Farm credit: UP, TN forge ahead of Maharashtra, shows RBI data

Farm credit: UP, TN forge ahead of Maharashtra, shows RBI data

by May 13, 2018

Maharashtra which used to receive the largest share of agriculture credit has been overtaken by states such as Uttar Pradesh and Tamil Nadu in fiscal 2017 despite a large number of banks being headquartered in the state. During the fiscal ended March 2017, Maharashtra, which incidentally reports a number of farmer suicides every year, accounted for outstanding farm credit of Rs 98,000 crore while Uttar Pradesh with Rs 122,000 crore and Tamil Nadu with Rs 124,100 crore of outstanding farm credit respectively overtook the largest industrialised state in the country, according to the Reserve Bank of India data.

However, ten years ago, in 2007, Maharashtra had topped with outstanding farm credit of Rs 24,400 crore against Rs 23,400 crore in UP and Rs 23,100 crore in Tamil Nadu. In other words, while farm credit in Maharashtra has gone up, other states like UP and Tamil Nadu witnessed more credit disbursals to farmers. One reason for the sluggish farm credit offtake could be the cautious approach of banks while extending farm loans in the wake of rising non-performing assets (NPAs) and farm loan waivers in many states. RBI Governor Urjit Patel had termed farm loan waivers as a “moral hazard” which “undermines an honest credit culture”.

Maharashtra also witnessed a deceleration in incremental rise in farm credit. The incremental rise in farm credit in the state was Rs 11,000 crore in 2017, down from Rs 12,200 crore in 2016, RBI data has revealed. UP registered a Rs 14,600 crore incremental rise in farm credit in 2017. The fall has happened despite nine leading commercial banks, including the largest Indian bank — State Bank of India — being headquartered in Maharashtra with 12,392 distribution offices across the state.

In fact, agricultural credit across the country grew at its slowest pace since financial year 2011. Farm credit grew at just 3.8 per cent in 2017-18 as compared to 12.4 per cent in the previous year. While farm loan waivers announced by some states, including Uttar Pradesh, Punjab, Rajasthan and Maharashtra, led to a fall in the outstanding loan amount to the agriculture sector, the government had fixed a higher target for agriculture credit. Normally, when a state announces a loan waiver, banks are compensated for the amount of the waiver. When waivers were announced, even farmers who were prompt in repayments started defaulting to take advantage of the waiver scheme.

The farm debt waivers announced by five states together are likely to widen the combined fiscal deficit of states by Rs 107,700 crore (0.65 per cent of GDP). This is marginally lower than the impact of UDAY scheme on the combined fiscal deficit of the states in FY16 and FY17. While the farm debt waivers announced by Uttar Pradesh and Punjab are part of their respective FY18 budgets, waivers announced by Maharashtra, Rajasthan and Karnataka are outside their FY18 state budgets. Thus, these states will have to either generate additional resources to fund farm debt waivers or cut FY18 budgeted expenditure, India Ratings said in a report.

Andhra Pradesh and Telangana, which announced a farm debt waiver of Rs 43,000 crore and Rs 17,000 crore respectively in 2014, however have adopted a staggered payment mechanism. They rolled over the announced farm debt waivers over four years with the last installment due in FY18.

Source – IE

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