HYDERABAD: States, which recently announced farm loan waivers, will likely see a reduction in capital expenditure (capex) worth Rs 78,453 crore, if incremental revenue measures aren’t put in place, according to SBI Research.
Moreover, if bank lending restrictions and NPA recognition norms are relaxed for farm loan borrowers, banks could avoid Rs 37,000 crore worth loans from turning bad.
As per SBI Research’s estimate, states like Madhya Pradesh, Rajasthan, Assam, Chhattisgarh and Karnataka will have to cumulatively cut Rs 78,453 crore worth capex, if incremental revenue measures aren’t announced. It’s because of the lack of limited fiscal space available to states to raise more from market borrowings, forcing states to cut back on capex.
The anticipated reduction could also be spread over years and hence, the settlement could also be delayed.
“This will only imply stuttering of credit flow as the relevant account will not be eligible for new loans. This will also imply farmers accessing informal sector for loans and hence higher indebtedness and maybe another round of loan waivers,” said Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
Considering eight more states election-bound, chances of farm loan waivers aren’t ruled out.
These states can either borrow from the market or reduce capital expenditure, though both options provide relief in short-term, but impact the long-term health of the economy.
States like Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Telangana, Odisha, Uttarakhand, Jammu and Kashmir and Goa have extra room for additional market borrowing of Rs 35,774 crore in FY19.
As per current norms, farm loan borrowers have to repay total outstanding (principal and interest) to seek fresh loans unlike others who are entitled for renewals and enhancements. It would benefit both bankers and farmers if the latter is given a top-up, which may be linked to the annual crop cycle.
“If we align the NPA classification norms for KCC and crop loans for agri at par with other segments, we can save as much as Rs 37,000 crore on being classified as NPAs. It would not only help the farmers, but would also help the banks in saving capital on account of provisions made towards these otherwise avoidable NPAs,” Ghosh said.