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RBI expresses its reservation over loan waiver of farmers; political parties promises it

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New Delhi, Dec 31: In an environment where waiving off of agriculture loan has become more of a political issue, the Reserve Bank of India (RBI) has once again indirectly warned against this populist move. Actually the RBI warning has come on the basis of assessment and its subsequent impact made on the basis of different loan waiver schemes by the various governments in the past two years.

Last week in the annual report of the RBI for 2017-18 financial year, the negative impact of these schemes is clearly visible on the banking sector of the country. The RBI has talked about negative impacts of these populist measures of different governments.

RBI expresses its reservation over loan waiver of farmers; political parties promises it

The first and the foremost important issue is that it increases of Non-Performing Assets (NPAs) of banks. Such banks start refusing loans due to fear of NPAs. RBI data suggest that for the financial year 2016-17, an increase in the loan distribution for agriculture purposes was 12.4 per cent which had gone down to just 3.8 per cent for 2017-18. It is 5.8 per cent for the current financial year.

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The RBI has held loan waiver responsible for this slow down in loan distribution however the RBI refrained from making any observation on the reasons for it. The RBI has said that whenever political debate of loan waiver starts just before the elections, farmers stop repaying their agriculture loan.

Just before the recent Assembly elections in Madhya Pradesh, Rajasthan and Chhattisgarh, banks have complained about this issue with the Union finance ministry. The RBI has said that during the last financial year pace of giving agriculture loans have slowed down because banks find it more risky to give agriculture loans.

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During the financial year 2016-17 and 2017-18, Maharashtra waived off loan to the tune of Rs 34000 crore, Uttar Pradesh Rs 36000 crore, Punjab Rs 10000 crore and Karnataka Rs 8000 crore. Madhya Pradesh, Rajasthan and Chhattisgarh too started the process of waiving loan in December 2018 for farmers. Congress president Rahul Gandhi has already announced making loan waiver a big issue in 2019 Lok Sabha elections. There are some differences and discussion within the government over the issue of loan waiver.

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