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Banking & Economic Implications of Farm Loan Waivers

Research Article

Authors: Vijaya Kittu Manda, Satya Yamijala

Journal Name: International Journal of Research

Volume Number: 8

Publication Date: February 16, 2019

Abstract: Governments of developing and agrarian-intensive economies such as India depend on banking channels to extend farming and agriculture credit. Agricultural credit is a priority sector lending in such countries and banks have to invariably have a part of their loan book pie allocated it. Statistical trends show that some farmers who take these benefits are turning" smart" and intentionally delaying loan repayments with the expectation of a loan waiver, particularly few months ahead of the elections. They feel that their loan will get waived once the political party for which they voted comes to power. Overtime, it gets revealed that a very small number of farmers actually get the loan waiver benefit as promised. By then, the loan account balloons because of interest and penalties-too big for him to ever repay. The helpless farmer shows his inability to repay while the deficit budget-driven Governments could not reimburse. This puts banks into a difficult situation and have to mark the loans as Non-Performing Asset (NPA) s and to eventually write-offs.

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