Don’t waive more farm loans; try scrapping the APMC Act instead
Congress party leaders want a farm loan waiver in the coming Budget. The demand is irresponsible. A loan waiver is bad in principle as it impairs the lending climate and harms loan discipline. It penalises borrowers who have repaid their loans and creates a moral hazard as farmer-borrowers are likely to assume that future dues will also be written off. The UPA government waived farm loans of about Rs 60,000 crore in 2008-09, ahead of the Lok Sabha polls. It led to a rise in default rates and forced the country's largest lender, the SBIBSE 1.19 %, to temporarily stop funding farm equipment purchase.
Another waiver to dole out patronage before the 2014 polls would be a throwback to pre-reform days. Banks must have the right to restructure loans based on commercial considerations, not by government diktat. Compensating banks will also put pressure on the fiscal deficit. Credit flows to the farm sector have surged as public sector banks have to meet government-mandated lending targets. Lending to the farm sector is about 37% of the agricultural GDP. However, farm sector GDP growth has been far lower than overall GDP growth. The country has not faced a drought this year, but CSO's advance estimates have forecast GDP growth of 1.8% for the farm sector against the overall GDP growth of 5% in 2012-13. Farm productivity is lagging, but farm wages and input subsidies have risen sharply, regardless of outcomes and efficiency. This is untenable. Reform is the only answer to boost farm output and alleviate agrarian distress.
Public investment in the farm sector must be stepped up, rather than subsidies, to raise output and boost farmers' incomes. The need is to build more dams and canals and reduce the country's dependence on monsoons. Farmers should also be free to sell their produce directly, not to middlemen who corner the benefit of higher prices at urban centres. This requires scrapping or amending the Agricultural Produce Marketing Committee Act. Farm storage and transport also need a huge boost. Farmers will then be connected to the market and price cycles can be smoothened out.
Loan recast to peak next fiscal at Rs 3.12 lakh crore: CARE
MUMBAI, FEB 17:
Ratings agency Care has said loan restructuring will peak next fiscal to reach Rs 3.12 lakh crore if the latest Reserve Bank guidelines are accepted without any changes.
“If the draft RBI guidelines on restructured accounts are implemented as it is, it will prompt banks to carry out most of the restructuring in pipeline during the fourth quarter of this fiscal and through next fiscal in an attempt to upgrade fresh restructured accounts by the end of FY15 and to avoid incremental provisioning of 1.25 per cent,” Care said in a note.
The report says there will be new loan restructuring worth Rs 57,782 crore taking total recast loan book to Rs 3,12,022 crore next fiscal (2013-14).
Under the draft RBI guidelines on provisioning for standard restructured accounts, banks will be asked to set aside 3.75 per cent for each of the restructured accounts in FY14, which will increase to 5 per cent by FY15. Provisioning requirement stands at 2.75 per cent at present, which was 2 per cent till last October.
The draft norms also make it easier for banks to reclassify accounts as well as the restructured assets as standard accounts.
The report, however, says a reclassification will see the total quantum of restructured books going down as assets get reclassified and upgraded under the revised norms.
“At least 25 per cent of the outstanding restructured assets of FY12 would be upgraded instantly, while 60 per cent of the outstanding standard restructured assets of FY12 will be restructured afresh in FY13,” it said, reducing its estimates on the total recast book up to Rs 2,80,000-3,10,000 crore from its earlier estimate of up to Rs 4,00,000 crore by FY13.
Additionally, the stress on contribution from promoters, who have been asked to bring in 15 per cent of bank sacrifices or 2 per cent of debt restructured, “may temper the pace of restructuring, as only the genuine cases will be referred for restructuring during FY13-FY15,” the note said.
The draft norms on provisioning are expected to push up total provisioning by Rs 5,000-7,000 crore till FY15.
Public sector banks are expected to be hurt the most because of the new rules as they carry the maximum bad books and CDR accounts, while private sector ones, with lower sizes of restructured assets, are expected to have a “muted impact”, the report said.
Overall, the report has welcomed the guidelines saying they are a step towards integrating the country with the rest of the world.
“The RBI notification with respect to restructured assets disclosure could enable greater accounting and reporting transparency governing the asset quality of banks and financial institutions,” it added.
Bad loans of listed banks up 50% at Rs 92,398 cr
MUMBAI, FEB 18:
The bad loans of listed banks rose by 50 per cent at Rs 30,840 crore in the first nine months of the current financial year ended December 31, 2012, according to NPAsource.com, an online portal, which focuses on resolution of stressed assets.
The net non-performing assets (NPAs) of 40 listed banks rose to Rs 92,398 crore as on December 31, 2012, from Rs 61,558 crore as on March 31, 2012, the portal said.
Devendra Jain, Chairman and Managing Director, Atishya Group, owner of portal NPAsource.com said, “We believe the net NPAs of these listed banks will cross the Rs 1 lakh crore-mark as on March 31, 2013. However, it is likely that from the next financial year the NPAs in the Indian banking sector may come under control if interest rates begin to go down.”
According to the portal, “Of the 40 listed banks, 16 have reported more than a 50 per cent jump in net NPAs during these nine months. These 16 banks together accounted for more than 80 per cent or Rs 25,000 crore of incremental net NPAs.”
The net NPAs in State Bank of India, Punjab National Bank and Bank of Baroda rose by 60 per cent, 70 per cent and 118 per cent respectively. These three banks accounted for close to 47 per cent (Rs 14,500 crore) of incremental net NPAs.
“These figures show the Herculean task the banking sector faces even as the industry and regulators put in place measures to control a further increase in NPAs. Our data shows that during the October-December 2012 quarter, net NPAs of these banks rose by 9 per cent (Rs 7,400 crore),” Jain said.
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