Farm loan waivers return: How it could impact credit culture, Pg12

Key Highlights:

• The Maharashtra government recently announced a Rs 35,000 crore farm loan waiver scheme, impacting approximately 30 lakh farmers.
• The waiver includes Rs 20,000 crore for defaulters and Rs 15,000 crore as an incentive for regular loan repayment.
• Since FY15, 10 states have announced farm loan waivers totaling Rs 2.4 lakh crore.
• The RBI has cautioned against loan waivers, citing potential damage to credit culture and state finances.

Detailed Insights:

• Farm loan waivers aim to alleviate debt, enabling productive investment, but the RBI suggests they often undermine credit discipline.
• Central and state governments have spent over Rs 3 lakh crore on farm loan waivers in the last 35 years, with only 50% of eligible farmers benefiting.
• The Agriculture and Rural Debt Relief Scheme (ARDRS) of 1990 and the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) of 2008 were nationwide initiatives.
• States' loan waivers impact budgets over 3-5 years, varying from 0.1% to 1.8% of GSDP, affecting agricultural credit growth.
• RBI reports indicate that loan waivers can lead to borrowers withholding repayments, increasing Non-Performing Assets (NPAs) in the agricultural sector.

Key Concepts Involved:

• Farm Loan Waiver: Government action that forgives the outstanding debt of farmers.
• Credit Culture: Norms and practices affecting borrowers' repayment behavior and lenders' willingness to extend credit.
• Non-Performing Assets (NPA): Loans where the borrower has not made interest or principal payments for a specified period.