The delay in monsoons could trigger a fresh round of farm loan defaults. And public sector banks (PSBs), which have to meet an agriculture loan target of Rs 3,25,000 crore in 2009-10, are worried. Though banks have gone in for restructuring of loans, the government is keeping a close watch on the level of their non-performing assets (NPAs).
An agricultural loan turns into an NPA when the farmer does not repay installments for two consecutive crop seasons.
The issue was discussed at a recent meeting between finance minister Pranab Mukherjee and the PSB chiefs. While the NPA level is currently under control, the government fears that it could rise in the next six to 12 months, especially given the lateness of the monsoon.
Worse, the government does have not room for manoeuvre, as it has already spent Rs 60,000 crore in 2008-09 for the farm debt waiver scheme.
Along with stimulus packages and the widening fiscal deficit, the government would be required to start tightening the belt as early as possible.
However, the Reserve Bank of India in such circumstances, can come out with a special guideline to facilitating deferment in repayment so that the loan accounts are not treated as bad assets after 90 days.
“It is still too early to press the alarm bells,” a senior official at a PSB told Hindustan Times on conditions of anonymity. “A mild delay in monsoons will not have any major impact but if the monsoons fail, then it could become a serious problem as rural incomes would fall significantly. We are hopeful that rains would start in the next one week and if that happens then the pressure would ease.”
A government official on condition of anonymity said that the debt waiver scheme was a one-time settlement package and cannot be given out every year.
Mass suicide by farmers in 2005-06 and 2006-07, especially in Maharashtra and Andhra Pradesh, had brought much flak to the UPA government.