Loan waiver: State-run banks, cooperatives to bear burden

Amid a worsening outlook for the state’s economy, the Maharashtra government has decided to compensate the banks for writing off the loans of farmers, in three or four annual installments.

Written by Sandeep Ashar | Mumbai | Published: June 28, 2017 2:56 am

PUBLIC SECTOR banks and banking cooperatives are set to bear the burden of the Maharashtra government’s Rs 34,000-crore farm loan waiver scheme.

Amid a worsening outlook for the state’s economy, the Maharashtra government has decided to compensate the banks for writing off the loans of farmers, in three or four annual installments.

The move, which is on the lines of debt-relief schedules announced in Andhra Pradesh or Telangana, will significantly bring down the annual burden on the state’s treasury.

Maharashtra’s public debt stock for 2017-18 was estimated at Rs 4.13 lakh crore. This was before Chief Minister Devendra Fadnavis announced the farm loan waiver. The worsening of the revenue and fiscal deficit in the last fiscal and the inability to raise sufficient funds for capital investment in the public sector were also worrying the government’s managers while cutting out the final structure of the waiver.

To avoid a further deepening of the economic crisis, senior government sources said the state’s cabinet has decided to compensate the banks participating in the loan waiver scheme on annual installment basis. “The plan is to make the payments in three or four installments,” a senior source said.

On June 24, Fadnavis had declared that the total debt waiver would amount to Rs 34,000 crore. But the government’s finance managers are still hoping that the various caveats, introduced to ensure that only the bonafide and needy farmers derive the benefit, would bring down the overall burden.

The state-run banks and banking cooperatives are already sitting on stressed assets in the form of bad or restructured loans, said sources. Incidentally, in the case of Andhra Pradesh and Telangana debt waivers, the Reserve Bank of India had directed the government to reimburse the lending bank in cash (and not issue bonds).

Maharashtra’s debt servicing bill and contingent liabilities will also rise on account of the move. In his budget speech, Finance Minister Sudhir Mungantiwar had earlier estimated Maharashtra’s debt servicing bill for 2017-18 at Rs 31,027 crore or 13 per cent of revenue receipts. This is now expected to rise further. According to norms of the 14th Finance Commission, it is necessary to maintain the percentage of interest on government borrowings within 10% of total revenue receipts. Besides this, the debt repayment bill was estimated previously at Rs 15358 crore at the start of the year.

Sources further said that the chief minister had directed officials to evolve a fool proof mechanism to ensure that dubious farm loans claims aren’t entertained. Maharashtra’s previous debt waiver scheme in 2008 had witnessed a surge in such bogus cases and claims, sources said. “We’ve undertaken the process of identifying the beneficiaries and their outstanding loan amounts,” a senior BJP minister said. While the chief minister has directed officials to come up with proposals for mobilising additional revenues, a senior finance department official said that there were limited options in this regard. While Mungantiwar has suggested the land securitisation and higher premium on building rights as options for mopping up more revenues, the construction sector itself is witnessing a slowdown. Raising loans on cash deposits lying idle with various state-run corporations is being explored. Also being considered is a proposal for imposition of a 30 per cent cut in release of budgetary funds. Such a move will impact the spend on development expenditure the most.

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