The loan waiver announced by Chief Minister Chandrababu Naidu in Andhra Pradesh is getting implemented today. The CM had few days ago announced that the government has decided to waive farm loans of up to Rs 1.50 lakh per family in the state as per TDP’s poll promises. The state government has finalised the list of beneficiaries after synchronising it with Aadhaar cards and ration cards to avoid loopholes.
In an interview to CNBC-TV18, CVR Rajendran, CMD of Andhra Bank, discusses the impact of the move.
Below is the transcript of CVR Rajendran’s interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.Sumaira: Could you first take us through what is the exact quantum of exposure that you would have to this. I would imagine it would be the bulk of it and could you tell us how this would materially impact your bank?A: We had about Rs 1,079 crore of agriculture loans which were taken as non-performing assets (NPA) in the first quarter of this current year. We have provided for Rs 383 crore by way of interest reversals as well as loan provisioning. A major chunk of it will get reversed during the current year because this loan reverse waiver scheme has come. Telangana has announced loan waivers sometime back so out of the loans outstanding 73 percent of the loans where repaid and had got renewed also and remaining 27 percent we are working on Telangana.Andhra Pradesh today has announced their loan waiver and we have got Rs 5,000 crore for all the banks together and Andhra Bank got about Rs 587 crore in respect of 5.83 lakh farmers accounts. All those loan accounts up to Rs 50,000 will be fully paid so these accounts will get closed immediately and remaining amount up to Rs 1,50,000 loan amount we will get a 20 percent of it paid to the banks and remaining 80 percent is paid by way of bond to the borrowers or beneficiaries. So, with this 20 percent we have to get the remaining 80 percent from the farmers and renew the existing loan -- that is the formula.
Reema: Going ahead what will the NPA as well as the interest reversals look like for Andhra Bank in the coming quarter on the back of this development?A: Going by the Telangana experience, 73 percent of the loans are already repaid. So, if that is repeated in Andhra also, 75 percent of the loans will be repaid by December itself that is what we are expecting. Out of that 1,079 crore of agriculture NPA account during the first quarter almost Rs 700 crore will be upgraded during the current quarter and may be about Rs 250-300 crore of interest reversal as well as provision reversal will take place. Most part of remaining amount should get renewed in the next quarter that is a fourth quarter and to that extent proportionately interest reversals will take place.
Reema: Then what will the NPAs look like in the coming quarter? Give us some idea for ballpark range.A: NPA for the last quarter is 5.99 percent. We are hoping to contain it to below 5 percent during the current quarter we are working towards it.Sumaira: The farmers for whom this loan waiver is effective would they be then classified henceforth as bad borrowers in the books of the banks or would they be at some point in the future be eligible to once again source loans from these banks?A: All of them are eligible for fresh loans once they repay the old loan. That is what I was telling that in Telangana 73 percent of the farmers have repaid their original loan along with the government subsidy and they have got the new loans also sanctioned to them.
Sumaira: One of the concerns is that a lot of farmers who are even in a position to repay the loans wouldn’t now repay given that the loan waiver would become effective? A: In Andhra Pradesh, not every loan account is eligible for a loan waiver scheme. Andhra Pradesh government has announced only one loan per family which is eligible for the waiver scheme. If they have multiple loans in the family other loans have to be repaid in full by the farmers.Fortunately the harvest season is fast approaching and farmers will have money so those who are eligible for the loan waiver will get the benefit those who are not eligible for the loan waiver will repay the original loan and get the new loan sanctioned by the bank. Most of them will come forward because our historical NPA in the agriculture is less than 2 percent for Andhra Bank. So the credit culture is maintained our NPAs which are around eight percent today should come down to two percent in the agriculture segment.Reema: In the last quarter you had slippages of around Rs 1,000 crore as well as fresh restructured assets of 1,450 crore. In the December quarter will these two figures look better, slippages as well as fresh restructuring?A: It should be much lesser than the last quarter. There are some accounts which are falling into NPA during the current quarter also but the quantum is much lesser when compared to the second quarter.Reema: Any ballpark figure on slippages and fresh restructuring?A: I don’t have exact numbers but it will be way below the last quarter’s numbers.
Sumaira: Going back to the AP loan waiver in the past the State Bank of India (SBI) chief has been quoted more then once, cautioning against loan waiver schemes. In fact as recently as November the Reserve Bank of India (RBI) governor himself has been quoted as saying that repeatedly loan waivers would distort credit pricing. Would you share any of these concerns and would you be worried that this would become more the norm rather than an exception.A: All of us share the same concern. This kind of loan waivers definitely spoils the credit culture. However for this loan waiver scheme Andhra was having an excellent track record in the repayment of the loans. The loan waiver has delayed the process and many banks have lot of mounting NPAs during the current year because of the announcement of the loan waiver. So, as a banker we are always opposed to the loan waivers schemes and anyway, this loan waiver the government could arrive at a solution by paying 20 percent and making the farmers to pay the remaining amount and issuing bond to the farmers. So, for the first time a record is created the loan waiver is between the farmer and the government and nothing to do with the bank. That is a good thing that we have done during this loan waiver scheme.
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