New Delhi: Farm loan waivers by state governments engender heated media debates and thus loom large in public consciousness, while use of government funds to infuse fresh equity into government-owned banks following large defaults by corporate borrowers goes nearly unnoticed.
This is unwarranted, the data show. The scale of the corporate non-performing assets (NPA) problem is of a higher magnitude, and corporate defaults have cost the public exchequer more than farm loan waivers. If recapitalisation of banks is welcomed, a farm loan waiver should be as acceptable.
In the financial year 2017-2018 and to date, 10 state governments have announced farm loan waivers totalling Rs 184,800 crore.
In contrast, the total debt of India’s top 10 corporate borrowers alone was nearly four times that amount, at Rs 731,000 crore as of March 2015, and of the top 12 NPAs nearly twice, at Rs 345,000 crore.
Data show that the percentage of impaired loans in agriculture has been far lower than that in industry.
Expensive for the exchequer
Total gross bank credit (the amount in loans disbursed to companies or individuals from the banking system) was Rs 71.5 lakh crore as of March 2017, and Rs 77 lakh crore as of March 2018, according to a Reserve Bank of India (RBI) report in December 2018.
Of this, agricultural credit was Rs 10 lakh crore for each period, making up a 13-14% share, on average, in overall bank credit.
Total credit to industry was at Rs 26-27 lakh crore during each period, amounting to a share of 35% in overall bank credit. Within this, loans to large borrowers–who the RBI defines as receiving loans larger than Rs 5 crore–amounted to Rs 22 lakh crore each year.
More specifically, total credit to the top 10 corporate borrowers as of March 2015 was Rs 7 lakh crore, accounting for 10-14% of total bank credit, and 27% of total credit to industry, as per a research report by international financial services company Credit Suisse.
For the same period, the total credit to agricultural and allied activities was Rs 7.7 lakh crore–the entire agriculture sector owed the banking system the same amount borrowed by the top 10 Indian corporate borrowers.
Total gross NPAs in Indian banking were Rs 8 lakh crore and Rs 10.3 lakh crore as of March 2017 and March 2018, respectively, according to RBI data.
The share in NPAs of large borrowers has been increasing over time, with a share in total advances (lending by banks) of 40%, and a share in total stressed assets (including NPAs, restructured loans and assets written-off by banks) of 70% at the end of March 2017.
Among NPAs in the banking sector, the top 12 which make up approximately 25% of total NPAs were identified and referred to the National Company Law Tribunal (for resolution and recovery) by the RBI in 2017. Of these, four have been resolved within a year with about 52% of their dues recovered. This recovery represents only 14%, or Rs 48,300 crore, of the total Rs 345,000 crore owed from all 12 NPAs. Thus, about Rs 3 lakh crore remains outstanding from just eight corporate NPAs–nearly double the total farm loan waivers announced by the 10 states.
Upon further research, we see that for a group of other large exposures (or total loans to a particular entity, for our purposes defined as higher than Rs 1,000 crore), recovery of dues has been to the extent of 30%.
The amount written off by banks for just five corporate NPAs is thus Rs 11,106 crore–more than the combined farm loan waivers in two states, Chhattisgarh and Andhra Pradesh.
Farm loans for corporate activity in farming sector and to large borrowers
While popular opinion on farm loan waivers vilifies the poor and marginal farmer, small farmers benefit the least from agricultural credit since they borrow largely from informal sources such as moneylenders.