UP to lose 8% of revenue if farm loan waiver goes ahead: SBI

“Taking this as a proxy for Uttar Pradesh as well, approximately Rs 27,419.70 crore will have to be waived off in case loan waiver scheme is implemented for the small and marginal farmers for all banks [scheduled commercial banks, cooperative banks and primary agricultural cooperative societies],” the country’s largest lender said in a report.

It stated that the UP government’s total revenue for FY17 was Rs 340,255.24 crore, according to revised estimates. Thus, the amount of Rs 27,419.70 crore to be waived off is approximately 8 percent of total revenue.

”This will definitely cause some amount of stress for the state’s fiscal arithmetic in the coming year,” read the report.

According to the Socio-Economic and Caste Census 2011, 40 percent of rural households of Uttar Pradesh are engaged in cultivation. When it comes to landholdings, 92 percent are marginal and small landholdings, according to 2010-11 Agriculture Census.

Banks are against the implementation of the loan waiver scheme as they fear this would affect the credit discipline among that segment of borrowers.

SBI Chairman Arundhati Bhattacharya recently said, “We feel that in case of a [farm] loan waiver there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. As such, future loans given often remain unpaid.”

She added that no formal proposal had come to them from the government.

A Congress leader submitted a breach of privilege notice in the Maharashtra Assembly against Bhattacharya for “insulting farmers and the House” with her remarks.

In 2009, the Congress-led United Progressive Alliance government retained power on its lucrative election promise of Rs 60,000-crore farm loan waiver scheme.

This is not the first time that such a concern has been raised by lenders. In 2014, banks had raised opposition to a loan waiver scheme in Andhra Pradesh and had written to the finance ministry expressing their concerns.

Former Reserve Bank of India (RBI) governor Raghuram Rajan had also pointed out that the “repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market”.

Incidentally, SBI last month allowed one-time settlements for its tractor and farm equipment loans that make up about Rs 6,000 crore of doubtful and losses on its books.

According to the SBI report, the new UP government has to go beyond the traditional solutions and find innovative ways of adding to its revenues.

The Yogi Adityanath administration must focus on raising farm productivity, fast track transfer of benefits to the farmers’ bank accounts, encourage multiple cropping by farmers and increase interstate price parity among other things, it said.