Farm loan waivers contribute to Bandhan Bank’s rising NPAs

Agri loan waivers in Uttar Pradesh, Madhya Pradesh and Maharashtra have not only added to the stress of HDFC Bank, which has a considerable direct exposure in the sector in these states, but also to that of Bandhan Bank, which is not even directly involved.

The bank’s gross non-performing asset (NPA) rose to 0.82 per cent in the June quarter (Q1) of 2017-18, from 0.38 per cent in the preceding quarter and 0.22 per cent in Q1 of 2016-17.

Managing Director and Chief Executive Officer Chandra Shekhar Ghosh attributed payment indiscipline arising from such waivers as a primary cause for the steep rise in NPAs.

“Any loan waiver affects the loan repayment culture. People are told that you won’t have to repay the loan. That’s the general understanding when a loan waiver scheme is announced,” he said.

Over 75 per cent of the bank’s ~175-crore NPA arises from these three states. Although Bandhan Bank has refrained from direct agricultural loans, most of its disbursements in these three states are towards the allied-agro sector like vegetable cultivation and fisheries, among others. “However, we have done a one per cent provisioning, while the Reserve Bank of India had asked us for a 0.4 per cent,” he said. To add to Ghosh’s concern, the ongoing political showdown in Darjeeling is poised to further gross NPAs in the coming quarters.

Its loan disbursement in the Darjeeling-Sikkim belt, which is mainly micro-credit, is worth ~20-25 crore. Owing to the ongoing shutdown in the area, the bank’s collection agents from 10-11 centres are unable to collect repayments.