Crop loan waivers disrupt credit discipline among borrowers, says SBI chief

The Reserve Bank of India had also expressed reservation over the loan waiver scheme by various state governments.

By: ENS Economic Bureau | New Delhi | Published:March 16, 2017 2:00 am
loan waiver, farm loan waiver, crop loan waiver, SBI chairman, SBI chairman arundhati bhattacharya, state bank of india chief, SBI chief criticizes loan waiver State Bank of India Chairman Arundhati Bhattacharya in Mumbai on Wednesday. PTI

Criticising the popular practice of waiving crop loans, State Bank of India (SBI) chairman Arundhati Bhattacharya on Wednesday said that it disrupts “credit discipline” among borrowers as they expect future loans to be waived as well. Ahead of the assembly elections in Uttar Pradesh, the BJP had promised to bring in a loan waiver scheme for farmers in the state, if it’s voted to power. Speaking on the sidelines of a CII conference in Mumbai, Bhattacharya said that the bank has not received any proposal to waive of farm loans in Uttar Pradesh as yet. “As such future loans given often remain unpaid and therefore it is important for us to take when we are trying to ensure that the farmers do well,” said Bhattacharya.

“Today the loans will come back as the government will pay for it but when we disburse loans again then the farmers will wait for the next election expecting another waiver.” According to Bhattacharya, while it is important for banks to make credit available to farmers so that they can leverage and do better, it is also important to maintain a credit discipline. “For the time being we will get our money back as the government will pay for it. But farmers will keep waiting for the next election to avail the next round of waiver,” she said.

The Reserve Bank of India had also expressed reservation over the loan waiver scheme by various state governments. “Repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market,” former RBI Governor Raghuram Rajan had said. Andhra Pradesh and Telangana governments had earlier declared loan waivers for farmers hit by cyclone Phailin. Meanwhile, SBI had recently announced a one time settlement (OTS) scheme worth

Rs 6,000 crore in the tractors segment to speed up its recovery. The bank has also announced such OTS scheme in education and SME segments. “We do give OTS in respect of many loans which are outstanding for a long time and people may have had some difficulties,” she said. Bhattacharya said the recovery due to OTS scheme in these segments have been fairly good.  Bad loans of PSU banks rose by over Rs 1 lakh crore in the first nine months of current fiscal to Rs 6,06,911 crore by December 31, 2016.

Bhattacharya also blamed the governance at public sector banks for poor investor appetite for them and their resultant inability to raise cheaper funds from markets. “State-run banks cannot have a default fall-back on the government for capital…if you are looking to raise capital…the one thing that investors always talk about is the board governance,” said Bhattacharya. “I think it’s time PSBs get out of this. But now government is very clear that it will give money only if the banks are actually efficient in all they do,” she added. Out of the Rs 25,000 crore that Centre has earmarked for recapitalising its banks this fiscal, SBI alone has got over Rs 7,000 crore so far. Last year also it had received a similar amount.

Bhattacharya said SBI is planning to convert its branch operation in Paris into a representative office. “At this point Paris is a branch and so we will be probably roll it into an representative office instead of a full fledged branch. Our returns from that office are not as per the benchmarks we have set,” she said. SBI has 199 global offices which contribute 16-17 per cent to the topline and 25 per cent to the bottom line for the bank. “Each and every operation is being assessed to understand if its contribution to the bottomline is sufficient for us to justify having it,” Bhattacharya said.

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  1. A
    ashok
    Mar 16, 2017 at 2:41 am
    Sbi chairman seems to be sleeping all these days now only she realises that waving of farm loan is not good for the banks The PSB are only for that otherwise why should government be owners of the banks.Sbi chairman too late to speak and that too when she is on an extended tenure
    Reply
    1. B
      bitterhoney
      Mar 16, 2017 at 1:45 am
      Nobody, whatsoever big, should criticize Modiji's policy as Modiji's wisdom is beyond anybody's imagination. Bramha, Vishnu look dwarf in front of Modiji.
      Reply
      1. S
        stranger
        Mar 16, 2017 at 1:46 am
        this is true loan waiver not only bad but very much prone to corruption, almost always end up in benefiting the reach and powerful farmers or corrupt officials. compulsory crop insurance is the way to go. free/discounted by govt for poor farmers and additional premium for rich one. since these shahenshas anyway never pay taxes on agri income they need not complain for the additional premium meant to help marginal farms.
        Reply
        1. A
          awadh jha
          Mar 16, 2017 at 1:46 am
          The Bank managers take huge bribe upto 30% of the loan amount from the farmers on the urance that they will ultimately get loan waiver from the govt.lt;br/gt;So, there is a vicious circle. As the Bank manager takes a huge bribe, farmers do not repay the loan leading to large scale cases of suicide and the pressure for loan waivers.lt;br/gt;Farmers say this openly and the corrupt system does not take notice and the SBI chief is giving a big lession.lt;br/gt;This cancer of huge corruption by bank managers at the time of sanctioning of farm loans must be curbed, if you really want the farmer to follow the financial discipline.
          Reply
          1. J
            jj
            Mar 16, 2017 at 12:58 am
            SBI Chairperson is stating the obvious and is right. lt;br/gt;lt;br/gt;But then who is going to bail out Modi's corporate friend with public money because they provided cash for his elections??
            Reply
            1. M
              Mahender Goriganti
              Mar 16, 2017 at 12:36 am
              I agree with her argument 100%. She is right.
              Reply
              1. M
                madhu
                Mar 16, 2017 at 2:38 am
                Pl. collect from large loan defaulters like Mallaya, SC, LR, GS etc.lt;br/gt;Help to farmer who really in diificult
                Reply
                1. R
                  Rum Rotten
                  Mar 16, 2017 at 4:04 am
                  In that case Modiji's loan waiver promise to farmers was 100% wrong. So was it a Jumla?
                  Reply
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