Farm loan waiver: Banks refuse to cut interest on bad loans; Maharashtra govt in a bind

Sources said that the CM Devendra Fadnavis had initially requested banking institutions to permit compensation for writing off the farm loans in three to four annual installments on an interest-free basis.

Written by Sandeep Ashar | Mumbai | Published:June 30, 2017 4:56 am

While Maharashtra Chief Minister Devendra Fadnavis has announced a Rs 34,022-crore loan waiver, his government continues to be in a bind over tackling part of this waiver. Senior government sources said that state-owned banks and other rural banking institutions are hesitant to lower the interest rates for outstanding loans that have turned bad.

Of the Rs 34,022 crore outstanding crop and agriculture term loans, official data show that loans worth Rs 12,629 crore, availed by 13.88 lakh farmers, were non-performing assets as on March 9, 2017. About Rs 10,001 crore or nine per cent of all outstanding loans approved for 10.13 lakh farmers had been restructured into a medium term loan.

Banks charge an interest of 12-13 per cent for agriculture term loans. After announcing the loan waiver scheme on June 24, the Fadnavis government has been holding talks with banks on the final structure of the waiver and finding ways to minimise the burden on the state treasury.

Sources said that the CM had initially requested banking institutions to permit compensation for writing off the farm loans in three to four annual installments on an interest-free basis. But the bankers opposed waiver of interest. The government has since been requesting banks to levy a 6 per cent interest rate for repayment on installment basis.

While the bankers are willing to consider this for outstanding crop loans, they are reluctant to take a hit on the interest amount for the outstanding term loans, including the ones that have turned bad, without a special permission from the Reserve Bank of India (RBI).

The banking sector regulator has indicated in the past that it is against the idea of burdening banks for running the populist agenda of debt waivers.

When Maharashtra Finance Minister Sudhir Mungantiwar called on Union Finance Minister Arun Jaitley on Thursday, sources said a request seeking the approval of the RBI to permit the takeover of bad loans and lowering of interest rates was made.

The Congress on Thursday attacked the Fadnavis government over the issue. It accused the government of “misleading” and “making exaggerated claims” regarding the loan amount. Party leader Sachin Sawant alleged that the farmers whose loans had been restructured had been excluded from the benefit, a contention that the ruling party has denied.

With the BJP being targeted by the opposition and the Shiv Sena over the issue, the government is preparing for plan B in case the banks do not cede ground. On Wednesday, Mungantiwar also requested Jaitley to enhance the state’s borrowing limit by another Rs 15,000 crore.

The government has plans to securitise idle deposits lying with various state-run corporations. An independent finance corporation is being planned to pool in all such deposits.

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