Farm debt waiver hits bank credit offtake, fans informal loan channels

As bank credit falls, it makes way for informal credit through channels such as shopkeepers and large landowners

Months after Uttar Pradesh and Maharashtra announced that they would waive farm debt, Reserve Bank of India (RBI) Governor Urjit Patel had warned of the “negative side effects” of the decision such as faulty targeting of beneficiaries, incentivising wilful defaulters, and eroding credit discipline.
 
A year later, cracks in credit culture have become visible. Loans availed of by farmers for crop cultivation and allied activities have fallen short of the target set by the banks in the last two years, a Business Standard analysis of the data from respective state level bankers’ committees (SLBC) has shown.
 
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