These States Are Most At Risk Of Possible Farm Loan Waivers
States which go to polls in next 5 years are particularly at risk of loan waivers: Nomura
The risk of default on India’s Rs 9.5 lakh crore agricultural debt is rising as debt waivers by two major states triggers demand for similar relief in other states, putting pressure especially on poll-bound states, according to broking firm Nomura.
Two-thirds of India’s agricultural debt is concentrated in states where a debt waiver has already been announced or promised, and states that will go to the polls in the next two years, Nomura analysts wrote in a report on Tuesday.
Thirteen states including Punjab, Tamil Nadu, Karnataka, Gujarat, Madhya Pradesh and Haryana, which will go to polls in the next five years, are particularly susceptible, the report added.
Such waivers, according to the brokerage, "sets the wrong precedent for future servicing, and impacts credit behaviour in other states”.
Increasing expectation of a debt waiver could possibly lead to worsening of debt servicing in states where a debt waiver package has not been announced.Nomura Report
Uttar Pradesh, India’s most populous state and Maharashtra announced waivers of Rs 36,500 crore and Rs 30,000 crore, respectively. Telengana announced a Rs 17,000 crore waiver for loans under Rs 1 lakh for more than 36 lakh farmers. Andhra Pradesh waived loans worth Rs 22,000 crore for 49 lakh farmers. Tamil Nadu, which announced a waiver for co-operative banks is under pressure to waive off loans due to nationalised banks as well.
Now farmers in Madhya Pradesh and Punjab are agitating to seek relief from agricultural debt.
Historically, increase in loan waivers have resulted in deteriorating credit behaviour, Nomura said. As an example, it cited the Rs 65,000 crore farm loan waiver by the Congress-led government in 2008. Despite the waiver, bad loans rose to the same levels within just two years, indicating worsening credit behaviour, data provided by the broking house showed.
Also Read: Farmer Protest Turns Ugly In Madhya Pradesh
Risk To PSU Banks
Public sector banks and rural banks together hold more than 85 percent of the total agricultural debt of India. Their exposure to unsecured loans may be more than 85 percent, said Nomura.
India's banking system is already under stress with public sector lendors, including State Bank of India, holding Rs 10 lakh crore of bad debt. While the intervention of the Reserve Bank of India and the government has reassured investors to an extent, forced consolidation of public sector units and farm loan waivers are still “incremental risks,” Nomura said.
