The Andhra Pradesh and Telangana Governments are planning to waive loans worth Rs.1 lakh crore. This is possibly the biggest loan waiver ever, say bankers.
The Telugu Desam Party (TDP) came back to power after a gap of 10 years on the promise of waiving loans worth Rs.82,000 crore taken by farmers and Self Help Groups.
The Telangana Rashtra Samithi (TRS), set to form the first Government in Telangana, had too promised to waive farmers’ loans up to Rs.1 lakh, totalling to about Rs.20, 000 crore.
Apart from farmers and members of self-help groups, banks are also are happy with the measure. With increasing bad loans, the loan waiver comes as a relief to banks, as they will be reimbursed.
As of January 1, 2014, the percentage of NPAs to total loans outstanding under MSE, agriculture and SHG lending were 5.08 per cent, 5.36 per cent and 3.44 per cent, respectively.
“In a way it is good for banks because they can recover complete dues,” said CVR Rajendran, CMD of Andhra Bank and President of the State Level Bankers’ Committee.
In general, banks are paid the entire amount by the state government, which is unlikely in the case of Andhra Pradesh.
“There is also an option of paying to banks in the form of Government bonds or other appropriate instruments,” he added.
CR Sasikumar, Head of State Bank of India is of the same mind that the waiver will give banks “some certainty” on recovery. “There are also certain moral hazards and issues in this whole process. But from the recovery point it is good,’’ he said.
However the process will be a challenge for Andhra Pradesh, which is starting with a deficit. Telangana is more comfortable given its surplus budget and quite lower payout. The Chief Ministers-designate of the two States have already begun work on the waiver.