RBI Shocker to Chandrababu on Farm Loans

RBI’s fresh missive sent to the CS puts Naidu in an awkward position on loan waiver

Published: 29th July 2014 07:24 AM  |   Last Updated: 29th July 2014 08:18 AM   |  A+A-

HYDERABAD: In a development that could cause a lot of discomfiture to the AP government, the Reserve Bank of India has indicated that it cannot reschedule crop loans availed by farmers last year, leave alone waiver.

According to sources, the RBI, after going through the data relating to agriculture output during 20012-13, felt that it was good enough and did not warrant any resceduling of loans advanced by the banks. The RBI is understood to have conveyed its opinion in the form of a letter to AP government.

The development could not have come at a worse time since Chief Minister N Chandrababu Naidu is unable to arrive at satisfactory alternative to rescheduling to keep his promise of debt waiver. As the RBI has been dragging its feet in rescheduling loans, he had thought of auctioning red sanders logs and offer bonds to raise money to fund debt waiver.

The Kotaiah Committee constituted by Chandrababu Naidu, in its report submitted to him recently, recommended  a cap of Rs 1 lakh for crop loans and Rs 50,000 for gold loans.  But the state cabinet chaired by Naidu, after discussing the recommendatins, decided to offer waiver of both gold and crop loans up to Rs 1.5 lakh for each farmer family. The burden would be a whopping Rs 32,000 crore.

RBI also noted that “farmers’ distress is not the key issue” in non-repayment of loans because balances in the farmers’ savings bank accounts in rural and semi-urban areas increased.

“Data received from major banks functioning in the state revealed that before April 2014, the number of Kisan Credit Card renewals was similar to the previous year. From April 2014, however, possibly in anticipation of loan waiver, KCC renewals declined sharply,” the  RBI Executive Director said.

With RBI more or less ruling out rescheduling, Naidu would have to mobilise funds fast to fund the scheme.

‘Not necessary’

“It does not appear feasible for us to conclude that distress is widespread warranting rescheduling of loans in the form and manner in which it has been asked for,” RBI Executive Director Deepali Pant Joshi observed in a letter to CS Krishna Rao.

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