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Karnataka Moves Closer To Waiving All Farm Loans Up To Rs 1 Lakh

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The Bharatiya Janata Party-led Karnataka government today said that it has started discussions with banks to waive farm loans up to Rs 1 lakh, making good on a promise made by the party during its election campaign.

We are in talks with banks to provide farm loan waiver of Rs 1 lakh, Chief Minister BS Yeddyurappa said at a briefing on Thursday morning. The plan would be finalised within 24 hours, he added. The state’s chief secretary has been asked to submit a report by tomorrow on the matter.

According to a report by Kotak Institutional Equities, Karnataka accounts for 8 percent of all agricultural loans in India. The total outstanding agricultural loans across all banks in Karnataka stood at Rs 1.2 lakh crore, according to the report dated May 6. Of this, public sector banks and cooperative banks account for about Rs 81,000 crore. Not all these loans would be waiver but only those up to Rs 1 lakh.

Exposure To Karnataka

Nationalised banks account for more than half of the agricultural loans disbursed in the state, while State Bank of India accounted for 17.3 percent as of 2017. Private sector banks accounted for 15.5 percent of total agricultural loans in the state.

Gross non performing loans in this book have been gradually rising over the past few years for all banks, the brokerage house noted in its report. “Public banks have 15 percent non performing loans in this book while private banks are at 3 percent. These issues take time to settle as we have seen in states like Maharashtra and UP where such waivers have been announced in the past,” the Kotak report had noted.

Kotak also cautioned that microfinance institutions and small finance banks that operate in the region could take a hit, even though they are not directly part of the loan waiver. In Karnataka’s case, Ujjivan Financial Services Ltd. and Bharat Financial Inclusion Ltd. have close to 11-15 percent of their loan book in this state. “These portfolios are quite quick to deteriorate,” Kotak said.

Also Read: Karnataka May Add To Rs 88,000 Crore In State Farm Loan Waivers Already Announced

Growing List Of State Loan Waivers

The Centre has stayed away from a nationwide farm loan waiver like the one announced by the United Progressive Alliance in 2008, as part of which Rs 60,000 crore in farm loans were waived. But the amount of loans waived by individual states has already overtaken that amount.

Over the past twelve months or so, six states have announced loan waivers. This includes Maharashtra, Uttar Pradesh, Punjab, Tamil Nadu, Andhra Pradesh and Telangana. Total loans waived stand at over Rs 88,000 crore.

Karnataka’s loan waiver only adds to this rising tally of loan waivers, despite repeated warnings from policy makers including the central bank.

Also Read: In Charts: Farm Loan Waivers May Destabilise State Finances, Hurt Capex

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. Read more on Karnataka 2018 by BloombergQuint.