Bad debts on farm loans pile up

NEW DELHI: The government has enhanced credit to the agriculture sector by Rs 1 lakh crore in the Budget but the pressure to meet the target has been showing on the bottom lines. All government banks are reporting an increase in their bad debts on farms loans ranging between 80% and 2000% in the first nine months of 2010-11.

State Bank of Bikaner and Jaipur reported the highest increase in non-performing assets (NPAs) on agriculture loans at 2,000% in April-December 2010. In the last fiscal, ending March 2010, the bank had reported NPAs in farm loans category to the tune of Rs 7 crore. It has now gone up to Rs 106 crore.

The total lending by all public sector banks till December 2010 stood at Rs 2,94,000 crore. The net NPAs of these banks in this period increased by 70% compared to 46% in 2009-10.

The country's largest bank, SBI, reported bad farm loans of around Rs 3,717 crore, highest by any bank in the first nine months of 2010-11. The increase in SBI's bad loans has gone up by 80% compared to the bank's total farm loan NPAs in the previous fiscal, according to finance ministry data. In 2009-10 , SBI's agriculture NPAs were Rs 2,322 crore.
Andhra Bank reported a 168% rise in NPA while in case of Allahabad Bank, it was more than 157% and for Corporation Bank, it was 205%. Bad farm loans of Bank of India increased by 100% in the current fiscal till December 2010.
In the 2011-12 Budget, the government enhanced agriculture credit limit to Rs 4,75,000 crore from Rs 3,75,000 crore in the previous year. Banks have been asked to step up direct lending for agriculture and credit to small and marginal farmers with an aim to increase productivity.

Considering that the banks face pressure from the government to meet the credit target within the financial year, the high level of NPAs indicate that there could be some compromise in due diligence.

Asimilar problem that had occurred a few years ago, impacting banks' credit lending and reserves, had to be compensated by the government by recapitalization and reimbursement through a farm loan waiver scheme. The government announced a Rs 70,000 crore farm loan waiver scheme in 2008-09 to compensate banks.