Sluggish agri lending in states with debt waiver scheme

Agriculture lending growth has come down to around 6%, from 16% last year

States which rolled out farm loan waiver schemes in the recent months are witnessing sluggish growth in rural bank lending. Agriculture accounts for more than 80 per cent of lending in rural areas.

Across the country, agriculture lending growth has come down to around 5.8 per cent on a year-on-year basis as on September 2017, as against 15.9 per cent in the same period last financial year. This is one of the steepest fall in agriculture lending by banks in the last few years.

Fall in agriculture lending is also likely to impact food grain production, which is already showing a downward trend. According to the first advance crop estimates for foodgrain production by the government, total food grain production in the country in 2017-18 is pegged at around 134.67 million tonnes- a little less than the projected figures of the first advance estimates in 2016-17 at 135.03 million tonnes.

In Maharashtra, rural lending by banks in Q2 of FY18 was around 6 per cent less compared to the same period last year, when the net amount doled out by banks stood at Rs 48,856 crore. In Uttar Pradesh, which had announced a massive farm loan waiver scheme, the rural lending had shown a meagre growth of around 2 per cent year-on-year growth at Rs 79,400 crore in the last quarter. This is in stark contrast to the 20 per cent growth the state managed to clock in the same quarter last year.

Agriculture lending is a part of priority sector lending, and if banks fail to meet the targets they need to deploy amounts equal to the shortfall in the low-yielding Rural Infrastructure Development Fund (RIDF).

In June this year, the Maharashtra government announced a debt waiver of Rs 34,000 crore for nearly 8.9 million farmers. Earlier, the Uttar Pradesh government waived loans worth Rs 36,359 crore for about 21 million farmers. This apart, Andhra Pradesh waived loans of around Rs 20,000 crore; Punjab Rs 10,000 crore; Telangana Rs 15,000 crore; and Karnataka Rs 8,000 crore.

In Karnataka, rural lending growth has come down from around 17 per cent last year to around 6 per cent this year. In Telengana, it has come down from around 20 per cent to about 3 per cent. In Andhra Pradesh, it has come down from around 16 per cent to 14 per cent, and in Rajasthan too, agri lending fell from around 16 per cent to cround 10 per cent, according to data available with the Rserve Bank of India (RBI).

"The actual non-performing assets (NPAs) in the agriculture sector is often not reflected in books as there is rampant restructuring. Now with banks going through tough times, and NPAs being on the rise due to farm loan waiver, agriculture lending has taken a hit," said an executive of a public sector bank (PSB).

According to data from the National Sample Survey Office (NSSO), between 2003 and 2013, average indebtedness of an agriculture household increased almost four folds.

The 70th round of NSSO (2013) revealed that for a monthly average income of Rs 6,426, the average debt was Rs 47,000. In 2003, the 59th round of the survey had showed that the per-family outstanding loan was Rs 12,585.

Around 8 per cent of the agricultural credit has to be given to marginal farmers but banks can choose to do it directly or indirectly. Banks usually prefer the indirect route, through microfinance institutions or non-government organisations, as this reduces the risk of default.