If you thought retail and corporate borrowers were the ones who lined up for six-month loan moratorium under the COVID-19 relief package, you are mistaken. The agriculture and farm loan borrowers have also taken the full benefit of the moratorium.
The banks' total outstanding loans to agriculture and allied activities stand at over Rs 22 lakh crore.
While there are no industry statistics on moratorium, Bank of Baroda's moratorium figures provide a peek into the agriculture loans under moratorium. The bank's agri loan moratorium book was as high as 74 per cent at the end of June this year.
After corporate, agri loans are the second highest in terms of absolute moratorium amount for the bank. The bank's agri loans to the tune of over Rs 60,000 crore are under moratorium, only next to corporate loans of Rs 70,000 crore-plus.
The strike rate for borrowers opting for moratorium under agriculture is very high. The agri loans under moratorium in terms of value constitute over 74 per cent of the total agri loan advances of the bank, whereas the moratorium share for corporate loan is less than 30 per cent of the total corporate loans.
Experts suggest this is the pattern for other public sector banks as they all have a lesser share of retail in the books. Most of the PSBs are corporate bank with a large share of advances to agriculture because of government targets and the legacy portfolio.
The corporate and personal loan restructuring may help the borrowers to some extent, thus avoiding a default situation and NPA classification. But the high share of agri advances in the moratorium book highlights the risk of default in these loans.
Currently, no restructuring benefit is available to agri loan borrowers. The personal loans under the RBI's definition do not include agriculture loans.
In fact, the banks are already sitting on high agri NPAs. Take, for example, the SBI has seen its agriculture NPAs almost trebling over the last three years. The bank's agri portfolio, which is 10 per cent of its total advances of Rs 20 lakh crore, has seen gross NPAs rising from 5 per cent cent in 2016-17 to almost 14 per cent by September 2019. Bank of India has its agri NPA at 17 per cent and IDBI Bank at 15 per cent.
Clearly, the COVID-19 moratorium book is going to bring additional NPAs for the PSBs.
In the past, the loan waivers have actually contributed to the rise in the agri NPAs. As many as 10 states from Uttar Pradesh, Punjab, Rajasthan to Madhya Pradesh had announced loan waivers as an election promise.
"The loan waiver could be indicative of the presence of moral hazard with borrowers defaulting strategically in the anticipation of loan waiver," reasons RBI in its recent report.