Credit discipline breaks when you waive off farm loans: Bhattacharya

Support to farmers is necessary but not at the cost of credit discipline as people who benefit from loan waivers often expect further waivers in future, which leads to many more loans remaining unpaid, State Bank of India (SBI) chairman Arundhati Bhattacharya said on Wednesday on the sidelines of an event.

“Credit discipline breaks when you waive off farm loans. 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’s comments came a day after SBI announced a one-time settlement scheme on farm equipment and tractor loans, with the bank willing to take a 40% haircut. The scheme is applicable for loans up to ₹25 lakh. Such loans make up about ₹6,000 crore of doubtful and loss cases on the bank’s books, Mint reported on March 14. The bank from time to time announces onetime settlements for certain segments to boost recovery rate.

The BJP had promised to waive farmer loans during its campaign for the Uttar Pradesh elections. State Bank, however, specifically said its current scheme had nothing to do with any government announcement.

The previous UPA government, too, had undertaken a major farmer loan waiver ahead of the 2009 Lok Sabha elections.

A report by the Comptroller and Auditor General (CAG) in 2013 found that of the 80,229 accounts that were granted debt waiver or relief, the beneficiaries in 8.5% of the cases were not eligible for either.

“Waiving off loan is an unhealthy activity…and every time a waiver is done, it diverts access to credit and shrinks credit availability,” former Reserve Bank of India governor Raghuram Rajan had also said.

At the event, Bhattacharya also said that public sector banks (PSBs) need to think beyond the government for capital gains. “I think we need to get out of that as it is not the case anymore. The government is very clear, they will give money only if you are efficient in all that you do.”

Under the Indradhanush programme announced in 2015, the government had decided to infuse ₹70,000 crore in PSBs over four years wherein ₹25,000 crore each was to be infused in 2015-16 and 2016-17 and the remaining ₹20,000 crore equally divided in two tranches in the next two years.

“SBI is offering OTS (one-time settlement) for the past two months. This is getting highlighted this time because BJP had promised waiving farm loans by 2018. There is no connection between the two. With increasing competition, farmers will get loan at right time and at right price,” said Ashutosh Mishra, a senior analyst, Reliance Securities Ltd.