Amid state-sponsored loan waivers, SBI proposes a one-time settlement scheme
What's the story
State Bank of India (SBI) in a bid to address its massive outstanding from agricultural loans and 'inculcate a repayment culture' among farmers is attempting to lure farmers with a one-time settlement scheme (OTS). This will be the biggest ever exercise undertaken by an Indian bank, particularly when a culture of populist loan waivers is seen throughout the country. Read on to know more.
Situation
What is the situation with loans and NPAs?
As per RBI statistics, Indian banks' loan outstanding to the agricultural sector has increased by 6.8% over the previous year. Presently, it is worth Rs. 974,300 lakh crore. Considering SBI, in June 2017, its loan outstanding to the agricultural sector was Rs. 189,100 crore, i.e., 11.76% of the bank's total advances. Of its non-performing assets, 9.5% were from agriculture, i.e. Rs. 17,988 crore.
Proposed scheme
What scheme is the SBI proposing?
SBI is proposing an OTS for non-performing agricultural loans and other unsecured loans of up to Rs. 20 lakh. A farmer with a Rs. 20 lakh loan can settle 50% of his dues, and the remaining will be waived. He can again apply for a loan in 30 days. Through this "Rinn Samadhan Programme," SBI expects to gather Rs. 1,500 crore by October 2017.
Significance
Why is this move significant?
Talking about this move, Rajnish Kumar, SBI MD said the OTS scheme is interesting for farmers as it enables them to become "eligible for a fresh loan." By getting back "at least part of the loan", SBI will ensure farmers remain within "formal credit channels." In contrast to "loan waivers," which promote a habit of loan non-repayment, the OTS urges farmers to repay loans.
Information
SBI's OTS at a time when states waive farm loans
SBI's move urging farmers towards the OTS is against the backdrop of states completely waiving farm loans. To combat farmer distress UP, Punjab, Maharashtra and Karnataka have, as a populist measure, waived Rs. 85,000 crore of short-term crop loans. Rajasthan is also planning to follow suit.