Country's largest bank State Bank of India (SBI) has written off close to Rs 14,000 crore worth of agriculture loans over the last five years with rising non-performing assets (NPAs) in the agriculture sector raising concerns of higher write-offs in the coming years.
The gross NPAs in agri have pole-vaulted from 8.89 per cent five years ago to 13.49 per cent in September 2019.
The rising rural distress, slowdown in the economy and farm loan waivers have been contributing to rising bad loans in the agri segment. It shows quite clearly in the data for the first six months (April-Sept) of 2019-20 of gross NPAs of the bank. Gross NPAs have jumped sharply from 11.61 per cent in March 2019 to 13.49 per cent in September 2019. This could be indicative of bad loans of the banking industry that was at around 8 per cent in March 2019. Many public sector banks are likely to mirror the SBI's high level of agri bad loans in the current year.
The outstanding agri loan portfolio of the largest bank was around Rs 2.04 lakh crore as of September this year. In fact, the SBI with the largest network in semi urban and rural areas have been quite active in achieving its agri targets. Take, for instance, the target for agri loan was Rs 1.16 lakh crore in 2018-19 while the bank disbursed Rs 1.56 lakh crore during the said period.
The Reserve Bank of India (RBI), in its recent report, talked about how the agri NPA levels have gone up in all states where farm loan waivers were announced, especially in states such as Punjab, Uttar Pradesh, Maharashtra and Madhya Pradesh. The loan waivers have now become a common feature in all the states going to election. "The farm loan waiver could be indicative of the presence of moral hazard, with borrowers defaulting strategically in anticipation of loan waivers," states the RBI. The total loan waiver of close to a dozen states was Rs 2 lakh crore.
These kinds of defaults in anticipation of loan waiver impact the credit history of the borrowers and restrict his ability to borrow from the formal financial system.
Currently, agri loans are mostly crop loans. Some banks are trying to de-risk the agri portfolio by lending to agri-related industries such as dairy and poultry. Policymakers are looking at gold as collateral to guard against the rising bad loans in the segment.