cabinet meet, scheduled on Tuesday, is likely to quantify the waiver. The financial burden on the state’s exchequer, according to the available reports, could be between ~8,000 crore and over ~62,000 crore.
An analysis of the data furnished by National Bank for Agriculture and Rural Development (Nabard) by independent researchers showed gross NPAs as percentage of gross loans at UP cooperative banks fell from 6.2 per cent to 4.8 per cent from 2012 to 2015. The national average had moved from 6.9 per cent to 5 per cent in this period.
Profits of UP cooperatives rose from ~30 crore in 2012 to ~40.4 crore in 2015, a 35 per cent increase. The provisioning done by cooperatives for NPAs was not available and, hence, profitability might look higher. The cooperatives might be able to bear up to ~12 crore from their profits.
“The state cooperative banks, contrary to perception, are not in a very bad financial state in UP,” a senior official who has worked in the state and central governments told Business Standard.