Rajan rules out loan waivers in AP, Telangana

Andhra Pradesh Chief Minister N Chandrababu Naidu has proposed a waiver of farm loans.

By: ENS Economic Bureau | Mumbai | Updated: August 6, 2014 9:05 am

RBI Governor Raghuram Rajan has virtually ruled out a farm loan waivers in the states of Andhra Pradesh and Telangana.

“There’s a master circular from the RBI which says agricultural crop loan in a region can be waived if there’s a crop loan failure of 50 per cent or more in a catastrophe. But this is voluntary for banks. These cannot be treated as NPAs,” he said. According to Rajan, this is activated when the district collector certifies that there was over 50 per cent crop failure in the region. “No such emergency was declared in Andhra Pradesh or Telangana. Looking at the numbers, this 50 per cent criteria was not met in the case of these two states. We have full harvest,” the RBI Governor said, expressing the central bank’s discomfort in extending a farm loan waiver.

Andhra Pradesh Chief Minister N Chandrababu Naidu had proposed a waiver of farm loans before the general elections earlier this year. Telangana is also planning a similar waiver. The total loan waiver, if implemented, could be in the region of Rs 80,000 crore — Rs 1,20,000 crore.

The Indian Banks Association (IBA), the apex body of banks in India, has written a letter to the finance ministry opposing the proposed loan waiver schemes in Andhra Pradesh and Telangana. Such schemes will impact the loan repayment culture in the country and will prompt borrowers to default on repayments, the IBA said.

“The problem is that such waiver schemes will create more defaulters in the banking system. There will be demand from more states which are going to the polls. Banks are against such schemes,” an IBA official had told The Indian Express recently. Maharashtra and Haryana are going to the polls later this year. “If you waive off the loans of defaulters, that’s an invitation for more defaults. Borrowers will stop repayments, expecting a loan waiver at a later stage. This will impact the repayment culture and credit discipline,” he said. Although some bankers earlier individually opposed loan waivers, the IBA has now taken up the issue on behalf of the entire banking sector.

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