PSB Agriculture Loan GNPA Increases at Alarming Rate

The recent report from RBI estimated that the Gross Non-Performing Assets (GNPAs) for Public Sector Banks (PSBs) in the agriculture sector has exceeded Rs 1 lakh crore mark. The report suggested a 30% rise in the agronomic sector’s GNPA in the last two years. Further, the GNPA in PSBs was at Rs 1.04 lakh crore in July 2019 against Rs 9.42 lakh crore total credit.

Reasons for the Decline in Credit Culture

In the report, initially, bankers suspected the general elections of the country. Besides, it blamed the alarming issue on the expectation of a debt waiver.

RBI Assessing Agricultural Credit

In September, RBI released a report conducted by an internal working group on agricultural credit. The review noted a significant rise in agricultural loan waivers during 2014-19. This outpouring in loan waivers is motivated by state governments, and ten states have taken part in loan waivers aggregating Rs 2.4 lakh crore. The states the announced farm loan relaxations were Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh (Rs. 36,400 crores), Maharashtra (Rs. 30,500 crores), Karnataka (Rs 8000 crore), Punjab (10,000 crores).

RBI Connecting Loan Waivers Scheme to Rise in NPA

RBI further noticed that loan waivers state has observed a rise in NPA (Non- Performing Assets), while the rest of the states showed no signs of increase or changes. The loan waivers allowed a part of the loan to be outside which in turns the loans into bad debts. Thus, paving the way for an exceptionally high rise in NPA. Consequentially, the state reduces its expenditure in agricultural sectors, hence bank lending fresh loans. Finally, the RBI report concluded by advising the reduction of loan waivers.

Measures to Reduce the Alarming Rise of NPA

Considering the current scenario of over 90% are crop loans in agricultural sectors and a minute share goes to allied sectors. Thereby, banks must consider loaning to other sectors.

Following this, the reports suggested replacing interest subvention with Direct Benefit Transfer (DBT) to targeted recipients.

Finally, a collateral must be held against the loans distributed would provide security.

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