Banks may take legal route to end governments' loan waiver programmes for farmers -Economic Times
MUMBAI: Indian banks, already carrying the burden of bad loans from infrastructure lending and economic slowdown, are looking to legally end governments' loan waiver programmes for farmers as it breeds a culture of nonpayment and distorts the financial sector.
A number of banks plan to approach the courts against the Andhra Pradesh government's waiver of farm loans aggregating Rs 54,000 crore, the biggest by a state. The issue is likely to figure prominently in a meeting on Monday with Finance Minister Arun Jaitley.
Banks may also insist upon mandatory insurance for all farm loans as a protection against future loan waivers, though this may raise the cost of funds for the agriculture sector as a whole.
The Indian Banks' Association, the industry lobby group, has sounded out both the Reserve Bank of India and the Union government about the hazards of a waiver, said two people familiar with the development. They said that no final decision has been taken on the proposed legal action and banks were still evaluating their options.
"Why can't financial support be given in a way that it improves the productivity of farmers," says MV Tanksale, chief executive officer at the Indian Banks' Association and former chairman of Central Bank of IndiaBSE 0.53 %. "As it is in natural calamities, banks have an in-built scheme in place where all short-term loans are converted into long term so that farmers do not suffer."
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